A drive into impact investment and ESG is being mooted as a big opportunity for UK housing. So what is holding the sector back?
UK social housing could unlock a “broader universe” of funders by pitching its environmental, social and governance (ESG) values, financial commentators have said, as demand for ethically oriented and impact investment soars.
Bookrunners, advisors and issuers in the sector have noted mounting enquiries from bond investors regarding ESG factors on roadshows and investor presentations.
Meanwhile, changes to pensions trustee reporting from October could see ESG take on new significance for UK pension funds, including where and how they make investments.
Social impact investment advocates have meanwhile outlined a role for “billions of pounds of risk capital”, providing equity in place of dwindling government capital grant.
Elsewhere, in the loan markets, sustainability-linked deals with BNP Paribas and new entrant First Abu Dhabi Bank could be set to proliferate as two established UK lenders revealed to Social Housing that they are eyeing the products.
Growing interest in ethical investment has seen the number of investment manager signatories to the United Nations-backed Principles of Responsible Investment swell to 1,773 in 2019, from just 79 a decade before.
Bonds issued in line with the International Capital Market Association’s green, social or sustainability principles could open the window to this new wall of capital, against a global impact investment market currently estimated to be in excess of $500bn.
It is predominantly European issuers driving the ESG bond market, with sterling issuances rarer and social bonds particularly scarce.
To date, only one UK corporate bond has been issued under an accredited ‘social’ banner – by aggregator MORhomes. Cross Keys Homes’ 2014 issue is the housing sector’s only green bond so far.
Questions remaining over any potential impact on pricing, alongside the additional metrics and third-party rating required, could present barriers to ESG issuances for registered providers seeking best value. But some providers are in talks over adopting the principles, as they seek to broaden their investor base.
Don’t miss our special afternoon stream ‘Social housing meets impact investing’ at the Social Housing Annual Conference on 4 December in London