The nexus of ESG and affordable housing

In recent years, there has been an increasing focus on the intertwining elements of Environmental, Social, and Governance (ESG) in sectors ranging from finance to real estate. Historically seen as a contributor to societal carbon emissions, the property sector now stands at a pivotal juncture: integrate sustainable practices or risk being outdated. The ESG approach isn't just about saving our planet; it's about the long-term sustainability of the property sector.

With the global spotlight intensifying on sustainability, the International Finance Corporation (IFC), an affiliate of the World Bank Group, unveiled EDGE, a green building certification system that focusses on making buildings more resource efficient. Beyond being a certification, this initiative serves as a benchmark designed to highlight the importance of ESG in property financing.

In South Africa, the adoption of EDGE underscores the urgency of revaluating our real estate models, whose contribution to the climate dilemma is hard to ignore, accounting for nearly 30% of global carbon emissions. This alarming data drives home the need to switch towards more environmentally friendly housing. The focus is now sharply on the adoption of sustainable building materials and creative solutions to address energy challenges. Integrating these green strategies in new constructions improves efficiency and provides an avenue for residents to save on utilities. Considering the sizable chunk, many households dedicate to utilities, about a quarter of their income, the quest for affordable, eco-friendly housing becomes even more pressing, especially in areas witnessing housing crunches and spiralling energy costs.

In the journey toward sustainability, the property sector faces multiple challenges, like the rising costs of green certifications and the need to negotiate with international institutions like the IFC to incentivise green building. However, with this comes the opportunity to innovate.

The financial sector recognises the value of a balance between good returns and a sustainable future.

Enabling this shift is the supportive framework of ESG regulations that promote sustainability. By steering towards green projects, developers and investors are looking at long-term savings, which are further enhanced by incentives for green property developments. However, this prompts a pressing question: how do we ensure developer compliance with ESG?

Banks like Nedbank have taken the lead in this. By implementing standards and principles and joining initiatives like the Social Environmental Management Systems, there's a robust mechanism to ensure compliance. This is further strengthened through collaborations with local authorities for project approvals and a vigilant oversight against exploitative practices.

However, all these measures would be redundant without the proper education of stakeholders. As far back as 2001, training sessions have been instrumental in enlightening developers about green residential bonds and the crucial role of ESG in property finance.

When granting finance, banks adhere to the Financial Sector Charter, and emphasise client education, ensuring homeownership is attainable for the low-income segment. For property developers, this criterion also includes a focus on sustainability and green development in support of the commitment of funders towards sustainability.

Complementing the efforts of financial institutions, the government has also played its role by enhancing subsidies for first-home financing, bridging crucial financial gaps. Yet, while these efforts are laudable, a gap persists in driving awareness about green developments.

From an ESG perspective, the emphasis isn't on environmental factors only but also on social considerations. Nedbank's strategy, for example, is illustrative of this, focusing heavily on the low-income bracket, making it the fulcrum of the bank's vision. By offering loans up to 115%, Nedbank has further showcased its commitment to this segment of society.

However, despite these progressive strides, the affordable housing market is not without its challenges, with sales dropping by approximately 30% year on year due to economic conditions. Yet, resilience shines through as this sector outperforms the traditional market, signalling hope for the future. This is evident in the comparative growth of new business in the affordable housing sector versus the traditional market.

As we navigate the complex labyrinth of property finance, two things are clear: the importance of ESG can't be understated, and affordable housing remains at the epicentre of this conversation. It's now up to us, the stakeholders, to decide. Will we engage in discourse or take tangible action to create sustainable, affordable housing solutions for all?