The place of ESG and impact investing in a post-COVID crisis world

Green, social and sustainable finance

John Gandolfo, vice-president and treasurer at World Bank Group member the International Finance Corporation, stated at the start of September that social bond issuance has totalled $43bn so far this year, compared with $17bn during 2019. It has been suggested that a large percentage of these funds has already been allocated to mitigate against the impact of COVID-19.

Sustainable investment funds have also proved slightly more resilient during the summer months than their conventional fund counterparts, because of the mindset of a typical sustainable fund asset-owner who is often focused on longer-term return and the non-financial impacts of their investments. High-profile asset managers including Blackrock and Robeco have recently launched new green and ESG portfolios.

As part of a $10bn debt offering, Google’s parent company Alphabet has issued $5.75bn in sustainability bonds, which they believe is the largest sustainability or green bond by any company in history. For projects to receive support from the bond, they must fall into one of the eight priority categories identified by the company, including: energy efficiency, renewable energy, green buildings, clean transport, circular economy and design, affordable housing, racial equality, and support for small businesses in the wake of COVID-19.

Strong interest in sustainability-linked loans has remained during the pandemic. ESG objectives in the real estate sector have typically been environment based, usually focusing on energy efficiency/environmental ratings of buildings (both new and existing) such as using the BREEAM rating, Energy Performance Certificate scores or the Code for Sustainable Homes rating.

A key development in the past year is to have more than one KPI, including separating new and existing buildings. A future trend we expect will be for borrowers to also incorporate social and/or governance KPIs alongside environmental KPIs so companies incorporate the full ESG spectrum, which we have already started to see in the market this year.

The role of social housing

At NatWest we’ve refreshed our commitment to the social housing sector with £3bn of new funding available over the next three years that can support the development of around 20,000 new homes and improve living conditions in existing properties. We are committed to supporting the delivery and maintenance of housing in the UK, which is vital to the economy and people and families who rely on affordable housing.

The Housing, Communities and Local Government Select Committee said at the start of August that there is evidence of the need for 90,000 social rented homes each year. Creating sustainable social housing must be part of the UK’s recovery strategy, particularly as the pandemic has highlighted social inequalities across our communities. In addition to supporting infrastructure and creating jobs through building projects, new and improved social housing will benefit some of those who have been hit hardest by the pandemic.

As some of the largest charities, landlords, and organisations in the UK, housing associations must play a leading role in making communities and the world we live in a better place, for both current and future generations.

While it’s clear there is more interest from organisations and investors in ESG strategies, there remains a lack of standardised ESG data and reporting methods. The housing sector, like other sectors, often struggles to articulate and report on ESG activity. I’m therefore pleased that NatWest has supported the UK Social Housing: Building a Sector Standard Approach for ESG Reporting report published by The Good Economy. While the way organisations report on ESG will vary and continue to evolve over time, this is a great place to start and will help housing associations when reporting to stakeholders.

It is essential to increase the number of early adopters to this standard of reporting before the final criteria are published to ensure it is recognised as a sector wider approach. By standardising and improving reporting methods, organisations will be able to increase the level of investment in the sector – from banks as well as traditional and non-traditional investors.

It is difficult to summarise all the UN sustainable development goals that are relevant to the housing sector; some are more obvious than others and it is important for housing associations to understand what role they can play in addressing the challenges our communities face.

While it often feels like one key event replaces another, ESG and impact investing is here to stay, and organisations should continue to be considering ways to articulate their achievements and strategies to both internal and external stakeholders.

Lockdown has not shut down this agenda; if anything it has put an additional spotlight on both governments’ and organisations’ ESG objectives.

Marcos Navarro, director of housing finance, NatWest

The Impact Investment and ESG Conference is taking place on 15 October online, exploring what these movements can bring to the built environment. Find out more here