16 May 2024

The promise and perspectives of place-based investing

Public and private capital can work together to drive investments that respond to the unique assets in a place, says Kieron Boyle

Across the UK, many places bear the marks of economic decline and entrenched social challenges. While each community has its own story, these neglected places often share a common storyline — a journey of deindustrialisation, insecure work, and a chronic lack of investment, leaving behind persistent economic challenges and a diminished sense of hope for the future.

Kieron BoyleSitting in London's financial centre, many people are surprised to hear that the UK is amongst the most regionally unequal countries within the OECD. Travel further afield and it's much more obvious. Inequalities within and between places can be seen across housing, health and employment. And the implications couldn't be more human. Neighbouring communities, sometimes only streets apart, have differences in life expectancy of over a decade. That's the difference between seeing your grandchildren or not.

These aren't just social challenges — they're environmental ones too. Achieving a low-carbon future requires transforming our whole economy, and not just those places with ready access to investment. And as we are increasingly seeing across the world, we won't achieve the net zero transition unless the politics work too. That means overlooked communities seeing what's in it for them, and not just everyone else.

But we needn't be defeatist. There are promising innovations that can make a difference.One of these is the emergence of place-based impact investing. It's a progressive financial innovation, that brings together public and private capital, capacity, and capabilities to work together to drive investments that respond to the unique assets in a place. By channelling capital to synergistic opportunities across affordable housing, urban regeneration, clean energy solutions, SME financing, natural capital and health, place-based impact investing offers a route for local areas to thrive.

Some place-based impact investments are specifically focused on the environment. For example, Bristol City Leap is a strategic initiative to decarbonize England's seventh-largest city. Focused initially on the council's assets, the project has established a partnership with Ameresco and Vattenfall. This alliance aims to direct approximately £630 million from public and private sources over five years into sustainable energy projects like solar, wind, heat networks, and heat pumps.

Institutional investors, such as pension funds, insurance companies, asset managers and banks, hold a pivotal role in this transformation. Their ability to bring capital at scale to places in urgent need of investment is a critical piece of the puzzle. For example, Local Government Pension Scheme are increasingly seeking investments into real economy opportunities across the UK, with over £3 billion in new investments announced over the past few years.

A big challenge, however, is what might be called a "membrane problem". While there is both the appetite to invest and a critical need for investment, the flow of private capital into underinvested towns and cities is often hampered by several barriers. These include a lack of high-quality investible opportunities that meet commercial investment criteria, insufficient capacity and capability in places to develop and present opportunities to private investors, and a lack of connectivity and effective brokering between local areas and commercial investors.

The answer, it seems, is as much a matter of mindset as anything else. For the past two years, the Institute has been working across the UK to bring investors, local authorities, businesses, and communities together to co-design solutions that respond to the specific priorities of each place. We've introduced local authorities and communities to the concept of place-based impact investing, forged connections with investors aligned with a place's objectives, and supported shared learning around specific projects and approaches.

The results have been promising. For example, our work in Wakefield, a former mining city in Yorkshire, has had a real-world impact. Over a series of months, the city engaged private sector investors in a range of opportunities across urban regeneration, clean energy, and SME finance. Together they are exploring opportunities including a partnership with a major construction company and other local stakeholders to develop green skills in the region, and the development of a local impact portfolio within the Local Government Pension Scheme. New flows of capital will also reach small businesses that are currently locked out of traditional bank financing through a West Yorkshire-based community development finance institution, as part of a £43m investment in the sector from Lloyds Banking Group.landmark £43m investment in the sector from Lloyds Banking Group.

We have learnt that the essence of place-based impact investment is less about where investment occurs but rather how investments happen, the relationships that develop between the people involved, and the outcomes they are working towards.

This, I suspect, is why many people become investors in the first instance. And why we should be optimistic that nothing is pre-determined about the UK's "left behind" places.

Kieron Boyle is the CEO of the Impact Investing Institute, an independent non-profit set up to connect capital to impact. The Institute acts as a bridge between new economic ideas and mainstream capital markets.

This is part of a series of monthly columns Boyle writes for Environmental Finance.



Kieron Boyle