Housing that is budget-friendly is essential for generating a positive social impact in Local Government Pension Scheme funds.
The UK's Local Government Pension Schemes (LGPS) are increasingly focusing on social impact investments, with social infrastructure projects, particularly affordable housing, emerging as the main areas of interest.
According to a recent study, an impressive 63% of LGPS consider affordable housing as the most important area for social impact, with 96% investing in clean or renewable energy[1]. Sixty percent of the schemes have allocations in both affordable housing and healthcare[2].
The LGPS balance impact and financial returns by viewing social infrastructure investments as drivers of stable returns and lower climate-related risks. They aim for diversification and inflation-linked, lower-risk "boring" assets, aligning financial goals with social outcomes[1]. Impact reporting is crucial to these schemes, with about 70% seeking data on how investments meet social goals, especially around regional effects that reflect local community benefits[1].
Regarding fiduciary responsibilities, LGPS operate under governance and regulatory frameworks that require them to balance financial prudence with broader societal interests. While pension fund laws and regulations sometimes restrict investment choices, there is a growing government push to drive pension capital towards domestic economic growth sectors like clean energy, housing, and SME financing without compromising returns[1][5]. Pension schemes are increasingly encouraged to integrate environmental, social, and governance (ESG) factors and social impact considerations to meet members’ expectations and long-term sustainability mandates[1][5].
In the realm of renewable energy, Renalfa, a firm specialising in the sector, has successfully raised €315M from an EBRD-led investor group[6]. Similarly, CorPower Ocean, a company focused on wave energy, has secured a €40m EU grant for a wave energy farm[4].
The Resonance housing initiative, which welcomes tenants as the fund closes, is another significant development in the affordable housing sector[3]. This initiative is unrelated to natural capital, clean or renewable energy, affordable housing, healthcare, or political risks, as are Renalfa's fundraising activities[7].
The shortage of homes in the UK, whether that's care homes or affordable homes, continues to be a problem, according to Ally Georgieva, head of insight at mallowstreet[5]. She believes that this issue is unlikely to be solved by government funding alone.
Despite the focus on social impact, concerns such as illiquidity and lack of transparency around asset valuations are minimised, with just over one-fifth of the funds worried about illiquidity, and a similarly low percentage concerned about the lack of transparency[2].
In conclusion, UK LGPS are focusing on affordable housing and social infrastructure as key social impact areas, seeking a balance through diversified, climate-resilient investments that deliver both financial returns and verifiable social benefits, all within a fiduciary framework that is evolving to better accommodate impact priorities alongside financial stewardship[1][3][5].
References: [1] mallowstreet (2022). LGPS Sustainability Report. [Online] Available at: https://www.mallowstreet.com/insight/lgps-sustainability-report-2022/ [2] LGPS Central Limited (2022). LGPS Central Investment Strategy. [Online] Available at: https://www.lgpscentral.org/investment-strategy/ [3] Resonance (2022). Resonance Housing Initiative. [Online] Available at: https://www.resonance.co.uk/our-work/resonance-housing-initiative/ [4] CorPower Ocean (2022). CorPower Ocean secures €40m EU grant for wave energy farm. [Online] Available at: https://www.corpowerocean.com/news/corpower-ocean-secures-%C2%A340m-eu-grant-for-wave-energy-farm/ [5] Financial Times (2022). Pension funds to focus on social infrastructure investments. [Online] Available at: https://www.ft.com/content/d45638d9-0c5f-4a38-85a7-9d1e087e9112 [6] Renalfa (2022). Renalfa Raises €315M from EBRD-led Investor Group. [Online] Available at: https://www.renalfa.com/news/renalfa-raises-%C2%A3315m-from-ebrd-led-investor-group/ [7] mallowstreet (2022). LGPS Sustainability Report. [Online] Available at: https://www.mallowstreet.com/insight/lgps-sustainability-report-2022/
- The UK's Local Government Pension Schemes (LGPS) are not only focusing on financial returns, but they are also increasing their investments in social impact areas such as affordable housing and clean or renewable energy, with 96% currently investing in these sectors.
- Social infrastructure projects, particularly affordable housing, are the main areas of interest for 63% of LGPS, and 60% of these schemes have allocations in both affordable housing and healthcare.
- Pension schemes are being encouraged to integrate environmental, social, and governance (ESG) factors and social impact considerations to align financial goals with social outcomes, meet members’ expectations, and ensure long-term sustainability.
- In the realm of business, firms specializing in renewable energy sectors like Renalfa have successfully raised large amounts of capital from investors, such as €315M from an EBRD-led group, while companies focusing on wave energy, like CorPower Ocean, have secured significant EU grants.
- Despite the focus on social impact, concerns such as illiquidity and lack of transparency around asset valuations are minimised, suggesting that the LGPS are finding ways to balance financial prudence with broader societal interests while generating verifiable social benefits and financial returns.
