The Good Economy’s Vivienne King on solving inequality with place-based impact investing

Yet these two groups of stakeholders in the real estate ecosystem have struggled to collaborate for shared value creation.

Place-based inequalities are now more extreme in the UK than in any Organisation for Economic Co-operation and Development (OECD) country other than Hungary and Turkey, but have persisted for generations. Covid-19, Brexit, the cost-of-living crisis and a European war will continue the political and economic uncertainty and with it the challenges of inequality that none of us are immune to.

For public and private sector investors to work more effectively together around a common cause of sustainable prosperity and thriving communities in every region of the UK, challenges will need to be overcome.

For local authorities, these include political change, cross-disciplinary capacity, limited funding and central government control, and for investors, the need for scale, viability and quality of investable propositions. Most particularly, both need to overcome a mistrust born out of lack of mutual understanding and years of misaligned mindsets and unequal bargaining power, which has the effect of slowing down and potentially stymying transactions – and increasing transaction costs.

It starts with building an ecosystem of trust and collaboration through shared knowledge, with public and private sector partners understanding the challenges each face, the risk tolerances and what is feasible and what isn’t.

The Good Economy launched the concept of place-based impact investing (PBII) in 2021, publishing a white paper with the Impact Investing Institute and Pensions for Purpose. PBII is defined as “investments made with the intention to yield appropriate risk-adjusted returns as well as generating local social and environmental impact through outcomes and impacts shared between investors and local stakeholders”.

The white paper built a powerful case for a new paradigm for investment by local authorities and fund managers. The PBII model brings together ‘pillars’ such as regeneration, clean energy and affordable housing – which reflect both local development policy and institutional asset classes.

The need, however, is for both investors and local authorities to apply a place-based lens rather than the current investor and authority tendency to focus on pillar ‘verticals’. PBII is a bottom-up, collaborative approach to mobilising institutional capital for sustainable placemaking as a response to the challenges facing the UK at all levels.

Over the last 12 months, PBII has moved from concept to practice. A network of local authorities and impact investors have been brought together by The Good Economy, the Institute of Economic Development and the Impact Investing Institute for frank discourse to find a shared purpose and understanding to drive the concept of place-based impact investing; but more than that, to develop understanding and ideas for impact investment models that can be replicated around the country.

But talk is cheap without action. The network is seeking to be a ‘do-tank’ rather than a ‘think-tank’. Three PBII pilots and four ‘lab’ projects have kicked off to demonstrate proof of concept, each with a different social and investment problem that needs tackling.

One lab centres on Bath, where the council struggles to provide housing affordable to the ‘squeezed middle’ and key workers. This isn’t only a ‘housing in a wealthy city’ problem. If workers can’t afford to live in Bath, they can’t readily do the jobs that stimulate the economy and skills aren’t attracted to working there. The lab is pulling in the wider investment community to get over the traditional lines drawn around siloed sector development, instead taking a holistic approach to a mix of housing tenures and integrated transport infrastructure.

While no silver bullet emerges, valuable lessons are being learned from bringing together the network of different stakeholder perspectives in a neutral environment.

Open conversations about what each party needs in a spirit of open-mindedness enables people to find a common language to talk about social outcomes, developing local impact partnerships and common impact measurement frameworks. It also enables people to explore practical issues, such as councils needing to consider how land gets parcelled up in order to optimise capital attraction.

Getting the plot sizes wrong can limit investor interest. Or councils knowing how to effectively pitch what they want and need help with – coaching could help work out what kind of proposition will appeal to a particular type of investor. The private sector needs to understand local authority interdepartmental trade-offs, for example trading council tax revenue from luxury residential developments for affordable housing to relieve homelessness.

The objective of the PBII network is to create a high-trust approach to creating shared value. Building a trusted environment where local authorities and investment managers can meet for knowledge sharing, mutual learning and the development of innovative financing solutions to scale up institutional investment as a force for good.

Delivering on the promise of place-based impact investment requires breaking the status quo and rebuilding relationships based on trust, and in so doing helping places across the UK achieve local economic resilience, prosperity and sustainable development.

Vivienne King is head of real estate social impact at The Good Economy