There is a strong argument that the “Social” aspect of ESG reporting should extend to how a company manages its role in Society with a mix of stakeholders. ‘Social’ should be about much more than staff satisfaction scores, diversity targets and customer reviews – no matter how measurable and convenient they are.

To date, of course, the ‘E’ has been getting most of the attention in mortgage lending. Understandably so, since our housing stock accounts for so much of our emissions. But other elements matter too. The pandemic shone a light firmly on our society and economy. Heatwaves are competing with Covid and public health and yet both fundamentally impact our existence.

We know that the different elements of ESG do not exist in silos in the real world. At a micro level, something done for environmental reasons may well impact the lives of the borrowers and tenants we help house.  For example, mortgage lending products that incentivise improvement to the energy efficiency of the property should acknowledge the consequence of reducing energy running costs for the homeowner that will in due course support their financial security.  Equally, discounted pricing for home improvements that is more available to people who can afford shiny new homes may create mortgage prisoners of some of the poorest in society, who inhabit old stack that is incredibly expensive to retrofit.

As a result, if we take an outcomes perspective, how we use mortgage lending to better the ‘S’ in ESG will come under increasing scrutiny. Of course, this leads to greater challenges when it comes to data. I have already mentioned that when it comes to measuring ‘green’ performance either in terms of energy performance or emissions, data exists in many forms to help us quantify the problem, measure the progress, and make real headway in shaping solutions.

But data cannot be all of the answer. For example, if all Buy-to-Let loans were to be conducted on an AVM basis, there would be no duty of care to the tenant, or knowledge of the condition of common areas that affect our way of living in these kinds of spaces. Physical inspections, to check on the vulnerability of occupiers and the conditions in which they are living, may become more important in this context than the consideration of lender property risk.

If we accept that the push towards a focus on borrower outcomes is the direction of travel (the FCA is hoping to roll out its duty of care programme at the end of July) then we need to think carefully about what we measure and the value of the benchmarks we use. Box ticking is not an option. Risk may be reduced to an LTV but ultimately that is an affordability play – not a focus on outcomes. If money lent is considered in the context of what it is used for as it is in a mortgage, then if it is perpetuating negative social consequences then this should give us cause for reflection.

As an industry we are happy to support lending to key workers which one might point out is a social good. Help to first time buyers or lending for environmental improvement purposes, or to improve the lives of older people 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.  How we measure the value, the ‘score’ we may conclude as a result of our activity, will be a matter of debate but it will come.