An L&G survey indicates increasing enthusiasm for impact investing mandates within the private markets portfolios of UK pension schemes, insurers and charities.
Institutional investors in the UK see impact and sustainable mandates accounting for a growing share of their private markets portfolios over the next two years, according to research from financial services group Legal & General (L&G).
A survey of 150 institutional investors showed that impact and sustainable mandates are expected to account for 45% of private markets portfolios in two years’ time, compared with 37% today. These figures comprise a rise in the share of impact investment mandates to 20% from 14%, and a smaller rise in sustainable investment mandates to 25% from 23%.
“This research confirms that investors are looking to increase their allocations to private markets for the potential increased returns they can deliver and also for their sustainability and impact characteristics,” said Bill Hughes, global head of private markets, L&G Asset Management.
Survey respondents included organisations running defined contribution (DC), defined benefit (DB) and local government pension schemes (LGPS), insurers and charity investors, with assets under management totalling more than £7.6 trillion, according to L&G. The research, which was carried out by CoreData in August and September 2024, has yet to be published in full.
Investor appetite
DC pensions schemes said they expected to have the largest number of impact and sustainable mandates, accounting for 50% of private markets portfolios in two years, followed by insurance investors ( 47%) and DB pension schemes (45%).
In terms of priority areas for environmental investing, 81% of investors said clean energy and tech, and renewable energy infrastructure provided the biggest investment opportunities in the near future, according to L&G. Sustainable transport was seen as a priority for 46%, and sustainable property and real estate by 36%. Priority areas for investing in social outcomes within private markets included economic infrastructure (52%), health and social care (43%), and affordable housing (41%).
The survey showed differences between DC and DB investors relating to their social outcomes priorities. While DC investors made life sciences (57%) and healthcare outcomes (53%) top priorities, corporate DB schemes said they prioritised economic infrastructure (49%) and affordable housing (41%).
Energy transition opportunities
When asked about the most financially attractive themes for private market investment in terms of returns, 59% of respondents highlighted the climate transition and decarbonisation. To achieve this they are targeting, in order of priority, infrastructure, private equity/venture capital, private credit, and real estate.
Of those surveyed, 53% said they planned to increase allocations to infrastructure over the next two years, with 43% also seeking to increase private equity and private credit allocations.
DC schemes placed transmission assets and network resilience higher up the list of priorities than other investors, with 47% identifying this area as a priority. LGPS investors are those viewing nature-based solutions most favourably in terms of offering the best return opportunities (20%), compared to DC schemes (17%) and insurers (11%).
For the purposes of the survey, impact investment mandates were defined as those whose strategies had explicit environmental and/or social impact objectives. Sustainable investment mandates were defined as those with strategies that promote environmental or social characteristics, such as ESG exclusions, alignment objectives such as net zero targets, or ESG-focused themes.
L&G said it was seeking to expand its global private markets platform to provide clients access to a wider range of investment opportunities, especially in private credit, real estate, infrastructure, and venture capital.
