Over the last decades, ESG debt issuance, through green, social or sustainability-linked loans and bonds has become increasingly common. Financial markets have hailed the adoption of ESG indicators as a tool to align capital investments with environmental and social goals, such as the decarbonisation of the social housing stock. According to the Climate Bonds Initiative (CBI), the green debt market has experienced a 50% growth over the last five years (CBI, 2021). However, the lack of clearly established indicators and objectives has tainted the growth of green finance with a series of high-level scandals and accusations of green-washing, unjustified claims of a company’s green credentials. For example, a fraud investigation by German prosecutors into Deutsche Bank’s asset manager, DWS, has found that ESG factors were not taken into account in a large number of investments despite this being stated in the fund’s prospectus (Reuters, 2022). To curb greenwashing and improve transparency and accountability in green investments, the EU has embarked on an ambitious legislative agenda. This includes the first classification of environmentally sustainable economic activities: the EU Green Taxonomy (Regulation 2020/852). The Taxonomy is directly linked to the European Commission’s decarbonisation strategy, the Renovation Wave (COM (2020) 662), which relies on a combination of private and public finance to secure the investment needed for the decarbonisation of social housing. Energy efficiency targets have become increasingly stringent as the Energy Performance of Buildings Directive (EPBD) and its successive recasts (COM(2021)) have been incorporated into national legislation; see for example the French Loi Climate et Resilience (2021-1104, 2021). Consequently, capital expenses for SHOs are set to increase considerably. For example, in the Netherlands, according to a Housing Europe (2020) report, attaining the 2035 energy efficiency targets set by the Dutch government will cost €116bn. Sustainable finance legislation constitutes an expansion of the financial measures implemented by the EU in recent decades to incentivise energy efficiency standards as well as renovations in the built environment. For more detail on prior EU policies, see Economidou et al. (2020) and Bertoldi et al. (2021). The increased connections between finance and energy performance raise specific questions regarding SHOs’ access to capital markets in light of the shift toward ESG. The rapidly expanding finance literature on green bonds draws from econometric models to explore the links between investors’ preferences and yields (Fama & French, 2007). This body of literature on asset pricing relies on the introduction of non-pecuniary preferences in investors’ utility functions together with returns and risks to explain fluctuations in the equilibrium price of capital. Drawing from a comparison between green and conventional bonds, Hachenberg and Schiereck (2018) find evidence of the former being priced at a premium. Similarly, Zerbib (2019) also shows a low but significant negative yield premium for green bonds resulting from both investors’ environmental preferences and lower risk levels. The European Commission’s Joint Research Centre (Fatica & Panzica, 2021) documents the dependency of premiums on the issuer with significant estimates for supranational institutions and corporations, but not for financial institutions. While these econometric approaches offer relevant insight into the pricing of green bonds and the incentives for issuers and investors, they do not account for the institutional particularities of social housing, a highly regulated sector usually covered by varying forms of state guarantees and subsidisation (Lawson, 2013). ESG-labelled debt instruments & Related Legislation Throughout the last two decades, the term ESG finance has evolved to include a large number of financial vehicles of which green bonds have become the most popular (Cortellini & Panetta, 2021). In the social housing sector, ESG comprises a broad array of tools from sustainability-linked loans to less conventional forms of finance such as carbon credits. When it comes to bonds, there is a wide variation in the sustainability credentials among the different types. Broadly speaking, green and social bonds are issued under specific ‘use of proceeds’, which means the funds raised must be used to finance projects producing clear environmental or social benefits. The issuance of these types of bonds requires a sustainable finance framework, which is usually assessed by a third party emitting an opinion on its robustness. Sustainability-linked bonds (SLBs) are an alternative to ‘use of proceeds’. Funds raised in this manner are not earmarked for sustainable projects, but can be used for general purposes. SLBs are linked to the attainment of certain company-wide Key Performance Indicators (KPIs), for example an average Energy Performance Certificate (EPC) rating of “C” in an SHO’s housing stock. These indicators and objectives usually result in a price premium for Sustainable Bonds, or a rebate in interest rates in the case of SLBs or sustainability-linked loans (SLLs) (Cortellini & Panetta, 2021). While there are international standards for the categorisation of green projects such as the Green Bond Principle or the Climate Bonds Strategy, strict adherence is optional and there are few legally-binding requirements resulting in a large divergence in reporting practices and external auditing. To solve these issues and prevent greenwashing, the EU has been the first regulator to embark on the formulation of a legal framework for green finance through a series of acts targeting the labelling of economic activities, investors, corporations and financial vehicles. First, the EU Green Taxonomy (Regulation (EU) 2020/852) is the cornerstone of this new legislation since it classifies economic activities attending to their alignment with the objectives set in the European Green Deal (EGD). When it comes to housing, the EU Taxonomy requires specific energy efficiency levels for a project to be deemed ‘taxonomy aligned’. Second, the Sustainable Finance Disclosure Regulation (SFDR) (Regulation (EU) 2019/2088) mandates ESG reporting on funds, which tend to consist of exchange-traded collections of real assets, bonds or stocks. Funds are required to self-classify under article 6 with no sustainability scope, ‘light green’ article 8 which incorporates some sustainability elements, and article 9 ‘dark green’ for funds only investing in sustainability objectives. Under the SFDR, which came into effect in January 2023, fund managers are required to report the proportion of energy inefficient real estate assets as calculated by a specific formula taking into account the proportion of ‘nearly zero-energy building’, ‘primary energy demand’ and ‘energy performance certificate’ (Conrads, 2022). Third, the Corporate Sustainability Reporting Directive (CSRD)(COM(2021) 189) increases disclosure requirements for corporations along Taxonomy lines. This legislation, which came into effect in 2023, will be progressively rolled out starting from larger and listed companies and expanding to a majority of companies this decade. Provisions have been made for charities and non-profits to be exempt. However, one of the key consequences of disclosure requirements over funds through the SFDR is its waterfall effect; that is the imposition of indirect reporting requirements as investors pass-on their reporting responsibilities to their borrowers. Fourth, the proposed EU Green Bonds Standards (EU-GBS) COM(2021) 391 aims to gear bond proceedings toward Taxonomy-aligned projects and increase transparency through detailed reporting and external reviewing by auditors certified by the European Security Markets Authorities (ESMA). The main objectives of these legislative changes is to create additionality, that is, steer new finance into green activities (see Figure 1).   While this new legislation is poised to increase accountability and transparency, it also aims to encourage a better management of environmental risks. According to a recent report on banking supervision by the European Central Bank (ECB), real estate is one of the major sources of risk exposure for the financial sector (ECB, 2022). This includes both physical risks, those resulting from flooding or drought and, more relevant in this case, transitional risks, that is those derived from changes in legislation such as the EPBD and transposing national legislation. The ECB points to the need for a better understanding of risk transmission channels from real estate portfolios into the financial sector through enhanced data collection and better assessments of energy efficiency, renovation costs and investing capacity. At its most extreme, non-compliance with EU regulations could result in premature devaluation and stranded assets (ECB, 2022). In short, the introduction of reporting and oversight mechanisms connects legislation on housing’s built fabric, namely the EPBD, to financial circuits. On the one hand, the EU has been strengthening its requirements vis-à-vis energy efficiency over the last decades. The Energy Efficiency Directive (EED) suggested the introduction of Minimum Energy Performance Standards (MEPS) by Member States (Economidou et al., 2020), a rationale followed by France and the Netherlands for certain segments of the housing stock. Currently, policy-makers are debating on whether the EPBD’s recast (COM/2021/802) should incorporate MEPS and make decarbonisation an obligation for SHOs across the EU. On the other hand, legislation on green finance aims to produce incentives and oversight over investments in energy efficient renovation and new build, mobilising the private sector to cater to green projects (Renovation Wave (COM(2020) 662)). 

Strengthening Construction Quality and Knowledge Sharing The City of York's procurement strategy for the Duncombe Square project, as well as other housing sites across the city, focused on two key objectives: ensuring high-quality construction and facilitating knowledge exchange about sustainable building practices. These objectives exemplify the council's commitment to its housing delivery programme. To achieve housing quality, the council engaged a multidisciplinary design team led by the esteemed architect Mikhail Riches, known for his work on Norwich Goldsmith Street and association with the Passivhaus Trust. This team was supported by RICS-accredited project managers, clerks of work, and valuers to uphold stringent standards. The project used two complementary approaches to improve the construction and delivery of large-scale Passivhaus projects in the UK. The first approach involved training to advance sustainable construction skills for existing staff, new hires, and students aged 14 to 19, led by the main contractor, Caddick Construction (Passivhaus Trust, 2022). The second approach is sharing knowledge with a broader audience by organising multiple tours during the different construction phases. These tours were designed for developers, architects, researchers, and housing professionals. They showcased Duncombe Square as an open case study, allowing industry peers to learn from and engage directly with project and site managers, reinforcing the project's role as a model for York’s Housing Delivery Programme. Duncombe Square Housing Design The design principles of the Duncombe Square project aim to integrate functionality and encourage healthy and sustainable lifestyles. The principles embody the essence of Passivhaus design while ensuring aesthetic appeal. It features low-rise, high-density terraced housing to optimise land use and foster a sense of community. The terraces are strategically positioned close together to maximise solar gain during the winter hours of sunlight, ensuring compliance with the rigorous Passivhaus standards while accommodating a maximum number of residences. The design ensures that each home benefits from natural light and heat while aligning with the Passivhaus energy efficiency and ventilation principles. The facade design and colour scheme connect with the local architectural identity of traditional Victorian terraces, with a modern twist that cares for indoor environmental quality. It features high ceilings, thick insulated walls, and a fully airtight construction. The design incorporates traditional materials such as brick, enhanced by modern touches of render and timber shingles that blend harmoniously with the local surroundings. The site plan design reflects a neighbourhood concept that extends beyond the energy-efficient and modern appearance of the houses. Duncombe is designed as a child-friendly neighbourhood, prioritising walking and cycling with dedicated cycle parking for each home. Vehicle parking and circulation are situated along the site's perimeter, ensuring paths are exclusively for pedestrians and play areas. Additionally, shared 'ginnels' provide bike access, enhancing mobility and creating safe play areas for children. This emphasis on pedestrian access enhances community interaction and outdoor activities. The thoughtful landscaping incorporates generous green open spaces at the development's core, complemented by communal growing beds and private planters. These features are intended to be aesthetically pleasing while also encouraging community engagement.   A Construction Adventure For the main contractor, Caddick Construction, this project represents a distinctive adventure - from procurement to construction to Passivhaus standards - that deviates from traditional British construction practices. Recent UK housing developments often employ "Design and Build" contracts, where the contractor assumes primary responsibility for designing and constructing the project. However, the architects led the design process in this case, necessitating frequent collaborative meetings to discuss detailed execution plans. During a site visit to the project site in York in September 2023, the contractor’s site manager explained the challenges of constructing and applying Passivhaus standards on a large scale. Unlike traditional construction, Passivhaus demands meticulous attention to detail to ensure robust airtightness of the building envelope. Moreover, building to these standards involves sending progress images to a Passivhaus certifier, who verifies that each construction step meets the rigorous criteria before approving further progress.   The chosen construction method for this project is off-site timber frame construction combined with brick and roughcast render. Prefabricated timber frames mitigate risks for contractors and expedite the construction process. The homes' superstructure employs timber frame technology, ensuring durability and longevity. A key priority in the construction process is preventing heat loss and moisture infiltration. This involves: Envelope Insulation: Airtightness is crucial for minimising heat loss. Therefore, the façade installation included airtight boards, tapes, membranes, timber frame insulation, and triple-glazed windows. Indoor airtightness is tested at least four times throughout the construction process to guarantee that residents will live in an airtight house. Foundation and Floor Insulation: Three layers of insulation between the floor finishing and foundation prevent heat loss, enhance thermal efficiency, and control moisture penetration, protecting against groundwater leakage.   Households’ Health and Wellbeing Households' health and wellbeing are foundational pillars in the development of the Duncombe Square project. In addition to the robust energy efficiency benefits of Passivhaus standards, this initiative underscores high indoor air quality through Mechanical Ventilation with Heat Recovery (MVHR) units, which improve air quality and help mitigate issues like dampness and mould in airtight houses. To improve outdoor air quality, the design strategically reduces car usage by fostering a pedestrian-friendly environment with expansive green pathways that purify air and encourage outdoor activities. Amenities such as bike sheds with electric charging points and communal "cargo bikes" are also included. Central to the project is a vibrant communal green space that facilitates relaxation, play, and social interactions—vital for mental and physical health. The scheme enhances residents' wellbeing by ensuring proximity to local amenities, promoting a healthier, more active lifestyle without reliance on vehicles. Extensive pedestrian and cycling paths, alongside wheelchair-friendly features, highlight the project's commitment to inclusivity and a healthy living environment. The design harmoniously integrates with local architecture and includes public amenity spaces that prioritise safe, child-friendly areas and places for social gatherings, fostering a strong community spirit.   When compared with the framework for sustainable housing focusing on health and wellbeing developed by Prochorskaite et al., (2016), the Duncombe project excels in incorporating features such as energy efficiency, thermal comfort, indoor air quality, noise prevention, daylight availability, and moisture control. Moreover, it emphasises accessible, quality public green spaces, attractive external views, and facilities encouraging social interaction and environmentally sustainable behaviours. Its compact neighbourhood design, sustainable transportation solutions, proximity to amenities, consideration of environmentally friendly construction materials, and efforts to reduce greenhouse gas emissions perfectly encapsulate the framework's objectives for providing sustainable housing focused on health and wellbeing. Affordability From a housing provider's perspective, the delivery team faced challenges in achieving a net-zero and Passivhaus standard that is affordable and scalable for large housing developments. For instance, construction costs are subject to pricing risks as contractors raise their prices amid market uncertainties, thereby increasing overall project expenses. Integrating Passivhaus principles is believed to have helped control these costs by simplifying building forms and reducing unnecessary complexities. Residents' housing affordability is expected to be positively influenced by three key factors: tenure distribution, adherence to Passivhaus standards, and the development's central location. The tenure distribution includes 20% of units for social rent and 40% for shared ownership, offering affordable options for both renters and prospective homeowners. Passivhaus standards further reduce costs by lowering energy consumption through features like PV panels and energy-efficient air-source heat pumps, earning the development an A rating for energy performance and cutting utility bills for residents. Additionally, the central location decreases mobility-related expenses, with easy access to local amenities reducing the need for car use. Together, these factors help promote a sustainable lifestyle and lower overall living costs for residents.  Sustainability: Environmental, Social, and Economic Lens Environmental sustainability involves two key aspects: (1) reducing resource consumption and (2) minimising emissions during use (Andersen et al., 2020). Duncombe Square's initiatives to reduce resource consumption include: The dwelling's superstructure utilises low-carbon materials, such as FSC (Forest Steward Council) certified timber framing, which ensures it is sourced from sustainable forestry. Using recycled newspaper for insulation to minimise environmental impact. Monitoring the embodied energy of construction materials, including accounting for the energy used in their extraction, production, and transportation. Sourcing 70% of subcontractors and supplies within 30 miles of the site, as per Passivhaus Trust guidelines, to reduce emissions from long-distance transportation. To minimise environmental impact during use, the project incorporates: Air-source heat pumps for heating and solar PV panels on roofs, enabling net-zero carbon energy usage. Water butts for collecting rainwater for gardening purposes. Permeable surfaces, rain gardens, and Sustainable Urban Drainage Systems (SUDS) to reduce surface runoff in public areas. Economic sustainability is at the forefront of providing affordable, energy-efficient dwellings that do not impose long-term financial burdens on residents. The project offers affordable dwellings in terms of housing costs, non-housing costs, and housing quality. It also contributes to the broader economy by promoting sustainable building practices and creating future jobs through on-site training programmes. Caddick Construction prioritises the local sourcing of subcontractors and suppliers within 30 miles of the site, thereby reducing transportation costs and supporting the local economy. Social sustainability is integral to the project, featuring designs that promote community interaction and provide safe, accessible outdoor spaces. The development includes communal green spaces, such as plant-growing areas and a central green space for natural play, enhancing residents' quality of life. Prioritising pedestrian pathways and extensive cycle storage encourages a shift towards sustainable transport options, reducing reliance on cars and promoting healthier, more active lifestyles.