As Social Invest enters its second year, our account manager Dominic Brady looks back at some of the most significant ESG-related events of 2021.
Social’s contribution to the ESG conversation
After launching in 2020, Social Invest was keen to hit the ground running in its first full year. This meant helping to shape the conversation on how the built environment sector can demonstrate its contribution to society and ESG in a meaningful way.
Social took part in a webinar hosted by law firm Trowers & Hamlins, where we considered the importance of ESG to the affordable housing sector, particularly against the backdrop of more social housing providers seeking ESG-linked finance.
We then held our own inaugural webinar shortly afterwards, where we heard from experts in housing and the investment community on how to execute ESG within your organisation. This proved a useful starting point for a conversation that became increasingly important over the year.
With the Social Housing Sustainability Reporting Standard beginning in earnest, these conversations helped contextualise the role of ESG and what it meant to housing providers, their investors, their delivery partners and their supply chains. To complement these discussions, Social also published its own ESG Guide which offers a simple and effective introduction to the world of ESG.
Place-based impact investing white paper launched
The architects of the Social Housing Sustainability Reporting Standard, The Good Economy, moved the debate from ESG to impact with the launch of the place-based impact investing initiative in 2021
In May, the impact advisory firm, along with the Impact Investing Institute and Pensions for Purpose, published the Place-Based Impact Investing Project white paper. The project was also supported by the Department for Digital, Culture, Media and Sport (DCMS), City of London Corporation and Big Society Capital.
It found that across £326bn of Local Government Pensions Schemes (LGPS) in the UK, the potential to mobilise £16bn immediately for place-based investment like affordable housing, SME finance, regeneration, clean energy and infrastructure.
The project later led to the creation of a new framework to demonstrate to LGPS members how their money is having a positive impact on local areas.
The PBII Forum – hosted by Pensions for Purpose and co-managed with The Good Economy and the Impact Investing Institute – has also been set up to facilitate action-oriented discussions on how to scale up institutional investment that delivers local and regional social, economic and environmental impact.
British Property Federation publishes ESG Guide
With momentum growing in the built environment sector, other organisations soon sought to set out what ESG meant for them.
The British Property Federation (BPF) noted its members in the private rented sector wanted greater efforts to be made around reporting ESG outcomes. As such, in October, it produced its own ESG guidance.
The guide sets out an overview of ESG standards in the real estate sector where the BPF says there are currently more than 500 real estate and sustainability benchmarks which perhaps demonstrates the challenge in unifying ESG reporting more broadly.
The BPF has said its ESG Working Group will continue to explore ESG in a residential setting in 2022, considering how ESG can be best measured and reported within the Build to Rent and private rented sector.
COP26
If there was any concern that interest in ESG was slowing, the COP26 conference in Glasgow ensured that this was not the case.
The eyes of the world were on Glasgow as global leaders gathered to discuss how to deal with the climate crisis going forward, with a particular focus on how finance is leveraged to mitigate further environmental breakdown.
At the conference, the International Foundation Reporting Standards (IFRS) Foundation Trustees announced the creation of the International Sustainability Standards Board (ISSB). The ISSB will aim to provide uniform, reliable and global ESG reporting standards for companies to use.
While the value and success of the conference has been subject to much debate, it certainly sparked more conversations around ESG, which can only be a good thing.
Question marks raised over validity of ESG reporting
As a relatively new movement to the mainstream, sustainable investing was always going to encounter teething problems and sure enough, issues of ‘greenwashing’ did not take long to surface.
The phenomenon is widespread within the financial sector and the genesis of the problem has been forensically detailed in Tariq Fancy’s writing on the subject. Mr Fancy, former chief investment officer at BlackRock, wrote a series of explosive diaries which lifted the lid on the world of greenwashing and the extent to which ESG funds have been gamed.
Mr Fancy’s revelations, as well as subsequent investigations by the likes of Bloomberg Businessweek, have rightly raised questions about the transparency of the sustainable investment industry and this has sparked a response from governments on how to respond to the problem.
Clamping down on ‘Greenwashing’
Chancellor Rishi Sunak announced in November 2020 that the UK would introduce a green taxonomy aimed at tackling greenwashing and making it easier for consumers to understand how a particular firm is impacting the environment.
As a result, in June 2021 the government announced the formation of the Green Technical Advisory Group (GTAG) which will oversee the Green Taxonomy.
John Glen, Economic Secretary to the Treasury, said at the time that the Green Taxonomy “will provide better data on the environmental impact of firms, supporting investors, businesses and consumers to make green financial decisions and accelerating the transition to net zero”.
First glance at the UK’s Sustainability Disclosure Requirements (SDR)
As well as the UK Government, the Financial Conduct Authority (FCA) this year moved to introduce common standards around ESG funds having dealt with a number of “poorly drafted” applications from funds to gain ESG status.
After an initial consultation period the FCA outlined its plans for a new Sustainability Disclosure Requirements (SDR) regime for firms operating in the UK to adhere to. The SDRs can be seen as a framework which brings together a number of other reporting standards under one roof.
The FCAs framework will include three key components including: disclosures against the aforementioned UK Green Taxonomy and the standards eventually put forward by the ISSB.
The SDRs will also demand disclosures against the Task Force on Climate-related Financial Disclosures (TCFD), a UK government initiative which will become law from April 2022.
Taken together, 2021 has shown ESG to be a movement still in its embryonic stages and one with much work to be done. But its popularity with investors and global efforts to legitimise sustainable investing more widely serve as reasons to be optimistic for 2022.