The idea that local government pension scheme (LGPS) funds could or should invest in local (rather than overseas) assets or infrastructure projects is a popular one. Those who champion this want funding to promote growth and LGPS funds want to see growth in the value of their investments. So what's not to like?

Some LGPS funds are already investing in local social housing and renewable energy. The Government has said that it wants to mobilise £16 billion of the LGPS for investments in local projects and so in its White Paper has set an ambition for LGPS funds to invest 5% of their investments locally.

However, this may not be as easy to achieve as it seems. LGPS funds have fiduciary duties to their members and employers - ultimately their obligation is to pay pensions rather than to promote local growth and their investments need to reflect this. Michael Gove has however insisted that investment in local projects and compliance with these fiduciary duties won't conflict and has indicated that the Government might even force compliance with the 5% ambition.

So how is this ambition playing out? Lambeth Pension Fund has recently announced an investment into social housing, Cornwall Pension Fund is investing into social housing (some of it in Cornwall) and renewable energy and the Greater Manchester Pension Fund, the London Pension Fund Authority, Merseyside Pension Fund, Lancashire County Pension Fund and West Yorkshire Pension Fund have invested £1.275 billion into the GLIL infrastructure fund supporting a variety of energy and infrastructure projects.

Late last year, the Government announced the intention to consult early in 2023 on issuing new guidance on asset pooling for LGPS funds. If the Government does follow through on Michael Gove's suggestion that the Government might look at enforcing compliance with its levelling up agenda, that could lead to challenge in the courts. The Supreme Court has already ruled that current legislation doesn't give the Government the power to direct what investments should (or shouldn't) be made in the Palestine Solidarity Campaign case.  

For now, LGPS funds should be looking primarily at whether an investment is appropriate in financial terms and only then considering environmental, social and governance or ethical factors as secondary matters. For those wanting to attract investment from LGPS funds on ESG grounds, ensuring that your proposition stacks up as a good investment is a must.