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Celia Franch Lopez is debt origination manager at the Pension Insurance Corporation
How lenders want to see housing associations report on their greenhouse gas emissions
Celia Franch Lopez explains why lenders want to see the housing associations they invest in report their greenhouse gas emissions, and what data they need
Lenders are increasingly asking housing associations to provide them with data on their greenhouse gas emissions. But why do lenders now need this data when they provide funding?
Gone are the days when investors only cared about financial metrics. Nowadays, investors are increasingly prioritising the environmental impact of the firms in their portfolio and are demanding comprehensive data on their carbon emissions and other sustainability metrics.
That is the case for us at the Pension Insurance Corporation (PIC).
Reporting requirements are not solely driven by increased public scrutiny of companies’ environmental impact, but are also linked to lenders’ own net zero strategies and decarbonisation targets. Firms can only reduce what they can measure, which is why obtaining climate-related data relating to the organisations within investors’ portfolios is essential.
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At PIC, a specialist insurer of defined benefit pension funds and lender to more than 60 housing providers across the UK, we are committed to becoming net zero by 2050.
Since 2021 we have published an annual Task Force on Climate-related Financial Disclosures (TCFD) report, which describes how the company manages and mitigates climate change around four main pillars: governance, strategy, risk management, and metrics and targets, demonstrating the annual progress made in meeting decarbonisation targets. Specifically, the metrics and targets section gives a breakdown of the carbon intensity of the underlying companies within PIC’s portfolio, including those housing associations to which it has lent.
“Unlike listed companies, which are obliged to disclose their carbon emissions, private entities such as housing associations are not subject to the same requirements – making it difficult for lenders to obtain comprehensive data”
Unlike listed companies, which are obliged to disclose their carbon emissions, private entities such as housing associations are not subject to the same requirements – making it difficult for lenders to obtain comprehensive data. As a result, we are increasingly requiring housing associations to voluntarily disclose their carbon emissions data to ensure transparency and accountability in our investment portfolios.
What data do lenders need?
At PIC we look at sustainability as part of the investment picture as a whole. Environmental, social and governance (ESG) disclosures by housing associations are a key data source for our due diligence, and inform our credit view as well as our internal ESG scores, which are key for making investment decisions.
We collect data from the reporting of individual housing associations, which we encourage to be aligned with The Good Economy’s Sustainability Reporting Standard for Social Housing.
The key pieces of information required from housing providers are disclosures regarding their Scope 1 and 2 carbon emissions. (Read Inside Housing’s explainer on what Scope 1, 2 and 3 emissions cover here).
These data points feed through into PIC’s own carbon intensity reporting and assessment of our environmental and social impact. In cases where emissions data is not available for a specific housing association, we use a sectoral average emissions intensity to estimate the emissions for that housing association.
What will happen in the future?
Reporting on Scope 3 emissions (this includes most gas and electricity used by residents to heat and light their homes) is one of the key areas of improvement for housing providers.
We currently see many providers that don’t report on these emissions, and for the ones that do, we see quite varied and differing figures. We would like to see more detail on the assumptions landlords use to arrive at these figures, and how these will evolve over the coming years.
“Institutional investors such PIC may seek higher returns on their investments to offset the higher risk if an issuer can’t demonstrate its ESG commitments or performance against targets”
We think investors will become increasingly demanding of providers with regards to ESG reporting and performance. Ultimately the sector will continue to attract funding, but institutional investors such as PIC may seek higher returns on their investments to offset the higher risk if an issuer can’t demonstrate its ESG commitments or performance against targets.
Looking to the future, we expect that housing associations will enhance their ESG disclosures, update their individual Scope 1 and 2 carbon emissions data, and align other relevant metrics to standardised reporting.
Increasingly, we would like to obtain further data from housing associations on their wider biodiversity impact, as well as social metrics. This is why we encourage alignment with the Sustainability Reporting Standard.
This standardised methodology helps housing associations report on a wide range of ESG metrics and increases the usefulness of reporting through consistent measurement, ultimately helping lenders benchmark and better understand the environmental and social impact of an organisation.
Celia Franch Lopez, debt origination manager, Pension Insurance Corporation
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