The Evolution of ESG

The Housing Finance Corporation (THFC) has been a staunch advocate of environmental, social and governance (ESG) reporting ever since the launch of the Sustainability Reporting Standard for Social Housing (SRS), which formally established the publishing of disclosures within the social housing sector.

The process of reporting against the SRS has brought attention and focus to ESG issues among housing associations and lenders, and we believe the entire sector is better off for it.

We were one of the first organisations to sign up as an early adopter of the SRS and have since published two SRS reports of our own. We also incorporated many of its principles within THFC Sustainable Finance (TSF), our newly launched sustainable finance vehicle.

In addition, we regularly engage with our borrowers on the SRS and have encouraged many to become official adopters themselves.

THFC views the SRS as a powerful tool through which the social housing sector can tell its ‘ESG story’ to its stakeholders in a consistent and comparable manner. This is as well as providing a means for housing associations to benchmark their progress on critical ESG issues.

Not only has the SRS allowed us to better understand our borrowers’ ESG status, it has also strengthened our lines of communication with them. It has allowed us greater insight into the nuts and bolts of their organisations.

Publishing our SRS reports for bLEND has provided the opportunity to revisit our borrowers’ ESG credentials and house them centrally in one place. It has also allowed us to see the positive impact of THFC’s funding at the many housing associations we work with across the UK.

This process will only become more valuable in the coming years, as we track our borrowers’ continuous progress against their ESG targets.

As the wider ESG landscape continues to grow and evolve, with new standards being published and more data being requested by the day, it is critical for the social housing sector to strike a careful balance. It must balance between adapting itself to keep up with this broader ESG movement and staying consistent enough to remain comparable year-on-year and to begin painting a story of progress over time.

The evolution of the SRS

Following the initial launch of the SRS in November 2020, SRS Version 1.2 was released in May 2022, which provided further reporting guidance and requested that adopters publish their SRS responses in both a report format and with an Excel input tool.

Sustainability for Housing (SfH), which oversees the development and evolution of the SRS, released a draft SRS Version 2.0 on 3 April 2023 and launched an official public consultation period, ending on 16 May 2023.

Version 2.0 seeks to meet the demand for additional ESG data, including more information regarding stock quality, resident satisfaction, net zero strategies, and diversity, equality and inclusion initiatives, while maintaining the crucial element of continuity.

It also aims to increase alignment with the Task Force on Climate-related Financial Disclosures (TCFD) framework and updated disclosure guidance from the Investment Association (IA), as well as moving toward a ‘comply or explain’ approach.

Following the consultation period and after any necessary tweaks, the final Version 2.0 is expected to be published sometime in summer 2023, although providers will not be expected to report against the refreshed SRS until 2024.

THFC engaged in discussions with SfH during the drafting of Version 2.0 and has submitted official feedback as part of the consultation period.

Striking the perfect balance between evolution and consistency is no simple task, but additional clarity, detail and guidance in the proposed Version 2.0 will be hugely beneficial for reporting organisations and users of SRS data.

We also believe that the ‘comply or explain’ approach will help encourage uptake among non-adopters and mitigate the reporting burden of smaller housing associations that may not immediately have the resources to report on all 48 criteria.

Managing the reporting burden for housing associations is extremely important as the SRS continues to evolve, particularly when considering smaller housing associations with limited resources and housing associations that have not yet crossed the line into adopter status.

While the number of SRS criteria has remained the same, the increased level of detail embedded within some of these criteria raises the questions of arduousness and accessibility. We believe that the consolidation and removal of some criteria in the draft Version 2.0 will work to balance the additional effort required for other criteria.

However, these issues are critical and should be continually reviewed as the SRS continues to develop in the coming years.

Looking beyond social housing

The wider ESG landscape has continued to progress at lightning speed, with frameworks and bodies gaining traction in the broader market.

These include TCFD, the International Sustainability Standards Board, the Corporate Sustainability Reporting Directive, the Global Reporting Initiative and CDP, among many others.

There are several things for standard-setters, funders, investors and reporting organisations to consider as the world of ESG becomes more standardised and, potentially, regulated.

How can ESG standards continue to evolve to meet changing expectations, while maintaining continuity and comparability over time? How can we ensure that organisations provide the ESG data that stakeholders desire, while balancing the important concept of materiality? And who is responsible for ensuring the accuracy and validity of reported ESG data?

These issues will become increasingly important in the coming years amid rising expectations for the quality of ESG data and as stakeholders become increasingly reliant on ESG information that is genuinely credible, consistent and comparable.