Place-based impact investing offers 'new paradigm' for investors, particularly LGPS

The Good Economy, Impact Investing Institute and Pensions for Purpose have announced the launch of the Place-Based Impact Investing Project, highlighting place-based impact investing (PBII) as a potential "new paradigm or lens" for investors.

The group has published a white paper outlining its case for institutional investors to adopt a “place-based lens”, identifying opportunities to secure financial returns whilst also addressing place-based inequalities and support more inclusive and sustainable development across the UK.

The report, Scaling up institutional investment for place-based impact, explored how to build institutional capital into local and regional opportunities in key sectors, such as affordable housing, clean energy, and infrastructure.

The project is being funded by the Department for Digital, Culture, Media and Sport, the City of London Corporation, and Big Society Capital, with LGPS funds, local authorities, fund managers and other stakeholders also involved throughout.

The £326bn Local Government Pension Scheme (LGPS) was highlighted as the "empirical focus" for the project, as the group found that assets identified as place-based investments already exist in portfolios of the LGPS and can provide “stable, risk-adjusted returns and low volatility”.

It clarified, however, that PBIIs are currently limited, with the LGPS investing around 1 per cent of their portfolio in ways that would directly support local and regional economic development and positive place-based impact creation.

Despite this, it emphasised that there is a legacy of local investing by LGPS, estimating that a 5 per cent allocation of their funds to local investment would unlock £16bn towards delivering both financial returns and responding to the needs of specific regions.

The report also stressed that place-based inequalities are more extreme in the UK than in most comparable economies, with the pandemic and Brexit moving this “seemingly intractable reality” to the centre stage of the public debate.

Indeed, the government recently launched a consultation on the consideration of social factors in pension schemes, with industry research also suggesting that the heavy focus on climate change has left other areas, such as social considerations, "overlooked".

However, the PBII report argued that the levelling up agenda goes “hand-in-hand” with the climate change agenda where pension funds already have a strong focus, particularly in relation to ensuring a just transition to net zero.

Furthermore, despite the initial focus on the LGPS, the project report clarified that place-based impact investing has the potential to become a “new paradigm or lens” for all kinds of investors.

“We envision PBII as a confluence of capital from commercial, social and public investors that results in equitable distribution of investment across all regions of the UK for the benefit of local places and people,” it stated.

“This confluence of capital flows, with institutional investors playing a key role, must happen if we are to make the levelling up aspiration a reality.

"As such, we hope this report acts as a template for change, and will be read and acted upon by all institutional investors and financial institutions.”

Going forward, the project will look to harness the interest generated amongst the LGPS, local authorities, fund managers, asset owners and consultants by inviting them to participate in the second phase of the project.

Commenting on the launch, The Good Economy CEO, Sarah Foster, emphasised that impact investing offers not only the capital, but also the methods and metrics that can be used to set common impact objectives and monitor and evaluate progress towards a “levelled up” UK.

Impact Investing Institute chief executive, Sarah Gordon, added: “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.”

Also commenting on the launch, Pensions for Purpose director, Karen Shackleton, said: “We have seen a significant increase in interest in impact investment from the LGPS 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.”

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