Funding Net Zero: how investment can unleash a green revolution
As COP26 approaches, the world will be talking more and more about how we meet the challenges of climate change. But John Godfrey, L&G’s Corporate Affairs Director, is more interested in actions than words. He tells us why “inclusive capitalism” is the key to the UK’s future economic and environmental success.
In November 2021, the eyes of the world will be on Glasgow for COP26. The profile and importance of the climate emergency has never been higher, with governments around the world hoping to coordinate action to build a zero-carbon future.
John Godfrey has spent enough time with senior politicians to understand the value and symbolism of such high-profile events, but his focus is much more what happens afterwards. “what matters most is, of course, what follows Glasgow, when everyone has to deliver what they agree to”, he explains. “It's going to be about what we actually do.”
This phrase, “what we actually do,” are the four words that Godfrey returns to again and again during the course of our conversation. They act as a shorthand for what comes across as an unwavering focus on delivery, to moving beyond what he refers to as “pledging and promising”. Godfrey is clearly much more interested in action, in real money supporting real technologies that will deliver a more sustainable future.
What we want to do is connect large pools of institutional money to solving this problem and do it in an economically and socially useful way
In the past, capitalism and economic growth have often been viewed as ‘part of the problem’ when it comes to climate change. However, Godfrey sets out how L&G is turning this outdated way of thinking on its head, seeing a new form of “inclusive capitalism” as one of the main tools that we have to help address the biggest challenge of our generation.
The L&G strategy starts from a startlingly simple premise. “Climate change is a major societal issue that needs to be addressed,” Godfrey explains, “but it's also the biggest investment opportunity of our lifetimes.”
Godfrey wholeheartedly rejects the lazy assumption that economic growth is always necessarily in conflict with broader aspirations around the environment and society. For him, mainstream investment is essential to supporting the new technologies which will help solve the climate emergency and deliver a low carbon future.
The way that L&G is doing this is by linking resources to problems. “What we want to do,” says Godfrey, “is connect large pools of institutional money to solving this societal problem and do it in an economically and socially useful way”.
It is fair to say that this is more than words. The figures that Godfrey describes are truly eyewatering, both in terms of L&G’s own investment and the role the company plays in directing the capital that the company manages for others.
L&G has already invested around £30bn into UK regeneration projects. It is managing down the carbon footprint of its commercial property portfolio, and all its new housing (build to sell through CALA Homes, build to rent, social and affordable housing and Later Life Living) will be operational net zero from 2030. Meanwhile it is also investing in renewables and backing new climate technologies such as electric vehicle charging providers Podpoint, modular factory-built housing, and Kensa heat exchange pumps.
The company is now applying similar principles to guide the investment of the £1.3 trillion in assets that it manages for others and to influence investee companies on their own roads to net zero.
The scale of the ambition is undoubtably impressive. This is not about delivering a series of worthy but unconnected projects. This is more about fundamentally recalibrating the relationship between institutional money, innovation, and achieving social and environmental goals.
L&G is making a huge strategic and financial commitment to deliver on its ambitions, but Godfrey openly admits that this is not something they can achieve alone. Key to delivering the sort of projects with real impact at a local level are strong partnerships. When I ask him about the different roles of government, business and others, it is clear that he sees the added value that comes from all parts of the system working together to achieve a shared goal.
“Everyone plays to their strengths,” he tells The House. “Government is very good at having policy ideas, businesses are usually very good at executing on the ground, and local government is crucial in getting things done.”
Godfrey has no time for organisational egos, gestures, or turf wars. He sees the challenge of climate change as something that requires a coordinated response from business, different tiers of government and regulatory authorities.
He acknowledges that what will make such coordination more effective is better use of data, common metrics to show progress, and a regulatory environment which encourages investment in innovation.
This alliance of capital investment and social change may seem very modern, but at the same time the concept of “inclusive capitalism” also feels strangely old-fashioned. The idea that business and investment can drive social change would certainly have been familiar to the six lawyers who founded L&G almost 200 years ago.
As we move towards COP26, Godfrey’s focus, like his Victorian forebears, will not be on words, but on practical actions to deliver economic and environmental benefits. As ever, his attention will be on “what we actually do”.