UK government looks to push £16bn of LGPS capital to local investments

The Impact Investing Institute has hailed UK government plans to mobilise more than £16bn (€19.2bn) of local government pension scheme (LGPS) capital to investments in local projects.

In its white paper on “levelling up”, the government said it would work with LGPS funds to publish plans for increasing local investment, including setting an ambition of up to 5% of £337bn of assets invested in projects that support local areas.

The announcement is line with a paper published last year by the Impact Investing Institute, The Good Economy and Pensions for Purpose which argued that LGPS funds should re-allocate more than £16bn of capital to local “place-based” investments, including housing, clean energy, infrastructure and regeneration.

Sarah Gordon, CEO of the Impact Investing Institute, said the announcement of a new 5% target for local investment by council pension schemes was “a central recommendation of our place-based impact investing programme since its inception and was a key call to action from our 2021 white paper” Scaling up institutional investment for place-based impact. 

She said: “This move will make it easier for pension schemes to consider the real opportunities presented by investing for impact in UK towns, cities and regions. By putting their investments to work to address local challenges, pension schemes can achieve appropriate risk-adjusted financial returns that are compatible with their fiduciary duty while enhancing local resilience and improving people’s lives.

“Through our place-based impact investing approach, and the extensive work we have done on pensions with impact, the Impact Investing Institute stands ready to support both the government and individual pension schemes to ensure this target is met and real positive impact is delivered.”

Anna Shiel, head of origination at Big Society Capital, which has supported the place-based impact investing programme, said: “We are delighted to see a new target for council pension funds in England to invest at least 5% of their £337bn of combined assets on local areas.

“Over the past decade we have seen first-hand how connecting private capital to the places that most need it has the potential to reverse the social inequality that is limiting horizons, and which harms our economy.

“We have seen pension funds increasingly supporting social impact in recent years – tackling a wide range of issues including homelessness and education. We look forward to seeing how the new target will further this trajectory.” 

Sarah Forster, CEO and co-founder of The Good Economy, said: “We believe that place-based impact investing is an investment paradigm whose time has come. It can provide the financial innovation needed to level-up the UK at the scale that is necessary.”

Mark Hepworth, co-founder and director of research and policy, at The Good Economy, added: “To meet the white paper’s 2030 levelling-up targets will require a massive reallocation of impact capital from the financial markets to the real economy.

“Place-based impact investment is the paradigm shift that investors and governments must embrace for this historical reallocation to occur. We need radical financial innovation to level up Britain.”

Gordon said that, “while the publication of this white paper marks an important step forward, there is an urgent need for transformational investment that tackles regional inequalities and improves people’s lives”.

She added: “We believe that responsible private investment in underserved places – place-based impact investing – will have a critical role to play in delivering the levelling-Up agenda and fulfilling the ambitious aims of this white paper.

“The leveraging of private capital across policy areas and sectors will be an essential part of achieving these ambitions and we hope that government will play a decisive role in facilitating this.

“They can do so by using public investment to catalyse institutional investment in historically under-served regions of the UK and supporting local authorities to engage with institutional capital. We look forward to working closely with both the government and the market to achieve this.”