Introducing Inclusive Capitalism: combining economic success and social usefulness
“If you're being both economically and socially useful, you will build a successful, long-term and very sustainable company," said John Godfrey, Corporate Affairs Director at L&G.
How can markets deliver long-term social good? With the joint needs of the UK’s coronavirus recovery and ambitious climate targets, through the concept of Inclusive Capitalism, John Godfrey from Legal & General explains how the organisation can play a crucial role in the years ahead.
At over 185 years old, Legal & General have always taken the long-term view.
“Legal & General has had this mindset that it is only going to succeed in the very long-term, if it does the right things for its customers, for broader society, as well as of course, for shareholders,” explained John Godfrey, Corporate Affairs Director at Legal &General.
It forms the central concept of what Legal &General call “Inclusive Capitalism”, ultimately, using money and investment as a force for good in society.
“If you're being both economically and socially useful, you will build a successful, long-term and very sustainable company,” he continued.
Inclusive Capitalism really tries to harness the power of markets and the power of what we do as an investor, to deliver long-term social good
This has been a successful strategy for Legal & General, who have delivered double digit growth in earnings almost every year for the last decade.
“People talk a lot about this dichotomy between making money and doing good. We think that's completely false,” says John Godfrey.
“It’s possible to do both, and Inclusive Capitalism really tries to harness the power of markets and the power of what we do as an investor, to deliver long-term social good,” he explained.
Policy and finance have been intertwined throughout John’s career.
After spending the early part of his career working for a range of international financial businesses, he was seconded as a special advisor to the then Home Secretary, Douglas Hurd.
He joined Legal & General in 2006, as Corporate Affairs Director and in 2016, was appointed as Head of the Policy Unit for Theresa May’s Government.
Speaking of his experience inside Government, John is frank: “In a place like Legal and General, and in business generally, I think your route to success as an individual is by fantastic execution rather than elegant position papers, in government, it's probably the other way around.”
After leaving that role there was only one organisation John wanted work at again: Legal and General.
“There was really only one answer, which was to go back to actually deliver the stuff that I believed in. It's a super place to work.”
An investment led recovery
With the joint needs of the coronavirus recovery and the UK’s ambitious climate targets, John believes that Legal & General have an “enormous” role to play in the years ahead.
Legal & General manage over £1.2 trillion in assets, extending a broad reach across society, that the organisation believe can be used to tackle social issues and reach climate targets.
“The recovery that comes after this needs to be an investment-led recovery,” he explained.
The challenge for Legal & General, he said, is in finding enough suitable projects, assets and places to deliver these investments. This is where John believes government can help.
“Local government and city leaders of all political shades have been terrific, but we need a little bit more partnership and the right nudges from the centre,” he explained.
“We’re going to have to invest more, including in real assets, cities and housing. We have to make that more climate friendly,” he continued.
The government talks a lot about levelling up, almost as if it's a new concept. But we started this almost 10 years ago.
This is something that Legal & General have already begun.
“The government talks a lot about levelling up, almost as if it's a new concept. But we started this almost 10 years ago, when we concluded that to deliver economic growth in the UK, you had to start where economic growth wasn't fast enough,” he enthused. “The result has been investment in Newcastle, Sunderland, Leeds, Salford, Oxford, Bristol, Cardiff, Edinburgh and Glasgow.”
The organisation is one of the largest house builders in the UK, encompassing everything from build-to-sell, rental properties, affordable housing and later-life living.
“House building will move the dial quite quickly in terms of an investment-led recovery. So, we have a role to play there,” he stated.
For an example of how an investment led recovery translates into what Legal & General call “Inclusive Capitalism”, John cites their work with Croydon Council to address homelessness in the borough.
“It was a win for the council and of course, a massive win for the homeless people living in the borough,” he celebrates.
Here, Legal & General are buying 180 homes to accommodate homeless people, making them available on long-term leases to the council. These assets provided the organisation with the right quality and the right yield to pay pension annuities, but also provided Croydon Council with what John described as “economically better” financing.
“That’s a 40-year transaction, at the end of which those properties revert straight back to the council. That’s a triple win for Inclusive Capitalism,” he said.
Investing in our climate and society
With such large investment power with £1.2 trillion in assets, John Godfrey was keen to point out the impact that the organisation can have in addressing climate change.
“We can back those assets which will help us in the transition to net zero,” he explained.
Legal & General are already large investors in wind power and are also investing in some of the newer technologies. For example, Oxford PV is creating photovoltaic cells which can create solar energy much more efficiently.
“We also use our investment firepower to persuade companies that we invest in to decarbonise. That includes in the energy sector,” he explained.
Another area where Legal & General see the power of Inclusive Capitalism is in our ageing population.
“The ageing demographic is something we see as a growth driver for the business,” he explained.
“It is an unstoppable trend and Covid-19 hasn't really changed the fact that we're an ageing society, with people living longer and fewer people being born.”
“What it also means for us is the opportunity to try to create longer, healthier lives, as opposed to just longer lives.”
For example, the organisation is investing in specialist retirement village housing for older people. Places that will enable residents to live independently for longer.
Alongside housing for an ageing population, Legal & General are pioneering research into social care.
There isn't a binary choice between economic success and social usefulness.
“We think very deeply about social care. This of course where the most tragic aspects of the Covid-19 crisis came to light, the biggest toll of deaths was in the care system,” he said.
Before the coronavirus pandemic, the organisation had begun working with Edinburgh University, funding a £20m research project into future care for the elderly.
“We're accelerating that work to try and understand this much better and will use that to create a new model care home of the future,” stated John.
“That's a philanthropic exercise by us, but we'll all learn a lot from it.”
“If we can tackle that as a problem, that's Inclusive Capitalism, because it's hugely important for a lot of our customers and for their families, and for the broader population,” he continued.
As we progress through the pandemic, and turn toward the recovery, John is certain of the role that Inclusive Capitalism can play: “There isn't a binary choice between economic success and social usefulness.”
“You have to convince people that it makes economic sense for them to do it and convince the market as a whole that this is a worthwhile piece of business activity, then you will scale it up much faster,” he said.
“We have to harness the whole power of the market system to try and drive things forward to deliver growth and better lives. That’s how we also do well in business,” he concluded.