Discounts on ESG loans ‘must go further’ for borrowers to reap benefits, say experts
Discounts on loans linked to environmental, social and governance (ESG) factors for housing associations are not yet large enough to offset costs arising from the additional reporting requirements, experts have said.
Speaking at the Social Housing Finance Conference yesterday, Jon Turner, chief executive of Link Group, argued that the costs of reporting sustainability metrics make ESG loans more expensive.
He said: “I don’t think the discounts are even close to being enough to recognise the power of what we are doing.
“The reporting requirements brings expense if you’re looking at use of proceeds funding.
“It brings complexity to your systems when you are reporting and I don’t think the discounts are big enough to offset these costs at the moment.”
READ MORE
A number of housing associations in recent months have signed up to loans which are linked to their ESG performance.
The rise of ESG-linked bonds and loans coincides with the new Social Housing Sustainability Reporting Standard launched last year by The Good Economy.
Sarah Forster, chief executive of The Good Economy, who also spoke at the conference, said: “People are seeing pricing benefits in the market, they may be small but a few basis points may be the benefit.”
Marcos Navarro, director and sustainability lead at Natwest, said the bank is currently able to offer margin discounts of between 2.5 to 5 basis points compared with regular bonds.
He added: “Is that enough? Definitely not”, and suggested that lenders can go further.
“As soon as there’s the ability for us to pass on more [discounts], we will do that,” he said.
Mr Navarro said Natwest is looking to “give the best possible base margin to any organisation from a starting point”, but said “at the moment it does just eat into the returns for the bank”.
Also speaking on the panel was Brendan Sarsfield, outgoing chief executive of Peabody, who will oversee the Sustainability Reporting Standard in his new role as chair of the Sustainability for Housing board.
He said that so far 85 investors and housing associations have signed up to the reporting standard, which he claimed will help housing associations make their case to lenders.
“Social housing is the perfect place for ESG investment,” Mr Sarsfield added.
Sign up for our development and finance newsletter
Already have an account? Click here to manage your newsletters
