Corporate social responsibility
Our Stance - Legal & General Group - Managing Environmental Social and Governance (ESG) risks
Legal & General Group and its subsidiaries have an integrated process to managing Social Economic and Environmental (SEE) risks in our business. As a major financial services institution, our disclosed focus on effective risk management naturally reflects financial risks and the impact upon capital reservation. Details of our disclosed principal risks considered and monitored by our Board can be found here:
http://www.legalandgeneralgroup.com/ara_2007/directorsreport/strategicoverview/risks.html
However, as set out below ESG trends are also factored into the Group’s business and risk management processes.
Group Risk Management Process
Risk management is core to Legal & General's Corporate Governance process. Details of the Group’s practices are set out within the Annual Report & Accounts. In support of these practices and as part of the ongoing review of prudential capital requirements, the Group undertakes a rolling programme of risk based scenario tests. The scenarios consider extreme events, often combining a number of separate risks and examining how they may inter-relate to provide more extreme outcomes to those normally anticipated. Once developed, the scenarios are modelled and translated into extreme stresses on factors including:
- Equity, bond and property returns;
- Inflation and interest rates;
- Customer behaviours, new business volumes and persistency; and
- Longevity, mortality and morbidity.
Over recent years, scenarios have included matters such as :-
- Oil Price Shock
- World Recession
- Pandemic Risk
- Unforeseen Advances in Medical Science
- Catastrophic Event and Market Failure
- Unforeseen Regulatory Events
- Reputational Risk
Factoring ESG trends into Legal & General's Individual Businesses
At a divisional level, our core businesses of Risk, Savings & Investments and Investment Management factor their own external influences and trends into their individual business plans.
Risk
Our Protection and Annuities Business develops research over time which enables pricing and mortality assumptions to be challenged and modelled and if needed capital to be reserved. Timeframes are driven around the life of our products.
Emergent research topics on potential scenarios which have been modelled and factored into pricing decisions and capital reserving include the disease effects of weather events and other changes in public health.
Our General Insurance Business is the most directly impacted by the current issues of climate change. At a product level the pricing and development of products uses external expertise as well as claims experience. External expertise brought in to influence the decision making process includes:
- Environment Agency (EA) flood data
- Risk Management Solutions (RMS) flood peril rating database
- RMS windstorm peril rating database
- RMS storm surge peril rating database
- British Geological Survey (BGS) database of soil hazards
- We also buy bespoke research, which is proprietary.
Savings and Investments
Our Wealth Management business meets long term investment needs for savings and retirement. We ensure we have a broad range of fund options and life-styling features to meet the changing attitudes and demographics. We review economic and demographic data from a variety of sources:
- Propriety research
- Specialist reports across a range of organisations
- Industry and government data
- Lobbying and consultation directly with government on specific issues
Investment Management
With around £300bn Assets under Management, and as the single biggest shareholder of the FTSE 350 with around 5% of its holdings, we have a duty to understand what is happening in the broader economy. We believe that we have a role in providing an economic commentary for the Financial Services Industry, Small to Medium Enterprises (SMEs) and Journalists.
To form our economic opinion we evaluate our macro roadmap on a regular monthly basis - comparing our forecasts for growth, inflation, interest rates, profits and asset returns for the major economic regions with the latest data outturns. This ensures our forecasts remain timely.
We also compare our views with consensus. Our most non-consensus ideas are stress tested through high quality research. We publish and discuss this research both internally and externally. This peer-review process helps us evaluate the strength of our conviction.
We then evaluate the most efficient ways to profit from our non-consensus ideas in financial markets. For example, should a relative call on German vs US growth be made in the FX, bond or equity markets? Our diversified team of economists, market strategists and experienced portfolio managers help us spot opportunities. Our company's size also gives us full access to the resources of the broker community as well as niche consultants.
Our public role of disseminating an economic view culminates in a monthly "Fundamentals" briefing. An example of this is here:
http://www.legalandgeneralmediacentre.com/content/detail.asp?NewsAreaID=21&ReleaseID=315
NGO and Third Sector inputs
The aim of our Group charitable and third sector partnerships is to provide core funding for programmes as well as to provide Legal & General with research and development knowledge to influence the future shape of markets, products and our services in the future based upon their front line experience.
- MEND and Great Ormond Street work with our Life Assurance Business to understand the impact of Childhood Obesity on future business.
- A4e and SEEDA are currently helping us to understand the issues of Financial Inclusion for our Wealth Management business.
- Macmillan, Nationwide and L&G will be working upon sharing our Critical Illness proposition in the third quarter of 2008
- British Heart Foundation continues to work with Legal & General's Group risk business to focus on Workplace Health.
- Help the Aged have been working with our General Insurance Business to look at home security through the sponsorship of their Handy Van programme across the UK.
- Woodland Trust and Legal & General Property are working on strategic land access across the UK.
- Crimestoppers continues to work with the Legal & General Compliance team to investigate the link between street crime and crime against the financial services sector.
- University of Buckingham's Business Enterprise Team continues to work with Legal & General Ventures to help to develop the next generation of entrepreneurs.
