Major social housing investor mulls ringfencing debt funding for specific ESG purposes
An institutional investor with billions of pounds invested in the affordable housing sector is considering ringfencing future debt funding for environmental, social and governance (ESG) uses, such as retrofitting homes, Inside Housing can reveal.
LGIM Real Assets, the investment arm of Legal & General (L&G), said it is looking at providing funding that would be used specifically to support decarbonisation in UK social housing.
Steve Bolton, head of corporate private debt for Europe at LGIM Real Assets, told Inside Housing: “There is an urgent need to innovate within the social housing sector, to not only provide good-quality homes but also to support the UK’s energy transition.
“One thing we may see is more specific ESG factors built into transaction structures, for example ringfencing proceeds for specific purposes such as retrofitting.
“We would be keen to explore this type of structure going forward, in addition to our more traditional lending activities.”
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The social housing sector has seen increasing levels of ESG investment in recent years with several ESG-linked transactions being completed in the past year.
Social landlords have sought to capitalise on the growing interest in ESG investment by adopting the new Sustainability Reporting Standard that was launched last year.
Meanwhile, the sector is facing up to huge costs associated with decarbonising homes ahead of the government’s commitment to hit net zero by 2050.
L&G has more than £1.5bn invested in affordable housing to date in the UK and recent transactions include an £85m sustainability-linked private placement with Beyond Housing.
The funds provided on this deal are free to be used as the housing association sees fit, but the pricing on the deal will be linked to Beyond’s energy transition.
In future, LGIM Real Assets said, the funding provided could be restricted for defined uses.
Mr Bolton added: “There has never been a better and more important time for us to work in partnership to deliver good-quality affordable homes with the use of patient, long-term institutional capital.
“If the social housing sector is to be fit for the future, ESG factors, and particularly decarbonisation, must be front and centre.
“We are now faced with a key opportunity to support real tangible progress towards a low-carbon economy and society.”
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