Dispatch: 'Impactful Social Contribution for LGPS Funds Linked to Affordable Housing Solutions'
In the United Kingdom, local government pension funds (LGPS) are actively investing in sectors that aim to create a positive social impact, with a particular focus on affordable housing, healthcare, clean energy, and natural capital.
Affordable housing is a top priority for LGPS, with multiple funds committing significant investments to funds like Octopus Affordable Housing Fund. This fund, which aims to raise £1 billion by 2026, develops affordable homes built to sustainable standards, addressing the UK's housing shortage while ensuring sustainability.
In healthcare, the UK government's 10-Year Health Plan encourages partnership with local authorities and investors, including pension funds, to shift spending towards preventive care and community-based health services. This partnership creates avenues for pension funds to contribute capital to healthcare infrastructure and innovation.
Regarding clean energy and natural capital, while specific investments by LGPS in these areas are not detailed explicitly, their growing emphasis on ESG and sustainability standards in the affordable housing sector implies a broader commitment. Pension schemes are known to invest in UK infrastructure and green assets, which typically include renewable energy projects and natural capital initiatives aimed at environmental preservation.
Sixty percent of the LGPS have allocations in both affordable housing and healthcare. The Resonance housing initiative, which welcomes tenants as the fund closes, is an example of this dual investment strategy.
Close to three-quarters of local pension funds cite the risk-return profile and diversification benefits as the main drivers for investing in social infrastructure. Concerns about potential clashes with fiduciary duty are almost halved, while a similarly low percentage of funds are concerned about the lack of transparency around asset valuations or political, election, or re-election risk when dealing with local authorities.
Just over one-fifth of the funds are worried about illiquidity in social infrastructure investments. However, industry leaders like Mike Toft, head of care homes at Octopus, expect healthcare to become a growing area of interest for social impact investing due to a widening lack of quality elderly care beds for an aging UK population.
Ally Georgieva, head of insight at mallowstreet, expresses encouragement for collaboration between asset owners and managers to develop solutions that benefit all stakeholders. She states that the shortage of homes in the UK, whether that's care homes or affordable homes, continues to be a problem that is unlikely to be solved by government funding alone.
In a significant move, Renalfa, a renewable energy firm, recently raised €315M from an EBRD-led investor group. CorPower Ocean also received a €40m EU grant for a wave energy farm. These investments underscore the growing interest in clean energy among LGPS.
The surveyed LGPS collectively manage more than £230bn (€194bn) in assets, demonstrating the significant impact these investments can have on the UK's social and environmental landscape. As the UK continues to navigate its post-pandemic recovery, the role of LGPS in social impact investing is set to become even more crucial.
- Local government pension funds (LGPS) are allocating a significant portion of their investments, around 60%, towards both affordable housing and healthcare.
- The Octopus Affordable Housing Fund, which aims to raise £1 billion by 2026, is one of the multiple funds that LGPS have committed to, focusing on developing affordable homes that adhere to sustainable standards.
- The risk-return profile and diversification benefits are the primary drivers for LGPS to invest in social infrastructure, with concerns about potential clashes with fiduciary duty, lack of transparency, and political risk almost halved.
- The growing emphasis on ESG and sustainability standards in the affordable housing sector implies a broader commitment by LGPS towards clean energy and natural capital, although specific investments in these areas are not detailed explicitly.
- As the UK navigates its post-pandemic recovery, the role of LGPS in social impact investing, particularly in sectors like clean energy, affordable housing, healthcare, and natural capital, is set to become even more crucial, with investments from funds like the Octopus Affordable Housing Fund and renewable energy firms like Renalfa increasing.
