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UK local authority pension schemes set their sights on place-based investing

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Published: 6 February 2024

The UK market is poised for growth, according to fund manager Schroders Greencoat, which recently took a majority stake in the largest operational solar deal in the UK as part of a transaction that saw six LGPS schemes make allocations.

Place-based investment by UK local authority pension schemes is poised for growth | Paul Marlow on Unsplash

A rise in UK local authority pension funds investing in place-based impact projects could pave the way for a multi-billion-pound market, according to Schroders Greencoat, who recently took a majority stake in the largest operational solar deal across the UK. 

The deal saw a pool of six UK local authority pension funds join forces with a £230m (€268m) investment in solar energy for the south-west of England.  

The six schemes, which include the Avon, Cornwall, Devon, Gloucestershire, Oxfordshire and Wiltshire funds, placed the initial investment through Wessex Gardens, a renewables investment wing of Schroders Greencoat.  All six funds are part of the LGPS pool Brunel Pension Partnership

As part of the transaction, Schroders Greencoat has taken a majority stake in Toucan Energy’s £700m solar portfolio consisting of more than 50 operating solar farms across the UK, according to a Schroders Greencoat spokesperson. 

Potential for growth

Place-based investing are allocations of capital to specific regions to achieve financial returns and local positive impacts. Minal Patel, partner at Schroders Greencoat says that while the UK place-based impact market is growing, it remains relatively untapped and has huge potential. 

“If local government pensions allocated even 2% of its total assets to local impact projects, it would be a massive market,” she said.

Greencoat currently has two vehicles dedicated to the place-based investment space which have around £350m in assets under management. 

In 2022, the total assets of the LGPS stood at £369bn according to the LGPS 2022 scheme report, which was last updated in June 2023. 

Patel’s comments come at a time when the UK’s social impact investing market has surged, with the amount invested into tackling social issues increasing to £9.4bn in 2022, up from £7.9bn in 2021.   Last year, The Good Economy (TGE), the Impact Investing Institute (III) and the Institute for Economic Development (IED), launched a knowledge sharing community aimed at catalysing institutional place-based impact investing investment in the UK. 

“Given that similar corporate pensions that were big investors in this market are less active, it is the local government pension schemes that are now the most active allocators of capital,” said Patel.  

Schroders Greencoat has a longstanding relationship with the Brunel Pension Partnership, and makes investments that do not compromise financial returns.

In addition, Patel added that local authorities understand the benefits of renewable assets in providing a steady cash flow, which has the added benefits of creating local employment. 

Some authorities are further along that journey than others, according to Patel who said that the local authorities such as Avon under the Brunel Pension Partnership are more advanced in their thinking in this area than others. But she said she is seeing an increasing number of local authorities starting to think about place-based investing. 

“More local authorities are thinking about how they can help achieve the government’s net-zero ambitions, while achieving the levelling up agenda and in a way which is much closer to them,” she said. 

“I think the UK is probably at the leading edge of trying to encourage local governments to invest locally.” 

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