"Article Highlights: The significance of affordable housing in yielding a positive social influence for Local Government Pension Scheme funds"
In a significant move towards sustainable and impactful investments, UK Local Government Pension Schemes (LGPS) have allocated a substantial portion of their assets to social infrastructure. A study by Mallowstreet and Octopus Capital, involving 27 LGPS managing over £230 billion in assets, reveals the key drivers behind this shift.
A renewable energy firm, Renalfa, recently secured €315M in funding, a portion of which is related to development finance, energy transition, and EU funding. This investment underscores the growing interest in social infrastructure projects.
The survey highlights that affordable housing stands out as the top social impact priority for 63% of the LGPS surveyed. 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. The investment in affordable housing offers resilient, risk-adjusted financial returns with low correlation to other property markets and the wider economy, as stated by Jack Burnham, head of affordable housing at Octopus.
The focus on social infrastructure is driven by a combination of financial and impact considerations. LGPS seek attractive risk-adjusted returns (typically between 4% and 10%), lower climate-related risks, portfolio diversification, and measurable social impact on local communities. LGPS also expect asset managers to provide robust impact reporting and transparency, especially regarding how investments benefit regional communities.
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. Just over one-fifth of the funds express concern about illiquidity when it comes to investing in social infrastructure.
The investment in social infrastructure also aligns with broader government efforts and funding allocations to address homelessness, affordable housing shortages, and social care challenges. Mike Toft, head of care homes at Octopus, expects healthcare to become a growing area of interest for social impact investing due to a widening lack of quality elderly care beds for an increasingly ageing population in the UK.
The survey also reveals that almost all of the LGPS schemes (96%) invest in clean or renewable energy. The CorPower Ocean project, for instance, has secured a €40m EU grant for a wave energy farm, further demonstrating the commitment to the blue economy and energy transition.
The Resonance housing initiative, related to housing, investment, pension funds, and social impact, has also welcomed tenants as the fund has closed. The initiative underscores the potential for successful partnerships between pension funds, social impact, and housing.
In conclusion, UK Local Government Pension Schemes are increasingly integrating social impact goals with financial returns, overcoming past perceptions that impact investing was marginal or too complex. This shift not only aligns with member expectations but also supports the wider healthcare ecosystem by addressing societal needs such as quality elderly care beds and reducing bed blocking pressures on the NHS.
Investing in Renalfa's renewable energy project highlights the growing interest in social infrastructure projects, driven by both financial returns and social impact considerations. The top social impact priority for most Local Government Pension Schemes (LGPS) is affordable housing, offering resilient financial returns and addressing local housing shortages. Nearly all LGPS invest in clean or renewable energy, demonstrating a commitment to the energy transition and the blue economy. Successful partnerships between pension funds, social impact, and housing initiatives, such as Resonance housing, showcase the potential for effective collaboration. The shift towards integrating social impact goals with financial returns aligns with member expectations and supports the wider healthcare ecosystem, addressing societal needs like quality elderly care beds and reducing NHS bed blocking pressures.
