Place-based investment offers lifeline to left-behind towns
We’ll send you a myFT Daily Digest email rounding up the latest Impact investing news every morning.
Across the UK, more than one in four children live in poverty. In the North of England, according to a report published last month, that rises to one in three. The current cost of living crisis is affecting everyone, but it is having a disproportionately severe impact on families that were already struggling. What is sometimes forgotten is that the consequences of poverty are felt not just in individual households, but in whole neighbourhoods. However, new models of investment can address this challenge.
The pandemic, the war in Ukraine, and historic under-investment have all combined to tip entire communities that were ‘just about managing’ into ‘not managing at all’. Bringing more inclusive, sustainable growth to these communities has never been so urgently required, both to address immediate needs and so that people do not have to leave the place they love in order to find economic opportunities, or affordable housing, or childcare.
These communities have often suffered pervasive and entrenched disadvantages in attracting the investment they need — losing out on opportunities for the people living there as well as for potential investors. If you run a business in an area of high deprivation, you are more likely to be declined for a bank loan than if you live in a more affluent area.
People living in communities have the best ideas of what local sustainable growth would look like. And an increasing number of projects, across the UK and elsewhere in the world, are demonstrating how community-led impact investing in places can use state and private capital effectively to deliver that growth.
Done well, place-based impact investment — delivering positive, measurable, environmental and social benefit — builds effective coalitions between community representatives and investors, whether public or private. These enable people living in that place to articulate their needs and priorities for change. Anchor institutions such as local councils can play an important role in creating meaningful and lasting partnerships between places and providers of capital, in which those priorities for change are not only respected, but also shared.
So, too, can Community Development Finance Institutions, which attempt to address systemic imbalances in the allocation of finance to small businesses. They direct nearly half their lending to the UK’s most deprived areas. In January, NatWest announced that it would be providing £900,000 of funding to the CDFI sector to help customers with small loans and grants during the cost of living crisis.
There are other great examples of this kind of investment and partnership happening now.
In Watchet, near my home on Exmoor in the south-west of England, a social enterprise called the Onion Collective consulted with the local community after plans for a commercial property development fell through. As a result of the consultation, the Collective opened a visitor centre and restored boat museum in 2016, and, then, in 2021, a £7.3mn arts centre, supported by investment from the Esmée Fairbairn Foundation and others.
In Grimsby, Our Future is building a collaborative partnership, centred on Grimsby Town Football Club, to ensure local people have the resources and networks they need for a more prosperous future, partnering with community landlords, for example, to manage housing as they would like.
This type of place-based impact investment can deliver not just jobs and homes, but also a market-competitive financial return for institutional investors, such as pension funds.
In 2020, Border to Coast — a pool of several English local government pension funds — made a £40mn investment in a renewable energy plant in Lincolnshire. Located within Border to Coast’s geographical area, this was its first co-investment, and was made with the aim of achieving a secure and reliable return.
The investment secured a minority stake in the plant, which is owned by Greencoat Capital, a specialist investment manager dedicated to renewable energy infrastructure. Railpen, which manages the £30bn Railways Pension Scheme, is also a partner.
The plant uses locally sourced straw — most from within a 30-mile radius — and sustainable woodchip to generate renewable power and heat. It has the capacity to generate electricity for 65,000 homes, saving 50,000 tonnes of CO₂ a year, and provides 30 direct local jobs and a further 50 in the fuel supply chain.
More projects of this type are badly needed. At the Impact Investing Institute, we are supporting a range of initiatives to get more communities and more investors involved. But local and regional authorities need more resources and skills to support engagement with private investors.
The full potential of the CDFI sector needs to be realised: in the UK, there are about 50 CDFIs, whereas, in the US, they number closer to 1,400. And public funding needs to be more flexible — for example, to provide “catalytic” capital to de-risk investments and help to crowd in private capital at greater scale.
Too often, the prevailing narrative in Britain’s underinvested places is that anybody with aspiration needs to leave the area, to “get out to get on”.
But there are now plenty of examples of those people, in partnership with investors and local government, driving the change that is needed to make that narrative a thing of the past.
Sarah Gordon is a senior adviser at the Impact Investing Institute, and a former FT business editor