What is place-based impact investing?

What is place-based impact investing?

Mark Hall: Place-based impact investing (PBII) is an approach where investments are directed towards specific places, with the aim of generating positive social and environmental outcomes for those communities alongside financial returns. The focus is on understanding the unique needs and opportunities of a particular place – whether that be a city, region or rural area – and responding to them through impact-focused investment.

Simply investing in a place, in a new housing development for example, is not place-based impact investing. PBII is an approach to investing within a place that establishes effective relationships with local stakeholders (such as local authorities, universities and community groups) and seeks intentional and measurable outcomes such as affordable housing for key workers or improved access to local health facilities.

PBII is not a new concept, particularly in the UK and the US, but began to gain prominence in the 2010s as interest grew in aligning investments with local economic development and as the wider field of impact investing became more established. In the UK, the Impact Investing Institute’s 2021 white paper, Scaling up institutional investment for place-based impact, delivered in partnership with The Good Economy and Pensions for Purpose, began to bring the concept into the mainstream with investors, government and local authorities. Interest is also growing internationally, through forums such as GSG Impact, as a way to address regional inequalities, stimulate local economies and support underserved or disadvantaged communities through impact investing.

Why is this concept gaining interest and attention?

Mark Hall: There are several factors driving interest in PBII.

1. Regional inequality. The UK is one of the most regionally unequal countries within the OECD. Inequality within and between places is evident across multiple dimensions, including income, housing and health. For example, widening health inequalities over the past decade have led to marked regional differences in both life expectancy and quality of life.

2. Government focus on sustainable and inclusive growth. The new Labour government has made inclusive regional growth one of its five missions – with a focus on using public funding (through initiatives such as the National Wealth Fund) to stimulate and leverage private finance.

3. Increasing supply of capital seeking local impact. Pension funds, insurance companies and other asset owners are increasingly looking for ways to align their investments with broader societal goals. The Impact Investing Institute’s white paper set out an ambition for Local Government Pension Schemes (LGPS) to invest 5% of their assets towards local impact; this would unlock £20bn of annual investment from the LGPS’s £400bn asset pool – a policy which has been supported by successive governments.  

4. Rise of UK-focused impact investment funds. The market is experiencing a growth in investment products targeting positive local outcomes, such as Schroders’ Real Estate Impact Fund and Octopus’s Affordable Housing Fund. LGPS funds are providing significant capital for these types of funds; for example, Gresham House’s Sustainable Infrastructure Fund secured £450m investment from eight LGPS funds.

What are some good examples of place-based investment?

Mark Hall: One asset manager taking a PBII approach is Cheyne Capital. The firm’s Impact Real Estate strategy supports projects across the UK, delivering affordable housing, care homes and supported living, tailored to local needs. For example, their Manchester city centre development at Oldham Road provides 144 new-build homes, 35% of which are reserved for local key workers at discounted rents. This initiative goes beyond local planning requirements to deliver high-quality, affordable housing for local people.

Another example from within the Local Government Pension Scheme is Cornwall Pension Fund, which in 2023 launched its Cornwall Local Impact portfolio to invest in affordable private rental housing and renewable energy. Designed by Brunel Pension Partnership, the portfolio focuses on social and environmental impact, with 55% allocated to affordable housing in Cornwall and the rest of the fund split between a UK renewables mandate and the Greencoat Cornwall Gardens fund for local renewable assets.

• Read more: Place-based impact investing: Why institutional investors should follow social investors’ lead

What kind of investors typically get involved, and why?

Mark Hall: Given the broad objectives of PBII, there are a range of investors deploying different types of capital with varying expectations in terms of financial and impact returns. These include:

1. Institutional asset owners: Pension funds and insurance companies who invest assets on behalf of their members can make place-based impact investments as a way to generate stable long-term returns, achieving diversification within their portfolios, while contributing to local economic development.

2. Asset managers: Investment firms that manage funds on behalf of asset owners, such as Schroders and M&G, seek investments that deliver local impact alongside financial returns, especially in funds that have a clear impact mandate, such as Schroders Real Estate Impact Fund.

3. Social impact investors: These organisations have a specific focus on investing to tackle social issues and inequalities in the UK. For example, Better Society Capital is a leading social impact investor with a range of investments including community developers and arts and culture impact funds.

4. Local government: There is a growing interest in PBII among local authorities, which are becoming increasingly proactive in seeking partnerships for co-investment alongside other investors, such as the West Midlands co-investment fund.

How do we know it works? 

Mark Hall: Investment success should be measured not only by financial returns, but also by the real-world outcomes. There is an increasing body of evidence demonstrating that solutions tailored to local need can deliver positive outcomes. For example, a report from Innovate UK highlighted that when places tailor their net-zero delivery to the needs and opportunities of the area this leads to significantly better outcomes and improved financial performance.

Investors are also increasingly reporting on both the financial and impact performance of local investment strategies. The Good Economy has developed an industry-endorsed reporting methodology, the PBII reporting framework, to provide a consistent and transparent approach to reporting on the impact of private market investments across asset classes. This is an important step forward for the growing PBII market, to ensure accountability in reporting on social and environmental impacts. Greater Manchester Pension Fund, one of the pioneers of PBII, became the first LGPS fund to publish a PBII Impact report in 2023 using this framework to report on the impact of the portfolio in supporting SMEs, building new homes and creating local jobs. This has established a precedent for the industry and a template for others to follow.

What are the limitations or challenges of this approach?

Mark Hall: Capacity and expertise: Local authorities often face challenges with capacity and capability to deliver PBII, as it requires new skills and dedicated resources while balancing statutory responsibilities and shorter-term public funding timelines. Investors also require a deeper understanding of local government operations and need to build strong, trust-based relationships with places through early, in-depth engagement.

Aligning outcomes with investment strategies: Addressing systemic issues such as homelessness or health inequalities is complex and requires a range of public and private investments, over a long period.

Long-term time horizons: Place-based investments usually require a long-term commitment and are better suited to investors that can deploy patient capital rather than those looking for a quick return on their investment.

Alignment of interests: Ensuring that the interests of all stakeholders — investors, local authorities and the local community— are aligned can be challenging. Conflicts may arise in balancing social outcomes with financial returns and aligning a diverse range of perspectives.

Scale and aggregation: Individual local projects are often too small in scale to attract institutional investors. Aggregating projects such as residential retrofit across multiple localities can amplify benefits and crowd in significant investment; however, it can be challenging for local authorities to achieve the scale and sophistication required to meet investor requirements.

How can impact investors get started?

Mark Hall: Understand the local context: Investors need to spend time understanding the specific needs, challenges and opportunities within a place. This involves getting “boots on the ground”.

Build strong partnerships with local stakeholders: Building relationships with local authorities, businesses and community groups is crucial for the success of place-based investments.

Start with something small and achievable: Starting with smaller ‘bitesize’ projects can help investors test their approach and build local relationships before scaling up. This approach can also provide valuable learning opportunities and demonstrate the potential impact to other stakeholders.

Use existing frameworks for place-based investing: Resources such as the Impact Investing Institute’s community engagement guide and The Good Economy’s PBII reporting framework can help investors design, implement and report on their investments effectively.

Focus on long-term engagement: Place-based investing typically requires a long-term commitment. Investors should be prepared to engage with communities over the long haul, focusing on sustainable and inclusive development rather than short-term gains.

• Mark Hall is senior programme manager for place-based impact investing at the Impact Investing Institute. Read more in its 2024 report on place-based impact investing.

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