Place-based investing - matching investment to context of place, people, community and culture
Place-based investments are impact investments specific to a geographic location. It is a growing type of impact investment here in New Zealand and globally.
Aotearoa New Zealand case studies and research
At recent events, at the Impact Investing Network webinar and RIAA conference, themes were explored about the unique ways Aotearoa New Zealand can lead impact investing including:
The Community and Philanthropic Trusts' focus on place-based investing that matches investment to context of place, people and culture. For example social housing projects facilitated by Community Finance such as the Salvation Army housing developments in Auckland and The Aotearoa Pledge. Also Te Koti Te Rato, the marae-based housing development in Christchurch with investment from Rātā Foundation.
Te Ao Māori focus on intergenerational and community values, which is explored in the 'Impact Investment in Action' research prepared prepared by The Connective for Philanthropy New Zealand (PNZ) and funded by WEL Energy Trust. In the same report, there was another theme that investors need to understand what is needed by the communities in which they are investing to determine whether a particular investment is the right approach.
A high level of connectedness and collaboration in New Zealand enables cross-sector partnerships, which results in a higher chance of sustainable outcomes by working with people in the environment where you're trying to make a difference.
One of the memorable themes from the place-based impact investing session at the RIAA (Responsible Investment Association Australasia) conference was stories of individuals and families in their context carry wisdom to complement impact measurement.
Global case studies and research
A major challenge with place-based impact investing is it can be difficult to increase the scale of the project, level of investment and impact.
UK (United Kingdom) context
To address the scale issue the Impact Investing Institute has published 'Scaling Up Institutional Investment for Place-based Impact'.
This report explores how to scale-up institutional capital, public and private, into local and regional opportunities, and into key sectors e.g. affordable housing, clean energy, infrastructure, small and medium-sized (SME) enterprises finance and regeneration.
Some highlight findings from the report:
There are opportunities for investors to secure financial returns while addressing place-based inequalities to support more inclusive and sustainable development.
Place-based investments already exist in portfolios of local government pension schemes and can provide stable, risk-adjusted returns and low volatility.
Place-based impact investment is limited, with local government pensions schemes investing around 1% of their portfolio in ways that could directly support local and regional economic development and positive place-based impact creation.
There is a legacy of local investing by local government pension funds. If 5% of their funds were allocated to local investment this would unlock £16 billion focused on delivering both financial returns and responding to the needs and opportunities of specific places.
There are five traits of place-based impact investing, requiring:
A clear intentionality to achieve a positive impact.
A definition of place and the need to consider the cross-cutting nature of 'place' (e.g. local, regional, national) and 'sectors' (e.g. housing, clean energy, infrastructure, SME finance, regeneration).
Importance of engaging with stakeholders. Another related finding is research from BlueMark, which showed only 11% of surveyed impact investors gained input from stakeholders to assess impact performance.
Impact measurement, management and reporting.
Collaboration is critical.
US (United States) context
In the US (United States) The Impact Investing Alliance published 'Impact in Place: Emerging Sources of Community Investment Capital and Strategies to Direct it at Scale'.
This report explores innovative investment strategies to improve prosperity, prioritise racial equity and seeks to combat wealth inequalities.
Case studies outline community investment models from public and private institutions, working alongside community leaders, to generate positive and measurable outcomes for communities, for example:
Chicago Small Business Resiliency $100m Fund: the City of Chicago partnered with philanthropies and fintech providers to quickly provide low-interest loans to small businesses in response to Covid-19, through a network of Community Development Financial Institutions.
Ceniarth (family office): provided over $14m in zero-interest loans from philanthropies for the Rural Community Assistance Corporation, a rural Community Development Financial Institution. This deployed loans to rural businesses and nonprofits that initially were unable to access the program.
The Boston Ujima Fund: a democratically managed fund that enables residents and businesses to invest in building the wealth of their own community.
The report made the following recommendations to overcome the barriers to community investing:
There is a need for investors to take early investments to send a positive signal to the market.
Investors need to make the investment process less unpredictable and time-consuming for financial intermediaries.
Knowledge of community investing strategies needs to improve.