South West housing group scoops £75m sustainability loan

Alliance Homes has secured a £75m loan from Lloyds Bank, on the condition that it will enhance the energy efficiency of its housing stock.

The terms of the loan require that the margins on which it is borrowed are linked to three key performance indicators (KPIs).

The first KPI requires that the housing group improves its housing efficiency to EPC (energy performance certificate) C standard by 2028. The EPC standard for housing is a points-based scale whereby gains can be made by installing better insulation, introducing double glazing or adding solar panels. The best EPC standard is A.

The second KPI demands that Alliance Homes build 2,000 homes during the next decade. Meanwhile, the third dictates that it installs 519 photovoltaic systems to improve its capacity to generate energy. This is aimed at tackling fuel poverty among tenants.

Alliance Homes chief financial officer Katrina Michael said: “The challenges of addressing the current housing shortage while investing in communities and becoming more sustainable are top of the agenda for social housing providers across the UK.

“We must address these challenges head-on and meet our responsibility to future-proof our homes with the support of our banking partners.”

Alliance Homes manages about 6,500 homes in the West of England and North Somerset.

Sustainability-linked loans are increasing in popularity throughout the construction sector, with Wates among those to benefit from them, having secured a £90m loan from a syndicate led by Lloyds Bank last month. As well as committing to sustainability improvements, the contractor promised to increase the number of women appointed to senior positions at the firm.

Balfour Beatty and Willmott Dixon have also secured sustainability-linked loans in the past year, with Balfour Beatty claiming its £375m loan was the largest ever awarded to a construction firm.

Sustainability-linked loans

Sustainability-linked loans are a form of socially responsible finance that focus on the borrower’s general activity rather than a specific project.

The UK’s Loan Market Association, in conjunction with similar bodies across the globe, has produced a set of guiding principles for this type of lending.

Essentially, sustainability-linked loans look to improve a borrower’s social responsibility profile over the repayment period by aligning the cost of borrowing to performance measured using stated indicators, such as carbon-emissions reduction or increasing the number of women in senior roles.

Legal firm Herbert Smith Freehills predicts that this type of finance arrangement will “fast become the norm” amid the global economic recovery from COVID-19.

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