The UK’s Impact Investing Institute leads efforts to drive more institutional capital into underinvested cities, towns and regions
- Place-based impact investing is taking off in the UK, encouraged by the Impact Investing Institute
- Key asset classes are real estate, infrastructure and SME finance
- In order to overcome the challenges to mobilising private capital, a crucial pilot scheme is underway in Wakefield, Northern England
- In the future a key role is likely to be played by local government pension schemes
UK impact investors are turning to ‘place-based impact investing’ (PBII). A new survey from Gresham House found that 74% of pension professionals were looking at it, while another recent study found 78% of pension funds believe the UK’s target for housebuilding can only be met if institutional investors become more involved in funding.
The UK Government is keen to encourage this as part of its ‘Levelling up’ agenda, through the Impact Investing Institute (III). They explain PBII as follows: “There is no set roadmap for addressing regional inequality and rebalancing access to opportunity between and within places, but an economy that works for all requires an intentional approach to place. Places become ‘underperforming’, ‘left behind’ and ‘underinvested’ as a result of a complex combination of factors which culminate in market failure and vicious cycles of asset depreciation.”
Sarah Teacher, executive director at the III tells Impact Investor: “Places matter, as do the people in them. So we are seeking to drive institutional capital into underinvested towns, cities, and regions. Into projects which make a financial return but also improve people’s lives.”
Identifying the challenges
This initiative took form with the Institute’s white paper ‘Scaling up institutional investment for place-based impact’, which aimed at getting capital to underinvested places, through real estate (from social and affordable housing through to commercial property), infrastructure (including renewable energy generation), and SME finance.
Teacher says: “We established that there are five key blockers to capital going to the places where it’s needed. Awareness, absence of good measurement tools, project origination, capacity issues, and the challenges of scale – including the absences of investment vehicles. In the last year we have been working to address these five main issues.”
The III has enjoyed some success in addressing the first two issues. To increase awareness, it supported Pensions for Purpose in creating its place-based impact investing forum. It also supported The Good Economy’s development of PBII measurement frameworks successfully adopted by two local authority pension funds – Clwyd and South Yorkshire.
In addressing the other three challenges, Teacher thinks “real progress will be made by our real world pilot schemes”. The III has selected Wakefield and is bringing “together a mixed group of investors (social impact investors, foundations, and mainstream institutional investors), but also the community and enterprises of Wakefield.”
The view on the ground
Teacher says it is too early to assess the impact of the Wakefield pilot, but clearly there “was a great need for us to bring many of these different stakeholders in the local community together. Our convening role is yielding great results already, when partnered with passionate and committed local authorities”.
Andrew Balchin, the CEO of Wakefield Council gave us his perspective. “We are a district with some long-standing inequalities, particularly in health and incomes. Our key priority is focusing on children and young people, preventing future generations from experiencing those same inequalities. Place-based investment provides an opportunity…[for] a coherent vision for the future.”
Above all, Balchin wants to “give potential investors confidence that at the heart the place-based partnership lies a major public body that understands the needs of investors, is responsive and collaborative, and connects investors to ideas and talent locally that matches their investment priorities”.
For the private sector there is undoubtedly a significant investment opportunity here. The III has strong relationships with several major UK financial firms including Schroders, Gresham House, and HSBC. “I think they realise that there are great opportunities outside of London” says Teacher “but for any one of them to try to access opportunities on their own would be time-consuming and expensive.”
Peter Bachmann of Gresham House agrees. “Investors were concerned that they didn’t have all the internal resources necessary to do place-based investing properly. Levelling up has a bad reputation as a result of some instances when investors have undertaken investments that were not part of their underlying strategy. It’s no good doing something just because it’s on your doorstep.”
“What the Impact Investing Institute is doing is important as it is vital to build a coalition for place-based investing and to get investors focused on the issue and local policy makers involved. Local authority involvement and support is absolutely crucial with issues such as planning and anything around infrastructure.”
Bachmann very much believes PBII works through a catalytic effect. “Putting money into a particular area is all about boosting that local economy over the long term.” He commissioned policy institute Curia to examine investments in Devon and Cornwall. “Crucially, they confirmed that for every pound that we invested the outcome was worth 15 times the initial investment.”
The III’s intention is to select another pilot location in the new year, and they are interested to hear from possible candidates. Beyond that, Teacher says “it is important for us to address the origination and the capacity issues and to find the appropriate vehicles that can attract institutional capital”.
Teacher hopes enthusiasm amongst local authorities for PBII “might be matched by greater enthusiasm by local government pension funds” who are already “holding themselves accountable for their broader impact”.
Gresham House’s recent survey found pension professionals favoured the regeneration of town centres (41.2%), natural capital (e.g. air, water, and soil health, 39%), housing (38%), and digital infrastructure (37.5%).
Bachmann adds: “For Local Government Pension Schemes (LGPS), directing funds towards these kinds of investments can deliver the dual benefit of return on investment and accelerating the levelling up agenda that seeks to empower regional communities.” Gresham House’s Sustainable Infrastructure Strategy is backed by six LGPS and the Greater London Authority.
The III is also looking at community development finance institutions (CDFI), a sector now worth some $120bn in the US. “We hope that that we can attract mainstream capital into the UK CDFI sector and see a step change in what that market can deliver in terms of impact for people on the ground.”