Pension funds urged to help communities through local investment
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The Place-Based Impact Investing Project, led by social advisory firm the Good Economy, non-profit organisation the Impact Investing Institute and campaign group Pensions for Purpose and backed by government, will publish a white paper today making the case for institutional investors to adopt a ‘place-based’ lens for investment decisions.
The group’s report says that there are opportunities for investors to achieve financial returns while addressing regional inequalities and support sustainable development across the UK, through investment in affordable housing, clean energy, infrastructure, small and medium-sized enterprises finance and regeneration.
The project funded by the Department for Digital, Culture, Media and Sport, the City of London Corporation and Big Society Capital is initially focused on the Local Government Pension Scheme, which has an affinity to local investment through the scheme sponsors. But the project says other investors could also apply this approach, inviting other organisations to participate in a second phase.
Extra £16bn could be unlocked, group says
The report found that place-based impact investment is currently limited, with local authority pension funds investing around 1% of their portfolio. It argues that if 5% of their funds were allocated to local investment, this would unlock £16bn, which the authors believe would be focussed on delivering both financial returns and responding to the needs and opportunities of specific places.
Such an investment would easily match all of the government’s ‘levelling up’ funds, the group says. The cost of ‘levelling up’ left-behind communities is expected to exceed £1tn over the next 10 years.
“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,” said Sarah Forster, chief executive of the Good Economy.
The report highlights ways in which institutional investors like local authority funds can invest in their local area and drive inclusive growth in the long run, said Baroness Barran, minister for civil society.
''Creating stronger connections between investors and place is a powerful way of building prosperous local economies, benefitting people, local authorities and investors. I'm confident that this research will inspire others to follow in the footsteps of the trail blazers leading the charge in this space,” she said.
George Graham, director of the South Yorkshire Pensions Authority, said that over the years a number of LGPS funds have made significant contributions to their places whilst 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,” he said.
Councillor Pat Cleary, who chairs the pensions committee looking after Merseyside Pension Fund, said that “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”.
Can local investment benefit scheme members? What is the effect on local communities if profit-seeking investors control key services?