Even clearer on materiality in 2014
Overall materiality matrix
Our group strategy focuses upon helping people achieve financial security while ensuring that everything we do is environmentally and socially responsible. We have an ever-changing set of stakeholder expectations, some of which inform the strategy and opportunities, and some of which acknowledge risks for the strategy.
The basis for our responsible business strategy comes from a superb 2005 white paper by FTSE Group, which in our opinion is timeless in its application, called 'Rewarding Virtue (PDF, 3.6 MB)'. This work suggested that the role of a company’s board is to look for constructive ways to solve external market failures (social, economic and environmental) through its operation and strategy. We continue to look for innovative networks to improve our performance. The ‘Blueprint for better business’ and the ‘Responsible 100’ now provide us with guidance on our approach.
During 2014, we worked with Schlange & Co, a German firm specialising in corporate social responsibility strategy, to carry out an independent materiality process on behalf of the group as part of our governance process. This was presented to the Executive Committee in November 2014 for discussion and conclusion. It was also reviewed by the Chairman. It is now the responsibility of the Group Corporate Responsibility and Ethics Committee (GCRE) chaired by CEO, Nigel Wilson, to progress this work in the form of policy development and targeting improvements over the next few years.
Materiality debates – who did we involve?
We asked 40,000 retail customers, 14,500 financial intermediaries, 400 non-governmental organisations (NGOs) via the ‘Responsible 100 network’, our worldwide employees, our social media followers and our leadership teams, their views on a number of areas related to our responsibilities as a business now and in the future.
They were selected initially because they are key stakeholder groups that we would typically interact with in running or business. We had a pleasing quantity of responses and asked Schlange & Co to digest these for us. They identified 27 critical sustainability issues that are relevant to us because of the businesses, geographies and markets that we are in. This was based upon their own experience and also used pre-existing reports from investment analysts, NGOs and customer feedback.
How do we stack up?
Internal and external stakeholders viewed our performance as positive. We validated our internal list of highly material issues with external stakeholders and were very pleased to achieve a high level of consensus.
External stakeholders had the following views:
- 69% agree or strongly agree that we’re a responsible business
- 78% agree or strongly agree that we’re economically useful
- 48% agree or strongly agree that we’re socially useful
- 34% agree or strongly agree that we’re environmentally useful
We’re seen as a company that is run responsibly and is economically useful. Many organisations say we need to do more work to prove social value and environmental efficiency and we need better communications to stakeholders to improve their perception of what we do.
As part of the analysis we got some qualitative feedback on a number of areas.
1. We asked what three words best describe our approach to business?
Views of external stakeholders
There was a very strong correlation between what external stakeholders and what our employees say.
2. We asked what campaigns we should be pursuing in the future on behalf of stakeholders?
Views of external stakeholders
Stakeholders saw a clear role for us as an investor in closing the high pay gap in UK plc and a clear role for us in developing a less carbon intensive business.
Our employees agree with external stakeholders on our role in renewable energy but also think we should be campaigning more to improve services for an ageing population. This is an area of society we are highly committed to in a number of different ways across our worldwide business.
Where do we focus next?
Schlange & Co concluded that, according to internal and external stakeholders, a total of twelve critical sustainability issues (three of ‘very high’ and nine of ‘high’ relevance) were identified for us to focus upon:
Business ethics and business integrity
- Employee and director remunerationRelevance high
- Employee engagementRelevance high
- Diversity and equal opportunityRelevance high
- Long term leadershipRelevance high
- Recruiting and retaining talentRelevance high
- Occupational health and safetyRelevance medium
- Training and further educationRelevance medium
- Human rightsRelevance medium
- Employee representationRelevance medium
- Energy efficiencyRelevance medium
- Material efficiency and waste reductionRelevance medium
- Waste and wastewaterRelevance medium
- Emissions to airRelevance medium
- Investment in renewablesRelevance medium
Bold issues = top 10 sustainability issues relevant to Legal & General according results of the stakeholder sustainability survey
Relevance very high high medium .
Thus, the following material issues are included in the report: The issues of ‘very high’ importance were all in the business integrity and business ethics category. This is not unusual for a financial services industry. Stakeholders saw confidence in customer privacy as their number one issue.
We were surprised that environmental issues were not listed among the top 10 currently relevant sustainability issues as they are among the top issues to increase in relevance in the next three to five years.
How do we stack up against our competitors?
Customers of all types have a choice about who they do business with. Our workforce has a choice over who they work for.
Schlange & Co drew conclusions across our three core businesses:
- Providing retail financial services
- As a major investment manager
- As a major commercial property fund manager
They said that: “Stakeholders perceive that we perform equally or better than our competitors in these markets.
Based on the competitors’ benchmark, we ranked second out of seven companies overall with regard to sustainability performance and first in its sustainability communication.”
How might a future materiality evaluation be different?
The materiality analysis raises a number of questions that will guide current strategy.
These are currently being reviewed by the Group Corporate Responsibility and Ethics (GCRE) Committee, but include:
- What role we could play in the renewable energy market as an investor for clients and a direct investor via our balance sheet?
- Should we play an increased role in all aspects of the financial education system at all stages of life, particularly with major pension changes happening in the UK.
- What we need to do to inspire more confidence in our stakeholders on our customer privacy and cyber security approach, particularly in relation to our increased digital aspirations.
- How can we connect our customers with our balance sheet investments so that they can see the long term assets that we have invested in on their behalf?
- The opportunity for a stronger UK regional presence as a business and stronger local links with regional bodies such as Local Enterprise Partnerships (LEPs)?
- Our plans for country level materiality analysis for the UK, US, Netherlands and France to take into account local stakeholder views.
The materiality process and subsequent board interactions have created the ESG targets for 2015 – 2017.
Our materiality analysis in 2014 focussed upon the group and UK stakeholders. We intend to increase our scope in 2015 so that all subidiaries in the US, Netherlands and France have an independent materiality review from their local stakeholders.