The Place-Based Impact Investing Project (PBII) led by The Good Economy, the Impact Investing Institute and Pensions for Purpose, has published a white paper setting out its case for institutional investors to adopt a “place-based lens.”
The report shows that there are real opportunities for investors to secure financial returns while addressing place-based inequalities and support more inclusive and sustainable development across the UK.
While the initial phase of the project is focused on the role of the GBP326 billion Local Government Pension Scheme, the project’s partners believe that place-based impact investing has the potential to become a new paradigm or lens for all kinds of investors. The project is now looking to harness the interest generated amongst local government pension schemes, local authorities, fund managers, asset owners, consultants and other place-based stakeholders by inviting them to participate in a second phase. Organisations interested in the project should sign up here.
The report explores how to scale-up institutional capital into local and regional opportunities in key sectors including affordable housing, clean energy, infrastructure, small and medium-sized enterprises finance and regeneration.
Assets identified as place-based investments already exist in portfolios of local government pension schemes and can provide stable, risk-adjusted returns and low volatility.
Currently, place-based impact investment is limited, with local government pensions schemes investing around 1 per cent of their portfolio in ways that could directly support local and regional economic development and positive place-based impact creation.
However, there is a legacy of local investing by local government pension funds. If 5 per cent of their funds were allocated to local investment this would unlock GBP16 billion focussed on delivering both financial returns and responding to the needs and opportunities of specific places.
Place-based inequalities, the report also points out, are more extreme in the UK than in most comparable economies and have existed for generations. Meanwhile, the coronavirus pandemic coupled with Brexit have moved this seemingly intractable reality to the centre stage of the public debate.
With the UK government’s “Levelling Up” agenda expected to require GBP1 trillion of spending over the next 10 years, the report sets out a clear rationale and path for how private capital could be mobilised alongside public investment.
Sarah Forster, CEO, The Good Economy, says: “Impact investing offers not only the capital, but also the methods and metrics which can be used to set common impact objectives and monitor and evaluate progress towards a levelled up UK.”
Mark Hepworth, Director of Research and Policy, The Good Economy, says: “As Britain enters this post-Brexit, post-Covid watershed, this report looks at how we can mobilise institutional investment to build back better and put an end to place-based inequalities.”
Sarah Gordon, Chief Executive, Impact Investing Institute, says: “When we speak about place-based impact investing we no longer only talk about the need to address long-standing inequalities and support more inclusive and sustainable development across the UK. We now have evidence that shows that there are real opportunities for investors to secure financial returns while doing so. Connecting private capital to deliver positive impact, in the places that most need it, is not only crucial to building back better after the coronavirus pandemic, it also has the potential to unlock significant investment in local businesses, quality jobs, affordable homes and town centre regeneration that can bring us one step closer to a truly sustainable economy.”
Karen Shackleton, Director, Pensions for Purpose, says: “We have seen a significant increase in interest in impact investment from the Local Government Pension Scheme over the past three years with a growing understanding that it is possible to deliver market rate, risk-adjusted returns alongside social impact. This research will allow funds to see what scope there is for such investment and should encourage them to consider introducing a more purposeful approach to their investment strategy.”
Baroness Barran, Minister for Civil Society, says: ”Creating stronger connections between investors and place is a powerful way of building prosperous local economies, benefiting people, local authorities and investors. This exciting report highlights key ways in which institutional investors, such as local government pension schemes, can harness this opportunity to invest in their local places, and drive inclusive growth in the long run. I’m confident that this research will inspire others to follow in the footsteps of the trail blazers leading the charge in this space.”
Catherine McGuinness, Policy Chair, City of London Corporation, says: “Not only will place-based impact investing address inequalities across the UK, but it will be a vital step in driving forward our economic recovery, as we emerge from the Covid-19 pandemic. Its potential to attract investment and create opportunities for much needed employment, affordable homes and economic activity in the areas that need it the most, will be crucial.”
Anna Shiel, Head of Origination, Big Society Capital, says: “Place-based impact investment can offer a way to unite investors’ goal of financial returns in line with their fiduciary duties with that of delivering a positive and lasting impact in place, which is of particular relevance for local government pensions schemes. This report demonstrates how this is possible across a range of issues and asset classes, from affordable housing and renewable energy, to supporting small and medium-sized enterprises and economic development. The report also looks at what more could be achieved by unlocking the power of institutional capital to tackle place-based inequality.”
George Graham, Director of the South Yorkshire Pensions Authority, says: “Local Government Pension Scheme funds have a unique connection amongst investors with places, and over the years a number of funds have made significant contributions to their places whilst at the same time achieving the returns required to meet their liabilities. As return becomes more difficult to achieve and, perhaps more uncertain, looking closer to home can provide opportunities to generate the returns we need to meet our liabilities while working to improve the places where our scheme members live and work.”
Councillor Pat Cleary, Chair of Pensions Committee, Merseyside Pension Fund, says: “The project’s focus on how local government pension funds can be a catalyst for scaling up place-based impact investment recognises our connection with an interest in promoting sustainable development in the places our members live and work. This research is building the evidence for investors to identify opportunities to achieve market rate, risk-adjusted returns in key sectors identified as drivers of inclusive and sustainable development between and within regions of the UK.”
