LQ launches pioneering 300m sustainability-linked bond

Housing association L&Q has successfully issued a ?300m sustainability-linked bond, pledging to investors it will achieve a string of environmental improvements across its residential housing stock over the coming years.

Announcing the fund raise this week, the not-for-profit housing provider said the bond had been structured against three key performance indicators (KPIs) targeting operational carbon emissions, the energy efficiency of residential homes, and the delivery of more affordable homes.

Under the new targets, the firm has pledged to work to reduce its Scope 1 and Scope 2 direct emissions by 20 per cent against a 2019/20 baseline by the end of March 2024.

It is also seeking to achieve an average System Applications and Products in Data Processing (SAP) score of 72 or above for energy efficiency across its portfolio - equivalent to a Energy Performance Certificate (EPC) rating of C or above.

Unlike green or sustainable bonds, funds raised through sustainability-linked bonds are not tagged to a specific use for the proceeds with the funds raised able to be used for general corporate purposes. However, issuers accrue additional payments to bondholders should they fail to meet their environmental and social KPIs, providing them with an additional financial incentive to deliver on their green targets.

The sustainability-focused UK housing association claims the bond issued this week, which was set up in conjunction with France-headquartered banking giant BNP Paribas, is the first of its kind.

Money raised through the ?300m bond will also be invested in the building of 8,000 new homes in the UK by April 2024, over half of which are meant to be 'affordable' for buyers, according to L&Q.

"We are thrilled with the successful placement of this landmark 'sustainability linked nond', which is a first for our sector," said L&Q group director of finance Waqar Ahmed. "It will allow us to meet our stated objectives and further strengthen our liquidity position, while stretching us to achieve environmental and social targets that greatly benefit our residents and the wider community."

Ahmed noted that raising funds to deliver projects that would enable the firm's to meet its 2050 net zero ambition remained a challenge.

"We want to enable sustainable economic and housing growth, to safeguard the environment, and to collaborate with others to achieve significant improvement in social impact and social value," he said. "However, we face the challenge of funding these ambitions while simultaneously delivering a major programme of safety remediation work, improving residents' homes, and increasing the supply of much-needed new homes."

L&Q is a not-for-profit registered provider of social housing and is one of the UK's leading housing associations, providing housing to around 250,000 people primarily across London and the South East of England.

A version of this article was published on BusinessGreen's sister site Investment Week.

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