By Shazia Bashir and Robin Penfold, TLT LLP.

The UK Green Building Council recently reported that the UK’s buildings are responsible for approximately 30% of the country’s total greenhouse emissions.

If the UK is to remain on track to achieve its net zero carbon emissions target by 2050, clearly urgent work is needed to increase the energy efficiency of the UK’s property stock.

There are several barriers to achieving energy efficiency in UK housing, particularly in the social rented sector. It’s estimated that the cost of retrofitting all social homes in the UK to zero carbon would be in the region of £100bn. The challenge for registered providers therefore is how this potentially huge cost is going to be met.

One solution, proposed in the Green Finance Institute Coalition of Energy Efficiency of Buildings report in May 2020, is an industry-recognised certification for financial problem-solving that supports the retrofit of residential buildings.

This in turn could potentially enhance the confidence of lenders and borrowers to invest.

In England, the Government has committed to making funding available and, following the launch of the Social Housing Decarbonisation Fund (SHDF) Demonstrator in October 2020, £62m in funding has been awarded to 17 local authorities for 19 projects.

A further £60m has been committed by the Chancellor to this fund, which is due to launch in the 2021 to 2022 financial year – further announcements on this are expected shortly.

However, registered providers do need to consider alternative methods of raising finance, as relying on Government funding alone is unlikely to be sufficient.

Several landlords have issued ‘sustainability bonds’, including PA Housing which has recently issued a £400m sustainability bond following Aster and Clarion.

Sustainability bonds require the finance to be used exclusively for green or social projects and these deals pave the way for more bond issues to follow across the social housing sector.

Earlier this year, Lloyds Bank agreed its first sustainability-linked loan within the social housing sector, with an interest rate reduction associated with improving the energy efficiency and decarbonisation of its existing housing stock.

Green and sustainable finance continues to be an increasing priority for funders. Registered providers already prioritising environmental and sustainability goals are therefore likely to benefit from access to a broader investor base.

As we think about the future of society and the economy, the social housing sector will need to consider how to balance its work to achieve net zero targets with the wider challenges imposed by the housing crisis.

As many registered providers already go beyond their core business of providing affordable housing by delivering other services with social benefit, such as supporting tenants in relation to employment, training, homelessness and social security, the sector is in a unique position to lead the way in demonstrating how to overcome some of the challenges in the retrofit finance market.

 

Shazia Bashir will be speaking at HQN’s The cost of progress – factoring decarbonisation into your business plan event on 26 August. Find out more and how to book on here.