Demystifying ESG & Sustainability for Social Housing

The social housing sector stands at a critical juncture, facing increasing pressure to future-proof assets against climate-related risks, and comply with regulator’ calls to ‘professionalise the sector’. Additionally, the new Labour Government is likely to escalate sustainability-related efforts. The challenge lies in securing the budget for activities beyond business-as-usual (BAU), as most Environmental, Social, Governance (ESG) initiatives are not deemed as BAU.

Housing associations and local authorities should seek to prioritise ESG, adopting a broader view on the topics and treating them as BAU due to:

· The beneficial ties to securing new routes to funding,

· The enhanced understanding of organisational performance, supporting better decision making,

· The ability to more accurately and easily report to stakeholders, protecting organisations from regulatory fines.

· The insights the data can drive supports better overall management, saving organisational resource and building resilience.

ESG considerations require attention to areas such as physical climate risk analysis, employee turnover, strategic HR functions, tenant due diligence, and supply chain mapping, among others. These areas, however, are often overlooked. A common issue is that many organisations develop strategies and set targets without first establishing a clear understanding of their baseline performance first. The primary challenge, therefore, is to identify which ESG considerations to prioritise as an organisation, using the existing frameworks which either lack sector specificity, or are not comprehensive enough. This lack of tailored guidance can prevent organisations from uncovering the material risks most pertinent to their operations, especially those grounded in the principles of double materiality.

The importance of ESG to your key stakeholders

Managing your ESG performance benefits your stakeholders significantly, from tenants, through to communities, lenders, supply chain and employees. For example, effective ESG management can enhance tenants’ health and safety, foster placemaking and neighbourhood integration, improve access to clean transport, provide warmer homes and lower energy bills, offer green energy contracts, and improve waste management, all contributing to greater overall satisfaction (aligned with Tenant Satisfaction Measures TSMs). Ultimately, transparency about social and wellbeing considerations for your stakeholders demonstrates that you care for tenants, staff, and the long-term health of your assets and future operations.

Community issues considered in ESG include communication efficiency, engagement types and frequency with community champions, outreach events, training, understanding barriers and challenges, and safety matters. For staff involved in resident engagement, having relevant tools and adequate safety measures in place is essential. ESG topics measuring staff consideration and human capital support help identify gaps and prioritise support, ensuring that staff can serve tenants effectively. Safeguarding the health and safety of your tenants is crucial, and performing ESG due diligence on your assets is necessary to ensure they are protected against current and future extreme weather.

Banks require lenders of sustainability linked loans to understand ESG holistically, set targets, collect key ESG metrics, and report on your progress. ESG non-financial reporting is a growing requirement, as sustainability-related demands will continue to increase for all organisations. Protecting stakeholders and assets from ESG-related risks requires a full understanding of these impacts, and an acknowledgement that inaction is a business risk.

Organisations increasingly require suppliers to align with sustainable procurement policies, and some suppliers demand customers align with their responsible consumer policies. Suppliers are a critical group as they determine an organisation’s scope 3 emissions, making it essential to work with them to identify and mitigate supply chain associated emissions. Additionally, another threat to long term sustainability is the Carbon Border Adjustment Mechanism (CBAM), which will increase the cost of key materials required by the sector, further requiring organisations to seek local or alternatives to the materials implicated by CBAM.

How poor ESG performance management can impact an organisation?

Housing associations are defaulting on sustainability-linked loans due to unmet KPIs and are merging to increase resilience. Despite the pressing need to align with the UK Government’s carbon reduction targets and other lesser-emphasised requirements, such as the anti-greenwashing law (live since May 2024, this law could result in fines of up to 10% of annual turnover), the sector often adopts a reactive stance towards ESG risk management, lacking a structured approach to identifying material themes and target performance enhancing measures.

Organisations often lack adequate systems and processes to access the data required to illustrate and evidence ESG performance, set realistic targets, investigate areas for improvements, and monitor and report on progress. Without a targeted and scaled approach based on best practice, the sector will struggle to adequately prepare for future regulations.

A framework to deliver excellence in ESG

ESG entails measuring and managing the performance of environmental, social and governance topics. While ESG may seem daunting, it is imperative that organisations view this topic as business critical, embedding ESG requirements into their business-as-usual practices and the fabric of its operations to reap the benefits and survive in the changing environment we find ourselves in. ESG management requires a structured approach, which is captured in our ESG lifecycle below:

Selecting the right ESG framework to establish a baseline and continuously measure your ESG performance is paramount. The framework serves as the cornerstone for an ESG journey, setting the foundations that future performance will be compared against.  

The adopted ESG framework should not only highlight priority areas, but also be tailored to both the sector and organisation size, recommending tailored actions to help embed ESG into business-as-usual practices. Your ESG baseline should enable you to track performance against key metrics and peers, and support decision-making.  Establishing a solid ESG baseline that is aligned with recognised sustainability standards will enhance reporting transparency, boost funding eligibility, and foster tenant satisfaction. Ultimately, proactive ESG lifecycle management will enable the sector to determine materiality, manage evolving risks, achieve its sustainability objectives, and ensure long-term resilience in an increasingly complex landscape. 

By adopting this structured and strategic approach to building an ESG Strategy, housing associations and local authorities will be better equipped to meet the UKs 2050 Net Zero target and intermediate policies and regulations, achieving regulatory compliance and operational excellence.