What is ESG and why you need to care about it!
~ By Kamran Mahmood, CEO of Gridizen
ESG (Environmental, Social and Governance) has become a hot-topic within the Housing Sector, but what actually is it? Put simply, it is a way to gauge the ethical standing of an organisation that you do business with. By looking at the Environmental and Social impact of an organisation, and the Governance that drives it, we can make a better judgement as to whether we are working with “the good guys”; are we working with companies that share our values?
This principle isn’t new, and if you look at other sectors, this attitude is embedded in their culture, even if it doesn’t carry the ESG label. Charities are often aware of the dealings of their supplier; for example, a conservation charity wouldn’t do business with a company that didn’t display sound environmental principles.
So, why has ESG suddenly come to the fore in the Housing Sector? The answer is simple; because ESG is becoming more closely scrutinised by funders and regulators. Recently there has been a push within the financial sector to assess the ESG of their investees when funding Social Housing (according to the UN, 93% of investors factor in ESG into their evaluations1). Often their criteria lines up with government targets; for example, many Funds have a target to invest in Net Zero carbon operations by 2030, which aligns with the UK Government’s targets to significantly reduce carbon emissions and energy usage by the end of the decade. With this increased pressure it is more important than ever for RSLs to demonstrate their added value credibly in order to leverage in the finance needed to continue to build, as well as to satisfy the regulators.
There is an important distinction to make though about delivering ESG and reporting it. RSLs are, by their nature, social businesses, and are often aware of the wider impacts that the organisation has. However, many of these impacts are not being measured and reported, which leads to a two-fold issue; not being able to present an accurate picture of the organisation’s outputs, and not being able to improve on them. This has led to the recent Sustainability Reporting Standard (SRS) for Social Housing2 by The Good Economy, commissioned by a consortium of RSLs and investors, to look at how we can standardise the information collected and reported. Head of Housing Impact Services at TGE, Andy Smith, said “We believe that this will enable RSLs to better tell the story of their ESG performance to potential funders”.
A number of RSLs will not know where to start, others have been scrambling to allocate ESG responsibility, typically in the finance department. At Gridizen, we’ve been closely following the development of the SRS and have gone a step further to ensure that our platform can measure and report on ESG data to ensure that RSLs are able to demonstrate the impacts they have.
We have started research within the sector to look at benchmarking ESG, in order to drive business change and innovation, not just to reduce funding costs but ultimately benefit the residents.
ESG is becoming an increasingly common phrase that is going to become an increasingly important factor for organisations to be aware of.