Only six local government pension schemes out of 50 intend to invest locally, a new report has said.
The Good Economy has this week released a white paper outlining a new approach to impact investing it hopes will address social issues in the UK, and calling for this to become a main investment theme in the next decade for the UK’s leading pension funds.
Place-based impact investing (PBII) is “investments made with the intention to yield appropriate risk-adjusted financial returns as well as positive local impact, with a focus on addressing the needs of specific places to enhance local economic resilience, prosperity and sustainable development,” according to the paper, Scaling up institutional investment for place-based impact.
The paper focuses on Local Government Pension Schemes (LGPS). These pension funds are locally managed by 98 sub-regional administering authorities and have assets with a combined market value of £326bn as of March 2020.
It said if all LGPS funds allocated 5% to local investing, this would unlock £16bn for local investing, and found just Cambridgeshire, Clwyd, Greater Manchester, Strathclyde, Tyne and Wear and West Midlands had plans to invest locally.
The paper also identified key areas for PBII investing but found just 2.4% of LGPS funds in these sectors, which include infrastructure and SME finance.
Barriers to these low levels of investment, the paper said, include traditional investment mindsets, fears of conflicts of interest and lack of capacity. To address these the paper makes recommendations intended to raise awareness, increase capacity and competency, promote place-based impact reporting, connect investors and PBII opportunities and scale up institutional grade investment products.
The project has been led by The Good Economy working in partnership with the Impact Investing Institute and Pensions for Purpose. The research project has been supported by the Department for Digital, Culture, Media & Sport, City of London Corporation, and Big Society Capital.