Investment potential in Local Digital Infrastructure


Local urban digital infrastructure projects such as fibre broadband installation or the implementation of energy efficiency processes fulfil all the criteria of offering a stable and proven return on investment whilst delivering tangible societal benefits, enhancing economic activity and demonstrating a commitment to sustainable development by the local authority. Despite this, few UK councils have either the scale or in-house resources to utilise their own pension-fund capital to finance such local infrastructure projects and are instead accepting ever-decreasing returns on standard stock investments.[1]

The challenge for investors

Socially Responsible Investment strategies are increasingly being adopted by UK councils in order to reflect the he economic, ethical and environmental interests of their shareholders.[2] This appetite for “impact investments” intended to generate social and environmental impact[3] alongside a financial return coupled with the historical low rates of return on the bonds traditionally used to provide fixed income to investment portfolios makes local infrastructure projects an obvious investment for local authorities seeking a stable long-term return and to make tangible improvements to the homes and services of their members.[4]

Investment opportunities presented by broadband

Full fibre optic broadband is universally accepted as a necessary part of the future infrastructure needed to facilitate the technology and service-based industries of the coming years.[5] OpenReach and many other providers have instead opted for a temporary solution of extending fibre only to the local area but in all cases where either the public or private sector has intervened to install full fibre to the home (FTTH), the investment has not only paid for itself ahead of the expected timeframe but has delivered jobs, economic growth, an increase in property values and a reduction in necessary transport and the air pollution that accompanies it.[6]

Multiple venture capital firms have already invested substantial amounts in connecting business and high-value residential premises to FTTH all over the UK, often with funding assistance from the UK government or European Investment Bank.[7] These schemes make use of the subsidies available for full fibre roll-out under the UK National Broadband scheme[8] and EU Europe 2020 strategy as well as the already-existing commercial demand for the technology to establish a foothold from which they can extend their fibre network to the surrounding area as demand increases.

Even publicly-funded ventures intended to serve the council’s own housing stock have had sufficient take-up to be commercially viable and operate at no cost to the local authority.[9] The opportunity therefore exists to utilise the authority of local councils and investment potential of their pension funds to provide full FTTH broadband that will immediately enhance the region, future-proof local infrastructure and leave the council in possession of a tangible asset that can be operated autonomously or put to tender to the private sector.

Summary

Multiple case studies demonstrate the positive social and environmental impacts that energy efficiency and fibre optic infrastructure projects have as well as their impressive rates of return on investment. The Sustainable Development Organisation is conducting ongoing research in order to evaluate the opportunity for UK local authorities to invest in such projects. This research is intended to clarify:

How such investment can be consistent with the fiduciary duty of the trustees.
The scale and timeframe of projected returns on such investments.
The potential for local infrastructure investment as a low risk opportunity theoretically delivering high returns.


References

[1] Greater London Authority, “London Pensions Fund Authority: Key Issues Facing the Authority and a briefing on the Lancashire and London Pensions Partnership”, 2015

[2] Sharman, Laura. “District buys solar farm for new revenue source”, LocalGov August 2016

  Lokhandwala, Taha. “Strathclyde joined by UK green bank in community power investment”, Investment & Pensions Europe. February 2015

[3] Investing4Growth - Requirements

  “Local authority pension funds commit £152m to social impact investment”, Blue & Green Tomorrow. June, 2014

[4] Authers, John. “Pensions pain: disaster is avoidable”, FT August 2016

[5] Jackson, Mark, “EU Aims for Universal 100Mbps Ultrafast Broadband Coverage by 2025”, ISP Review. July 2016

  The Conversation, “A full fibre network is the only way to future-proof Britain’s digital economy”, November 2015

[6] UK Government Paper, “UK Broadband Impact Study”, February 2013

[7] Mendelsohn, Tom, “Hyperoptic wins major EU investment to boost UK residential fibre rollout”, ARS Technica UK, July 2016

[8] UK Government paper, “Details of the plan to achieve a transformation in broadband in the UK by 2017.”, December 2015

[9] Wandsworth Borough Council, “Fibre optic broadband for council blocks”, June 2014