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Originally published in Society Matters magazine

By Duncan Asker, DIrector of Treasury, Yorkhire Building Society

In a first for the building society sector, Yorkshire Building Society has issued a Social Residential Mortgage Backed Security, which was recieved with a great deal of positive interest.

At the end of May 2021 Yorkshire Building Society (YBS) issued its latest Residential Mortgage Backed Security (RMBS) from the Brass programme, Brass 10.  This was consistent in many ways to the previous issuance having GBP and USD public tranches and a retained GBP tranche.  However, Brass 10 had one significant difference to previous deals in that it was the first Social Bond issued by YBS, in fact, it's the first Social Bond issued by any building society.

So why did YBS decide to make this step into the Green, Social and Sustainable (GSS) Bond universe?

During 2020 the next phase of the YBS strategy was launched under the Societies Strategic Blueprint.  This built on the focus of providing 'Real Help with Real Life' and has three clear statements of purpose to support this objective:

• Helping people to find a place to call home
• Improving financial wellbeing
• Delivering long-term member value

Following discussions with the arranger, Lloyds Bank Corporate Markets, it became apparent that there was clear alignment between our strategy and aspects of the International Capital Markets Association (ICMA) Social Bond Principles and the UN's Sustainable Development Goals.  Specifically, ICMA Social Bond Principles 'Access to Essential Services (Banking)' and 'Socioeconomic Advancement and Empowerment (Equitable Access to and Control over Assets)'.  Given this the decision was taken to proceed with Brass 10 as a Social Bond.

To achieve our goal, we first had to draw up our Social Bond Framework.  This defined where we would deliver specific outcomes that meet the objectives of the ICMA principles.  We did this through defining our approach to 'Purposeful Lending' where we focus on areas of the residential lending market that are not as well served by other market participants.  In addition, we included member value creation where the retail deposit rates paid by YBS are higher relative to the rest of the market.  

Following completion of the Social Bond Framework we engaged a Second Party Opinion provider to confirm that our framework was value, working with S&P Global.

Once we got into the Deal Roadshow it soon became apparent that the Social aspect of the deal was raising a lot of interest.  It was also pleasing to hear several investors noting that they clearly saw the alignment between a mutual business model and the Environmental, Social and Governance (ESG) agenda.  We also received several ESG questionnaires from various investors looking to ensure that our bond aligned with their own guidance.

The outcome was positive.  We managed to extend the investor base on both the GBP and USD tranches and saw good levels of oversubscription - allowing us to tighten the pricing to very acceptable levels.  The extent that the Social aspect contributed to the success of the deal is not entirely clear but, based on the conversations it provoked, it without doubt played a part.

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