Place-based inequalities are more extreme in the UK than in most comparable economies and have persisted for generations. Meanwhile, the pandemic coupled with Brexit have moved this seemingly intractable reality to the centre stage of public debate.
With the costs of the “Levelling Up” agenda expected to exceed £1 trillion over the next 10 years, there is a clear need for private capital to be mobilised alongside public investment.
Led by The Good Economy, the Impact Investing Institute and Pensions for Purpose, the place-based impact investing project was set up to explore how to scale-up institutional investment into opportunities that would connect capital to place. These investment opportunities include social and affordable housing, small business finance, clean energy, infrastructure and regeneration.
While the initial phase of the project has focused on the role of the £326bn Local Government Pension Scheme, PBII has the potential to become a new paradigm or lens for all kinds of investors. As such, this project offers exciting potential to anyone interested in exploring how investment can yield financial returns, as well as generating social and environmental impact to enhance local economic resilience and sustainable development.
The project has been funded by the Department for Digital, Culture, Media and Sport; City of London Corporation; and Big Society Capital.
Key messages from the discussion
- The power of the Local Government Pension Scheme and beyondOur research initially focused on the £326 billion Local Government Pension Scheme (LGPS) and the potential to unlock £16 billion aimed at delivering both financial returns and responding to the needs and opportunities of specific places. While the LGPS are a natural partner for this work, place-based impact investing is a relevant lens that can be adopted by all investors. The £1 trillion ‘levelling up’ agenda and efforts to build back better after the coronavirus pandemic are long-term, national challenges that need to be addressed in regional and local communities and economies across the UK. We need to mobilise different private sector actors to meet these ambitions.
- Focusing on investment opportunitiesThe 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. There are no hard barriers to scaling up place-based impact investing.
- The five pillars of place-based impact investing
Our research shows that investments within five key sectors – affordable housing, small- and medium-sized enterprise (SME) finance, clean energy, infrastructure and regeneration – can deliver risk-adjusted financial returns in line with institutional investor requirements. Those five pillars are underpinned by a solid social and financial rationale for investing.
- Impact measurement, management and reporting are key
Impact measurement, management and reporting are critical to harnessing place-based impact investing opportunities. It is a golden thread that can align and bring together stakeholders, and it can build trust. Good impact reporting can provide transparency and accountability for how money is invested.