The Local Government Pension Scheme (LGPS) has responded to UK government calls to invest in Britain by backing a report to examine how the sector can balance place-based investing to support locally-defined priorities, while balancing fiduciary duty.
A new white paper published by impact advisory firm The Good Economy, entitled Scaling-Up Local Investing for Place-based Impact: A Strategic Framework and Guidance for LGPS, aims to boost place-based investing, arguing that the UK needs a stronger domestic economy rooted in inclusive, long-term growth.
The guidance has been developed with the support of seven LGPS pools in England and Wales: Border to Coast, Brunel Pension Partnership, LGPS Central, Local Pensions Partnership Investments, London CIV, Northern LGPS and the Wales Pension Partnership.
It comes in response to government reforms for pension funds and local government, including the UK’s landmark Pensions Investment Review of the LGPS, aimed at improving and boosting local investment.
This sits within a broader reform programme that includes devolution, local government reform, housing and planning, infrastructure investment and a new industrial strategy – all aligned with a place-based, decentralised approach to growth.
The new Local Growth Plans being prepared by strategic authorities are expected to provide the platform through which local government and the LGPS work together to scale-up investment that responds to local priorities in areas such as affordable housing, infrastructure, clean energy and growth businesses.
Pensions UK, administering authorities the Greater Manchester Pension Fund and the West Midlands Pension Fund and fund managers Legal and General, Gresham House and Foresight Group have also contributed to the white paper.
The white paper sets out a framework for local investing by the LGPS, setting out how LGPS capital can be channelled to support local growth plans while capturing the scale of pooling – all within a fiduciary framework.
The paper notes that the UK has developed one of the largest and most sophisticated private markets fund management sectors globally, as well as a well-established social and impact investment ecosystem with relevant experience.
The paper provides case studies showcasing how fund managers are already executing local investment strategies across the UK that are delivering financial returns alongside place-based outcomes.
Three key recommendations are highlighted in the paper:
- Tailored local investing approach – local investing won’t work with a ‘one size fits all’ approach. Administering authorities and pools should take a context-specific approach, considering each organisation’s economic geography, governance model, and delivery capacity.
- Collaboration is essential for local investing strategies –success will require active collaboration between the LGPS and a range of stakeholders, including with Strategic Authorities, central government agencies and other institutional investors, such as the Mansion House Accord signatories, to deliver investment at scale.
- Establish a common impact reporting standard – the LGPS sector should collectively establish a common impact reporting standard ensuring consistency, comparability and transparency of impact reporting – and stakeholder accountability for the local economic, social and environmental impact of local investing.
Sam Monger, head of place-based impact investing at The Good Economy, said: “The LGPS has a distinct role to play in mobilising local investing across the country — pools and administering authorities must work together to set and monitor targets, embedding impact alongside risk and return.”
Simon Cunnington, portfolio manager, UK opportunities at Border to Coast Pensions Partnership, added: “UK investment is a major focus for our partnership, with 31% (£12.1bn) of investments already in the UK and our recently launched UK Opportunities strategy targeting UK productive assets across infrastructure, real estate and commercial finance.”
The Good Economy is also set to release sector-specific summaries to provide further guidance on tailoring and implementing the local investing framework to different sectors.
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