"News Piece: The Significance of Cost-Effective Housing Contributes to Socio-Economic Influence for Local Government Pension Scheme Funds"
In a significant shift towards responsible and impactful investing, UK local government pension funds (LGPS) are prioritising assets that promote social impact, with a focus on affordable housing, clean energy, and healthcare-related initiatives.
Leading the charge is the investment in affordable housing, which has emerged as a top priority for LGPS. London CIV, a pooled investment entity representing 32 London LGPS, has committed £150 million to build and retrofit affordable homes, aiming to deliver thousands of homes across the UK. These projects often use standardized impact reporting frameworks to measure both social and environmental outcomes.
The support for investments in affordable housing is evident, with over 97% of defined contribution savers viewing it as socially important, and many willing to pay more for pensions that contribute to solving the housing crisis. This aligns with the pension funds' drive to align capital deployment with member values and social impact.
While direct investment in healthcare is less highlighted, national policy plans aim to enable the NHS and local governments to access low-risk pension fund capital for healthcare infrastructure and social care improvements. Partnerships between pension funds and public sector entities are envisioned for enhancing healthcare facilities and services, especially in disadvantaged areas.
For clean energy and natural capital, LGPS and other local pension funds are increasingly allocating capital towards sustainable infrastructure projects that offer dual financial and environmental/social returns. Octopus Capital and similar investment managers are known to emphasise ESG-aligned investments incorporating clean energy and natural capital themes alongside affordable housing.
However, nearly half of the schemes cited the potential clash with fiduciary duty if impact is being specifically targeted as their main concern regarding investing in social infrastructure. Ally Georgieva, head of insight at mallowstreet, emphasises 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.
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. Addressing this lack will not only reduce bed blocking pressures on the NHS but also support the wider healthcare ecosystem.
The study finds that 63% of Local Government Pension Schemes (LGPS) in the UK regard affordable housing as the most important area for social impact. Sixty percent of LGPS have allocations in both affordable housing and healthcare. The study also reveals that close to three-quarters of local pension funds cited the risk-return profile and diversification benefits as the main drivers for investing in social infrastructure.
Despite concerns about illiquidity and transparency, just over one-fifth of the funds were worried about these issues, with a similarly low percentage concerned about political, election or re-election risk when dealing with local authorities.
In conclusion, UK local government pension funds are adopting a strategic approach that combines financial returns with social impact goals, prioritising affordable housing as a critical area and increasing involvement in healthcare and clean energy through partnerships and ESG-compliant investment vehicles. This approach is supported by pension saver demand and enabled through collaborations with impact-focused asset managers and government initiatives.
- The investment in affordable housing is a top priority for UK local government pension funds (LGPS), with London CIV committing £150 million to build and retrofit affordable homes.
- Pension funds are aligning their capital deployment with member values and social impact, with over 97% of defined contribution savers viewing affordable housing as socially important.
- While direct investment in healthcare is less highlighted, LGPS and other local pension funds are increasing allocations towards sustainable infrastructure projects that offer social returns, particularly healthcare infrastructure and social care improvements.
- Despite concerns about illiquidity and transparency, just over one-fifth of the funds are worried about these issues, signifying a growing acceptance and adoption of strategic investing that combines financial returns with social impact goals.
