Local government pension schemes (LGPS), which manage nearly £400bn in long-term capital, have the potential to become key drivers of sustainable transformation, benefitting communities and driving progress towards environmental goals.
Since 2015, pension reforms have continued to consolidate LGPS into fewer larger pools, with the ambition of improving cost efficiency and collaboration. While this should ultimately unlock positive synergies for beneficiaries, it also poses challenges for delivering specialist investment to achieve valuable place-based impact.
For instance, pools are encouraged by the government to allocate funds in line with the local priorities of their beneficiaries, but this task is now complicated by the definition of “local”. According to The Pensions Bill (2024-25) ‘Local’ means the area of the pool, however, some pools span the length of the country, encompassing areas with very different local needs, and this geographical range is set to increase further as two pools search for new homes. Interpretations of what constitutes a “local” priority for each fund must be navigated carefully to avoid broader definitions sidelining more specific, and higher impact, regional opportunities.
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Building partnerships
Nevertheless, where pools adopt appropriate investment frameworks and build the right partnerships with specialist managers, LGPS can still play a pivotal role in scaling hyper-local sustainable infrastructure projects even as they consolidate – generating attractive returns while delivering tangible environmental and societal benefits.
One such framework is Place-Based Impact Investing (PBII), developed by impact advisor The Good Economy. PBII offers a structured way for investors to evaluate their portfolios, and potential assets, in order to align their investments with the specific social and environmental needs of UK communities, ensuring that outcomes are locally relevant and stakeholder-aligned. It encourages investors to understand the exact issues, relationships and interconnections within a place before deploying capital.
Sectors such as clean energy, nature-based solutions and affordable housing offer significant potential for PBII. However, identifying high-quality, locally relevant investments within these sectors requires specialist technical and origination capabilities.
This is where partnerships with specialist managers can add significant value. External expertise can help navigate complex governance dynamics and fill resource gaps. Partners with a track record in place-based sustainable investment can play a critical role in sourcing and structuring deals – focusing capital on projects with the greatest potential to deliver long-term financial, social and environmental impact within the diverse geographies of each LGPS pool. Over time, they can also provide the expertise needed to actively manage these complex and often niche real assets.
The right support
With the right support, an LGPS can build a portfolio of PBII-aligned investments that deliver tangible local benefits to their members and communities – while still meeting fiduciary duties through strong, risk-adjusted returns.
This might include projects to protect and restore nature, such as Environment Bank’s habitat banks, which generate biodiversity net gain units alongside long-term income for farmers. It could include carbon-sequestration assets, like Gresham House’s 800-hectare sustainable forestry project in Fettercairn, Aberdeenshire, which will capture 240,000 tonnes of carbon over 80 years while supporting woodland-based leisure and tourism for the local community.
See also: Gresham House appoints sustainable investment director
Or it could relate to housing developments such as Greyfriars Court in Coventry which we funded on our clients’ behalf – a former office block converted into 85 rental homes, fitted with solar PV and co-located energy storage, providing affordable housing and contributing to net-zero goals.
LGPS have the potential to become powerful agents of place-based, sustainable transformation. But doing so requires more than capital. Delivering tangible outcomes for communities requires credible investment frameworks to ensure that environmental and social goals are embedded from the outset and specialist investment partners who can navigate complex governance, source investable opportunities, and manage often overlooked real assets.
With the right tools and relationships in place, LGPS can turn long-term capital into lasting local impact – alongside establishing a playbook for far greater global change.
