John Godfrey

Corporate Affairs Director

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Driving inclusive growth

The need to build inclusive growth and to tackle inequality has long driven our belief in inclusive capitalism. This has been recognised by the OECD and the G7 group of world leaders, who have invited Legal & General to be one of 34 global businesses in a new ‘Business for Inclusive Growth’ coalition, to be launched in Biarritz this weekend.

Legal & General’s investment in The Lumen, at Newcastle Helix will create the largest city centre office building, with private sector funding, to be constructed in the last decade

Our strategy for inclusive capitalism combines our desire to grow shareholder value with the need for social progress. We have now invested over £28 billion in economically and socially responsible investments to create future cities, develop much needed homes and generate new businesses and jobs. We’re delighted that our efforts have been recognised in a global ‘impact investing’ programme.

Economic successes are distributed unequally

Since the financial crisis, our capitalist system has created extraordinary wealth for the few, accompanied by anger from those who feel left behind. The response to the financial crisis from governments across the globe failed to value the need for inclusivity. Average real earnings, adjusted to take inflation into account, for UK employees are barely any higher than they were in 2008, forcing many working people to take on more and more debt. Households are now, on average, spending more than they earn for the first time since 1988. In contrast, QE meant that the wealthy were able to profit from massive asset growth, widening the gap between Wall Street and the High Street.

We can still say that in general, capitalism raises global standards of living. Capitalism has benefited rich people in rich countries, but it has also benefited rich people in poor countries. Because assets are disproportionately owned by the rich, the top 10% of people have benefitted by as much as £350,000 each, while the poorest households are, on average, some £10,000 poorer.

Why inclusive capitalism is the answer

We must make capitalism more inclusive by giving everyone a stake in its success. We need better capitalism that is more responsible and inclusive, with better shareholder stewardship and more of a long-term focus. Inclusive capitalism shouldn’t just try and help the wealthiest members of society; it needs to invest in creating better lives for everyone, through better jobs, better homes and better cities.

Around three million jobs have been created in the past decade. However, the Resolution Foundation points out that: “Two-thirds of the growth in employment since 2008 has been in ‘atypical’ roles such as self-employment, zero-hours contracts or agency work”. The UK’s slump in productivity growth since the financial crisis has been more acute than any other western country. Compared with countries such as Germany, France and the US, the UK’s productivity is about 30% worse. The gulf between London and other UK cities is also too wide. We have been working in partnership with local authorities to breathe new life back into some of our biggest cities including Leeds, Manchester, Newcastle, Cardiff, Bristol, Bath, Glasgow and parts of London. This drives an increase in productivity and wages and stimulates opportunities for everyone.

Private business can fund our future cities

It doesn’t have to be the Government who invests in infrastructure. Private companies have never had so much money to invest. There is some $14 trillion of money globally which has only nominal returns. We have partnered with local authorities in UK cities to create inclusive growth, by building roads, railways, factories, shops, schools and science parks. We have invested in all types of homes, including hundreds of affordable homes in Croydon, Cornwall, Bedfordshire and Oxfordshire. In Croydon, we set up an innovative partnership with Croydon Council to provide 167 homes for families on the housing waiting list.

A digital future for all

Fintech solutions are key to making the Finance industry more inclusive as people can have access to insurance, savings and loans, without paying large sums in fees or interest payments to middlemen. It’s a vital first step to address the ‘poverty premium’ by helping people move away from high-interest payday lending and excessive transaction costs. Lenders such as SalaryFinance operate through employers’ payroll systems to offer debt consolidation and repayment plans at lower interest rates than those from credit card providers or payday lenders, and over time provide a bridge from indebtedness to precautionary saving. Our SalaryFinance wellbeing platform has a reach of over a million employees in the UK and more than 50,000 employees in the US in the first few months of operation.

Inclusive capitalism can make carbon reduction less painful

For business, and especially for big companies with capital and the vision to use it wisely, there is no more pressing issue or greater opportunity than climate change. A rise in temperature of more than 2°C would mean climactic catastrophe. To do nothing implies a 4°C rise with enormous consequences.

Action to create a low-carbon future should come from businesses rather than simply relying on taxpayers and cash-strapped governments. Companies need to take a responsible attitude by shutting down carbon-creating operations and need to invest in positive environmentally enhancing activities.

It’s essential that carbon consumption is reduced by the phasing out of gas heating, the development of wind and solar power and the growth in the take-up of electric cars. We have taken a 13% stake in Pod Point, one of the UK’s largest electric vehicle charge point operators. We have already started to invest in green energy. Our investment in the world’s largest offshore windfarm project in Hornsea will produce enough green electricity to power over 400,000 homes. We also have used our position as one of world’s largest investors to engage with companies to influence them to adopt low-carbon strategies. Companies which fail to meet minimum standards of climate sustainability are placed upon a ‘no-investment’ list.

Sadly, the desire to be being responsible isn’t always enough for companies to want to change behaviour. The realisation that investments in green projects can earn healthy returns should be a great motivator. It is also in companies' best interest to shift to a 2°C trajectory, or face being left with ‘stranded assets’ such as coalfields, oil reserves, and water-intensive crops.

The climate crisis requires a massive effort where providers of debt, equity and insurance services step up, supported by government policy and regulatory changes. This can only work if it’s within an inclusive capitalism framework.

My hope is that the Biarritz pledge to “reduce inequalities of opportunity; reduce territorial inequalities; promote diversity and inclusion and eliminate gender inequality” will usher in a new era of collaboration between business and government to improve people’s lives. Capitalism can once again create growth that is inclusive, reduces inequality and is environmentally sustainable.