There is a strong argument that the “Social” aspect of ESG reporting should be supplemented with another “S” – “Stakeholder” – giving consideration to how the actions of the company affect all the various groups with which it interacts.
“Social” should be about much more than just staff satisfaction, diversity targets and customer reviews.
It should encompass how relationships are managed with other stakeholders – with suppliers, with regulators and politicians and with the communities in which the company operates.
The different elements of ESG can overlap and can be intertwined. Something done for “Environmental” reasons may well have a knock-on effect in the “Social” sphere.
For example, mortgage lending products which incentivise improvement to the energy efficiency of the property should have recognised the associated social consequence of reducing energy running costs for the homeowner, improving their financial security.
So, the use to which mortgage lending is put could bear scrutiny from a “Social” perspective.
It was the Emperor Vespasian, in around AD 70 who coined the phrase, “Money doesn’t smell”, or “Pecunia non olet” in Latin.
He had implemented a tax on the collection of waste from Rome’s public urinals – and his point was that the money raised was not tainted by the source.
In mortgage lending today though, this could work the other way. Money could be considered tainted by its use.
The actual lending may be perfectly sound from a purely commercial point of view – low loan to value, to fully credit appraised borrowers, on properly valued security – but what is actually being done with the money may have negative social consequences.
Viewed through a “Social” lens, would there be a difference between lending against a portfolio of accommodation for key workers, perhaps student nurses, or a portfolio of holiday properties and short-term lets?
The residents of Whitby, a beautiful seaside town in North Yorkshire made national news recently, having voted in a local referendum to impose restrictions on the future number of second homes and holiday lets in the town.
Around a fifth of the homes in the town are now holiday or short-term lets, with a negative impact on the availability of accommodation for locals and for the economy of the town in the off season.
It is a reasonable question to ask – “does lending on holiday homes have positive, neutral or negative social consequences?
This does not need to be just a negative perspective. In reporting their lending activities, many mortgage lenders have a good story to tell on the “Social” side of ESG.
Help to first-time buyers, or to key workers, or lending for environmental improvement purposes, or to improve the lives of older people through equity release can all claim a “Social” benefit. These can and should be highlighted as part of a lender’s ESG credentials.
Analysts, and perhaps even activists will start to look down the money chain to see the social consequences of the lending done. This money may smell of roses, or perhaps otherwise.
Mark Davies is managing director of BCMGlobal
