ESG in social housing could put good homes at heart of Covid recovery

Covid-19 has put the UK's housing crisis into sharp focus. TGE CEO Sarah Forster explains how a pioneering collaboration of investors and housing associations could help unlock the investment necessary to tackle this entrenched and deadly issue

The Covid-19 pandemic has seen the social housing sector demonstrate the breadth of its value to local communities, by mobilising quickly and efficiently to support thousands of vulnerable people in a myriad of ways at a time of unprecedented need.

Data released last week by the Office of National Statistics give a shrill warning about why, more than ever, there is an acute need for good, affordable homes to become the norm. It found people living in the most deprived parts of England and Wales are dying from Covid-19 at the twice the rate of those in the most affluent areas – poor quality housing and over-crowding are widely cited among the most likely factors underlying this disparity. The lockdown is reinforcing how important it is for people to have a good home at a price they can afford.

The UK was in the midst of a housing crisis long before the cruel blow of Covid-19. Likewise, The Good Economy’s work, alongside Peabody and Centrus Financial and nine partners, on how to sustain and increase capital flows into the UK social housing sector started many months before the onset of the generational challenge we face today.

Today, we published a joint white paper setting out recommendations designed to boost levels of socially responsible investment in social housing. The paper focuses on defining Environmental, Social and Governance (ESG) considerations viewed as material both to business strategy and investment decision-making.

The ten themes and 45 criteria in the ESG approach represent a consensus between working group housing association and investor members on what is important to measure and report on from an ESG perspective. We are now taking this to wider consultation with a dedicated website www.esgsocialhousing.co.uk, where comments, feedback and ideas are now invited.

The paper points out the £2tn UK sustainable investment market is growingly rapidly, with increasing focus on integrating ESG considerations into investment strategies across all asset classes, including real estate. Social housing is already part of this rising trajectory, having seen investment from the debt capital markets increase from c.£16bn in 2013 to £39bn in 2019.

Covid-19 means it is more vital than ever to sustain this trajectory. While a return to austerity feels increasingly impossible, the Government will undoubtedly be working under new fiscal constraints as it attempts to plot its way through a “new normal”. While public investment will continue to be essential, particularly to deliver social rent homes, increased levels of private investment are needed to tackle the UK housing crisis.

These testing times, and the search for diversification and yield by institutional investors, is fueling increased investor interest in new sectors including social housing. This suggests there could be more motivation for flows of capital to be influenced in ways that tackle previously entrenched issues, such as the housing crisis. The aim of our white paper is to help housing associations demonstrate their ESG credentials so they can take advantage of any surge in interest.

We believe all investment should be driven by both financial and social value creation. The UK social housing sector has strong social values and a tradition of building financially strong business models driven by a social purpose.

With increasing investor interest in the social housing sector, including new entrants bringing new private equity and ownership models, it is important the integrity of the sector and its social purpose are not diluted. This is particularly important at a time when all market participants need to focus on delivering homes that are genuinely affordable to those on low-incomes and also investing in building safety and decarbonisation.

This is what I believe Mark Carney, former Governor of the Bank of England, was alluding to in an article he wrote for The Economist last month: “The traditional drivers of value have been shaken, new ones will gain prominence, and there’s a possibility that the gulf between what markets value and what people value will close… economic dynamism and efficiency have been joined by those of solidarity, fairness, responsibility and compassion.”

And I think we should be confident he is right.