In this case study, we’ll be looking at how Environmental, Social, and Governance (ESG) concerns affect social housing decisions.

We heard from Naomi Roper, Partner at Trowers & Hamlins LLP who discussed what is meant by ESG, why it’s important to investors, and when it’s becoming mandatory for social housing.

What does ESG Cover?

Companies are judged on how well they mitigate risks to people and the planet, with their business areas scrutinised in the three areas of environmental impact, social impact, and governance risks.


This area concerns risks created by business activities that have negative impacts on air, land, water, ecosystems, and human health.

Environmental considerations for businesses include but are not limited to:

  • Preventing pollution
  • Reducing emissions
  • Improving energy emissions of buildings
  • Improving sources of heat and heat regulation
  • Reducing carbon footprint
  • Developing better waste and water management systems[1]

Almost 40% of the UK’s carbon emissions come from the built environment, and 10% of total UK emissions come from heating people’s homes.[1]


Social risks refer to the impact that companies have on broader society.

Factors to be considered when making housebuilding decisions include:

  • Placemaking
  • Biodiversity
  • Social mobility
  • Employee wellbeing
  • Community outreach
  • Health and safety[1]


These risks are concerned with legality and the way companies are run.

This includes:

  • Diversity and inclusion
  • Board demographics
  • Gender pay gap
  • Corruption and bribery
  • Conflicts of interest[1]

Funding Considerations

ESG is a growing area of concern for investors, with banks now reporting on their ESG credentials.[1]

The Stewardship Code puts an obligation on pensions trustees and asset managers to consider ESG factors when making investment decisions.[2]

The Stewardship Code 2020 “provides further evidence that ESG factors have moved into the mainstream for investors.”[3]

Investors are now more than ever before, interested in ethical investing, with sustainability ranking amongst the top priorities in investment decisions.[1]

This is particularly prominent for young people who care whether or not their pension is being invested in ethical companies, rather than in “oil or tobacco companies.”[1]

Not only is it more important on an ethical level, but the ESG industry is experiencing huge market growth, with ESG products weathering the storm caused by Covid-19.[1]

Investments that have been ‘ESG-screened’ have been found to receive a double dividend in the form of lower risk with higher rates of return.[4]

ESG and Social Housing

ESG can be seen as a natural fit for the social housing sector, with housing providers having carried out ESG activities for a long time.[1]

Housing providers are at their core providing a social purpose; housing those who need it.[1]

Naomi emphasised that whilst this is the case, housing providers have not been articulating their ESG credentials in a clear, comparable, and transparent way.

The kind of ESG products that are available to social housing providers come in the forms of loans, bond frameworks, and green private placements.

Green Loans

Green loans are built upon the Loan Market Associations’ (LMA) Green Loan Principles.[5]

Firstly, a green loan must be used for a ‘green project. This includes the purchase of a green building or the development of an emission-saving system within an existing site.

Second, there must be an agreed-upon process between the loan provider and loanee for project evaluation and selection.

Thirdly, the proceeds of the loan must be kept in a dedicated account throughout the entirety of the project.

Finally, there must be agreed-upon performance indicators, reviews, and reporting processes throughout the project.[1]

Green loans also require third party verification through a rating agency, getting the green loan framework certified, or through a consultant.

Sustainability Linked Loans

Similar to green loans, sustainability linked loans follow LMA guidelines in the form of sustainability linked loan principles.[1]

Under these principles, the proceeds can be used for any purpose. However, the margins of the loan are linked to ESG metrics set by the borrower.

The idea behind this is that if the metrics are met year on year then the margin decreases, and if the metrics aren’t met then the margin increases.

The metrics should be sustainable, workable, and that can be realistically met. Some example metrics include:

  • Reducing the median gender pay gap
  • Improving energy efficiency of stock
  • Helping tenants find employment

Sustainability linked loans also require third party verification through similar means to green loans.[1]

Green/Social Bond Frameworks

Green or social bonds are given in accordance with International Capital Market Association (ICMA) guidelines.[6]

Green bonds operate under the same principles as green loans, in that they must go towards a green project.

Social bonds are given under an agreement that the proceeds will be used for a positive social outcome.

The frameworks both bond types function within contain ESG principles that govern the issuing of the bonds, all of which require third party verification and on-going reporting.

Green Private Placements

These are a recent innovation in the sector, with two key deals having been made.

The first was Believe Housing Limited, who ran the first sustainability linked private placement in the sector. The terms of the deal were that the pricing of the notes, the promised buyback price of debt securities, are to be linked to energy efficiency.

The second was Origin Housing Limited, who created a green framework in line with LMA green loan principles.

The proceeds from the private placement will be used for financing and refinancing energy efficient buildings at Energy Performance Certificates (EPC) ratings A or B.

Sustainability Reporting Standard for UK Social Housing

This set of standards came into effect as investors were asking registered providers of social housing ESG related questions, which the providers did not have the answers to.

This is because the criteria of the questions was more suited to American developers, rather than UK specific housing providers.

The new reporting standard covers 12 core themes and 48 criteria. These themes cover issues ranging from building safety and resident voice, to placemaking and waste management.[1]

32 investors and 43 registered providers signed up for the first year of theses standards, and it is looking likely these numbers will grow year on year.[1]

One reason for the increased uptake is the Task Force for Climate Related Financial Disclosure (TCFD), which will be coming into effect by 2022.

The UK has decided this will be mandatory, meaning that all listed companies and large asset owners will have to disclose their finances in line with TCFD guidelines.

The aim of this is to increase the amount of reliable information on financial institution’s exposure to climate-related risks.

Naomi was keen to highlight that with the rapid market growth and impending legal obligation to do so, having an ESG approach to financial strategy is no longer a “nice to have” but an absolute must.[1]

Providers who are already on board are reporting that sustainable investments and socially conscience frameworks are attractive to investors, as well as providing good value for money.

Ratings agencies have indicated that ESG credentials are going to form a large part of their criteria going forward, heightening the need for providers to get ahead of their financial strategies.[1]


[1]Roper, Naomi. Partner, Trowers & Hamlins LLP. 2021. Environmental, Social and Governance Products in Housing Finance.

[2] 2020. Financial Reporting Council. The UK Stewardship Code 2020.

[3] 2021. Nick Graves: ESG and the UK Stewardship Code 2020.

[4] 2021. Financial Glossary: ESG.

[5] 2021. Loan Market Association: Green Loan Principles.

[6] 2021. Sustainable Finance – The principles, guidelines and handbooks.

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Companies are judged on how well they mitigate risks to people and the planet, with their business areas scrutinised in the three areas of environmental impact, social impact, and governance risks. In this case study we’ll be looking at how Environmental, Social, and Governance (ESG) concerns affect social housing decisions.

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