L&Q completes landmark £300 million Sustainability-Linked Bond issuance

Published on 14/01/2022

L&Q has successfully completed the first Sustainability-Linked Bond (SLB) from the social housing sector, placing a £300 million issue which is directly linked to the housing association achieving a set of ambitious social and environmental targets.

Last September, L&Q published its first Sustainable Finance Framework, which paved the way for the housing association to use a range of loans and bonds to boost environmental and social outcomes as it aims to be a net-zero carbon business by 2050.

The 10-year SLB will mature on 31 March 2032 and is priced at Gilts + 87 bps, giving a coupon of 2.00%. The sustainability linked component is structured against three highly significant targets around reducing operational carbon emissions, improving the energy efficiency of residents’ homes, and delivering new affordable homes.

The SLB provides a clear set of financial incentives, requiring L&Q to achieve the following targets (tested from 31 March 2024):

  • Reduce scope 1 and 2 greenhouse gas emissions by 20% against a baseline of 31 March 2020
  • Achieve an average calculated Standard Assessment Procedure (SAP) score of 72 or above (low Energy Performance Certificate – or EPC - band C)
  • Build 8,000 new homes of which 50% are affordable

These are the first in a series of strategic targets to be set by L&Q with the aim of achieving net zero carbon by 2050.

Waqar Ahmed, L&Q Group Director of Finance, said:

“We are thrilled with the successful placement of this landmark Sustainability Linked Bond, which is a first for our sector. 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.

“L&Q aims to be a net-zero carbon business by 2050. 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.

“We recognise 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.

“This successful issuance demonstrates the strength of our investor relationships, and the confidence they have in our strategy, our governance and ability to adapt. With the support of our investors, L&Q will continue to deliver programmes that tackle climate change, save residents money, combat fuel poverty, boost the economy and create jobs.”

Martin Watts, Director of Treasury, said:

“The placement of the first SLB from the social housing sector demonstrates our commitment to sustainable growth, creating a clear economic incentive for L&Q to enhance, and where necessary, change its behaviour in a way which delivers valuable environmental and social outcomes, whilst reducing credit risk.

“The SLB is priced at the lowest re-offer credit spread achieved by L&Q to date, and clearly demonstrates the positive reception received from investors despite competing supply and recent wider market volatility.”

BNP Paribas was the sole Sustainability Structuring Advisor on the transaction and joint bookrunner, along with Barclays, HSBC (B&D) and National Australia Bank (NAB).

Agnes Gourc, Head of Sustainable Capital Markets, BNP Paribas, said:

“L&Q is proving that finance can be used to align social and environmental targets and drive real progress in a transparent, measurable, way. L&Q’s communities’ benefit from new and affordable homes constructed with a lower environmental impact, and investors get a direct link between their investments and the SLB commitments.”