Corporate social responsibility used to be about little more than a charity day out for staff to paint new hopscotch lines on a school playground. Now there are growing signs that CSR, or ESG as it’s often called these days, standing for environmental, social and governance, is affecting core business models including lending to property as modern values permeate big business.
Take the latest round of embattled housebuilder Taylor Wimpey versus the World in the ground rent debate; should developers do away with centuries-old methods of head leases where owners of buildings don’t actually own them in the way they think and have to pay the head leaseholder to stay there? Barclays refused to offer mortgages on a prime London development where underlease holders could have their leases terminated if the head leaseholder went into liquidation. Taylor Wimpey quickly said it would rewrite the problematic clause. The battle is, as the FT reports this week, a sign of a ‘shift in attitude’ and ‘tolerance…waning’.
It can also be viewed as symptomatic of a wider change in the views of the lending industry, from pension funds to high street banks. M&G, Legal & General and other institutional investors are preparing for their place in the world in decades to come and the scenarios they find look very different to the orthodox view of the world today. Technology that’s always on, people always connected, vastly enlarged city populations, more people left behind in poverty, global warming amplified and communities displaced.
One of the impacts will be a greater emphasis on disclosure and transparency, being seen to do the right thing. Dutch bank ABN Amro is trumpeting its green lending products, offering preferable rates to low carbon projects. In the UK, Lloyds was among the first to offer better terms on green buildings, opening a £2bn pot in 2016. A Lloyds loan partly paid for MSP’s off-grid Tesla Powerpack at the Bright Building.
The intense scrutiny social media puts companies under adds to the pressure to behave ethically, having a potentially material impact on the value of a company if they get it wrong and their reputation takes a dive.
Hedge funds are muscling in on the ethical movement, with new funds dedicated to ESG investment popping up from Scandinavia to Australia, including funds that short companies who behave badly. All this reflects the change from CSR/ESG being a cute add-on to a system for managing risk and improving performance.
ESG targets cover a huge range from closing the gender pay gap and driving board diversity to tightening data privacy and protecting supply chain ethics. The more companies are held to account the better. We keep reading that tech can be the pivot between the old and the new way of doing things. Let’s hope that prediction comes true, and soon.
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