L&G: impact investing delivers benefits and good returns

Investing for impact makes commercial sense and can deliver good returns to investors as well as great benefits to society, according to Legal & General, one of Europe’s largest asset managers.

“The S in ESG for us means delivering social outcomes that have a positive long-term impact but also increase returns,” said Sir Nigel Wilson, CEO, at a briefing organised by L&G. “People see their money being used to do the right thing but also delivering safe long-term returns for them.”

It is a win-win situation that works because L&G has a long-term view, he said, and as an investor with 12.9 million customers it has a social role and a responsibility to invest to improve people’s lives and communities.

There is still a misconception in the investment community that high financial returns cannot coincide with meaningful social impact, but choosing the right assets to invest in can provide long-term income streams that can rise with inflation.

Another misconception is that ESG investments are riskier. “We see lower risk as a fundamental benefit of impact investing,” said Pete Gladwell, group social impact and investment director, L&G. “By accurately identifying what society needs, you create assets that are needed and relevant.”

L&G has adopted the theory of change, which is very popular in the charitable sector.

“We start by identifying the need for an investment at local level, we talk to the local community and we provide the money and the expertise,” said Gladwell. “We invest society’s long-term capital to address society’s long-term needs.”

In the UK’s West Midlands, for example, a £4 billion commitment is driving social and environmental outcomes across the community, from delivering affordable homes to creating a science innovation hub, to building Enterprise Wharf, Birmingham’s first smart-enabled digital and tech campus.

In Bristol, L&G is “bringing in different pools of money and orientating them to the local needs, rather than making as much money as quickly as possible, in the knowledge that there will be a higher return on our capital,” said Gladwell.

At Temple Island in Bristol a new £400 million sustainable and inclusive community is being created, 40% of which will comprise affordable homes, and there will be a regenerated waterfront and sustainable offices.

“Business can and should be held to account for the good it could do, as well as the bad it might do,” said Gladwell.

Real progress will only be made if more investors and asset managers take the same route. “We don’t want to pat ourselves on the back for what we do, in fact we shouldn’t have such a prominent role,” said Wilson. “We want many more people to do what we do, because there is a huge amount of work to be done.”