Legal & General Group Plc (LGEN) Earnings Call Transcript & Summary

Good morning. and welcome to our 2023 AGM. As shareholders will be aware, this is the second time hosting a hybrid meeting. And we're delighted to welcome those of you who have joined us here in person today and also virtually. Before I deal with the formalities of the AGM, I just wanted to make a personal comment on 2 matters. The first is that last summer, we had the very sad news that our former Chair, John Stewart had died. And I know many of you will remember him fondly from these meetings. I was pleased that I was able to tell his wife and his family just how popular John had been in the company, and how he will be missed. The second is that, as you know, Nigel has announced that he's stepping down after a decade as our Group Chief Executive. I know the Chairman will be discussing his many achievements later in the meeting. But I just wanted to say that all of us who worked closely for Nigel over the years think he has been a magnificent leader and truly a force for good. As you all know, for many years, we previously held our AGM at the HAC. However, we switched to this venue in 2019 after listening to feedback from you that they were not -- that you were not able to hear the proceedings as well as you would like. We feel that the BMA's acoustics are significantly superior and will provide you with a better experience. And speaking personally, as I have got here in aid, I can attest that as well. And I think the feedback that we had from all of you last year was very good, but we're always happy to listen again this year. Just as a reminder, an audio induction loop is also in place for those individuals wearing a hearing aid. As always, we welcome your feedback, and we invite you to share your views with the representatives of our shareholder inquiries and feedback desk, which is the case just outside the great hall or with any of my colleagues, you will have met when you arrived today. Please do let us know at the end of the meeting if you feel any improvements could be made for next year. Before we commence the meeting, there are the usual housekeeping matters to let you know about starting with the evacuation procedure. In the event of an emergency, the fire alarm will sound. There are no planned fire tests taking place today. So if you do hear the alarm, please leave via the nearest emergency exit avoiding use of the lift and make your way through the courtyard to the front of the building. Staff from the L&G and the BMA will be able to assist you. With that introduction, I confirm that we have a quorum present with us today, so I now declare the 2023 AGM formally open. And finally, and if you haven't already done so, please could I ask you to switch off your mobile phones. I will now hand over to your Chair, Sir John Kingman.

Good morning. Thank you, Jeffrey, and a very warm welcome to Legal & General's 2023 Annual General Meeting. It's very good to see so many of you physically here today, although we are again running this as a hybrid meeting. So a warm welcome to those joining us online. The format will be largely familiar but with a new element, too. After my introductory remarks and an update from Nigel, we'll hear too from Nilufer von Bismarck, our group Board member with responsibility for climate. This is an important item and a new step for us, so your views will be very welcome. It's also an item on which, for the first time, you will have a vote later along with the usual resolutions. There will, of course, be plenty of time for questions, both on this or on any other issue. Let me start by warmly welcoming my group Board colleagues who are here on the stage with me and by introducing our 3 new Board members who joined during 2022. Laura Wade-Gery, who joined in January and was present for our AGM last year. Laura has also taken over from me as Chair of the Group Technology Committee. I'd like to welcome Tushar Morzaria, who's taken over from Philip Broadley as Chair of the Audit Committee. And finally, my third colleague joining in 2022, Carolyn Johnson. In other changes, George Lewis has succeeded Toby Strauss as Chair of the Risk Committee after Toby stood down from the Board last April. On a profoundly sad note, as Jeffrey mentioned earlier, last summer, my predecessor, John Stewart, passed away. John was very well known to many of you here, and he brought a unique personal touch to these AGMs. I'm sure we all pass on our condolences to his family. Legal & General delivered another year of strong performance in 2022 with profit up -- profit of GBP 2.3 billion, up 12.1%. Earnings per share of 38.33p, also up by 12%, enabling us, your Board, to recommend to you a full year dividend of 19.37p, up by 5%. Our balance sheet is robust with Solvency II coverage ratio at 236% at the year-end. Global political conditions and markets were volatile in 2022, but Legal & General, weathered the turbulence and is in robust good health. The effects of a difficult economic climate and in particular, high inflation and the cost of living crisis are being felt by many of our customers and indeed our employees. We have helped our lowest paid colleagues with some of their costs by making one-off cost of living payments. And again, our pay review was weighted to support those on lower salaries. I would like to take this opportunity to thank all my colleagues for their hard work and commitment to the business and to serving our customers. As you well know, earlier this year, Nigel Wilson informed the Board of his intention to retire after 14 years with Legal & General, 11 of those years as Group Chief Executive. Nigel's achievements over those years and the leadership qualities he brought to the company are immense. They include over a decade of consistent growth across our financial metrics and in shareholder returns. Equally importantly, Nigel has led in reinforcing and growing Legal & General's powerful purpose and culture, one of our unique strengths as a company. These were critical achievements during a period when we've had to work through huge changes, including Brexit, pensions freedoms, COVID, war in Ukraine and major changes to regulation, including Solvency II and preparation for the switch to the new IFRS 17 accounting standard. These achievements were rightfully recognized, not only by Nigel's knighthood, but also earlier this year when we were voted Britain's most admired company by our fellow FTSE 100 and FTSE 250 companies. I'm sure you will all join me in thanking Nigel for all that he has delivered for Legal & General. He is genuinely a world-class leader that has truly delivered for your company and for us as shareholders. The process of identifying and appointing Nigel's successor is clearly a very important decision for us as a Board involving both external and internal candidates. We are very clear as a Board that the successor we identify will need to be someone who is deeply committed to Legal & General's purpose and culture. What we describe as inclusive capitalism includes our long-term commitment to customers, shareholders and employees and the determination to deliver both positive financial and positive social results. This gives us competitive edge. It also motivates our colleagues and is, therefore, a huge importance. Nigel will continue to lead the company as Chief Executive until his successor starts in the role to ensure a seamless handover. We have said that it may take until around the end of this year before Nigel's successor is in place, but we expect to make an announcement about the appointment well before then. I'm now delighted to welcome Nigel to update you on our progress.

Thank you, John, for those kind words. It was obviously with mixed emotions that I decided it was time to retire. Legal & General has been a huge part of my professional life, and I'm very proud of what we have collectively achieved during my time here. First as Chief Financial Officer, joining in 2009 in the depths of the financial crisis and then as Chief Executive. My colleagues have been absolutely fantastic, a great team. My ambition for the company remains as strong as ever. Indeed, I hope that when I leave, L&G will continue to make even more progress and go from strength to strength in the future. We should never underestimate the impact we can make in people's lives. So being effective, efficient and financially successful is important. But even more than that, we need to be driven by strong purpose and a passion to deliver the best outcomes. I also want to echo Jeffrey and John's comments about John Stewart. I worked with John for many years. And as many of you know here, he was an incredibly kind and humble man. So I would also like to pass my condolences on to his family. 2022, again, illustrated the importance of having a clear strategy and executing well in a complex world, our 6 long-term strategic growth drivers underpin that. We are leaning into an aging demographic, the globalization of asset markets, the need to invest in the real economy and how to use technology well as we help people to build their financial resilience. Addressing climate change is one of our growth drivers. So the transition plan you will vote on today is an important measure, a road map of how we will go from pledging to doing. The strength of our results in 2022 with record earnings, EPS, ROE and another increased dividend is in part also due to the synergies between our businesses and the ways in which they complement each other. As a result of rising interest rates, we saw AUM fee income reduced in LGIM. We saw positive moves in other divisions, which more than compensated for this. Just today, we've announced the agreement of a fourth buy-in policy with the British Steel Pension Scheme, a GBP 2.7 billion transaction, which means we have now fully insured the GBP 7.5 billion scheme and therefore, the benefits of its 67,000 members. This is a great example of our unique and synergistic business model, delivering value in real time with LGIM and LGRI working in partnership with one another and the scheme's trustees or members quickly and efficiently. Our divisions work best when they work together. LGC creates real assets to support LGRI's buyout deals and fund annuities. LGIM helps clients derisk in the preparation of buyout. The majority of LGRI clients have been LGIM clients first. So our collegiate and collaborative approach is not just nice to have. It is crucial to maximizing opportunities. Again, an important part of our culture that John has emphasized. Turning to the more salient events of 2022, there were some major successes across the firm. LGC is investing GBP 300 million in Sheffield's regeneration. And I was delighted to attend the topping out of new buildings in Sunderland and Oxford where the Life and Mind Building, which we are financing is the biggest faculty building in Oxford University's history. Our joint venture with Bruntwood SciTech has shown us how to work with cities and universities to create modern science infrastructure. And we are replicating our approach in the United States with our partners there, Ancora. LGIM continued to internationalize successfully. For example, we are now the seventh largest asset manager in Japan, and we do more business in Europe than we did pre-Brexit. LGRI delivered 47 transactions worth GBP 7.3 billion in the U.K. last year, including 2 buy-ins, covering the majority of the British Steel Pension Scheme. And a record 12 deals in the United States with $1.8 billion. This is providing very real security to thousands of pension scheme members. Our retail division has come together well. What we do in retail has a direct link back to our past with the first life policies we sold in 1836. Today, we have 6.3 million U.K. protection customers and over 1.3 million in the United States, where 97% of eligible business is now written using our [Horizon] online technology. Of course, we have challenges too. We are naturally influenced by external economic and market events, including those mentioned by John. However, we pride ourselves on our problem-solving and historically have proven ourselves more than resilient and able to come back stronger from temporary setbacks. Our balance sheet is strong, and our approach to risk is that we only take those risks, which are understood and rewarded. The short-lived trust government budget following the Bank of England announcement that they were selling GBP 80 billion of gilts caused unprecedented volatility in the gilt market. This resulted in a stress situation in the liability-driven investment market. Our L&G team performed incredibly well on behalf of our clients. Planning remains exceptionally difficult across the U.K. This plus the impact of COVID caused us to cease production at the modular factory. This is a disappointing outcome. John mentioned the accounting change from IFRS 4 to IFRS 17, which applies for the whole insurance sector, our first results using the new methodology will be at the half year this year. The key point is change in accounting does not affect the economics of our business, mainly the timing of profit recognition. So that is worth bearing in mind. If anyone wants to get into the detail, Jeff or I would be happy to talk you through it. I am optimistic about the outlook for Legal & General. This year has got off to a solid start. Our investment projects are coming forward. Solvency II reform is progressing. An industry forecast for pension risk transfer looks very strong, but it is a competitive environment. And to go even further and faster, we need to continue to work hard for example, trying to unblock investments that are currently stuck in planning and to push for greater clarity, more action on regeneration, leveling up and climate. So in conclusion, I would like to thank you, as shareholders, for the support you've given Legal & General and also to me personally during my time here. This is your company and one that I think you should feel proud of. I've always enjoyed our encounters. And as a shareholder myself, it is possible that I will find myself sitting among you next time when we meet for our AGM. I'd now like to hand over to Nilufer to talk about the climate transition plan.

Thank you, Nigel. And let me begin by adding my welcome to shareholders who are attending our shareholder meeting today. I'd like to provide you with some background on the third resolution we are proposing to you today on our climate transition plan. One of my responsibilities at Legal & General is the Group Board of Oversight of Climate Issues. My other specific responsibility relates to our employees, and I can assure you our people are passionate about making a difference to the environment. Many have joined us because they want to work for a company with the values and capability to make a positive impact. And so are committed to help us deliver our climate strategy. We seek to create an inclusive environment in which diverse kinds of people can succeed and use their varied experiences to help solve some of the biggest issues facing society. This is because we believe that we can only deliver on our ambitions if we have the right foundations for success in place internally. As you will know from our previous annual report, and indeed, from our annual climate report, which we have now been publishing for 5 years, we take this subject extremely seriously. Addressing climate change has long been a priority for us. It is an important component of inclusive capitalism, a central part of our reporting and risk management, but also 1 of our 6 strategic growth drivers. We know that globally, many of the biggest investment opportunities in the coming decades will be in the climate space. So we have developed a deep understanding of the subject within LGIM and more broadly across the group. I'd like particularly to thank Simon Gadd, Group Climate Change Director and his team for their work. It is critical that our actions over the next decade set us and our clients on the right path. As we have said in our annual climate reports, we have set the challenging goal of decarbonizing both our operations and the assets on our balance sheet to align with the Paris ambition to limit global warming to 1.5%. We believe that as a major investor and investment manager of GBP 1.2 trillion of our clients' assets, we can play an even broader role in supporting the transition to a low-carbon economy. And this year, we are taking a new step by publishing our first ever climate transition plan. This document supplements our annual climate report and takes us to a new level. It is a formal statement of how we intend to meet our climate goals and one which you, as shareholders, have a chance to vote on today. This is an innovation for us. We are at the forefront of the shift from climate promises, pledges and policies to measurable actions and delivery. Delivery that is aligned both to the need to address climate change and to the commercial realities of our business and our duties to you, our shareholders. Our transition plan goes into detail about how we're going to make our ambition a reality, organized under 3 pillars: invest, influence and operate. And these are some of our key commitments. Under the invest pillar, we are incorporating climate into how we invest our GBP 81.6 billion of proprietary assets. Our aim is net zero carbon emission intensity by 2050 with interim milestones of an 18.5% reduction by 2025 and a 50% reduction by 2030. Under the influence pillar, we are using our influence as an asset manager to [provide] to 1.5 degrees net zero transition. We do this by engaging with companies to encourage and support their transition rather than divesting, which is the last resort. Although, we do use our voting power for relevant companies not meeting our minimum expectations. We also designed investment funds for our clients to help them transition their assets and access opportunities to invest in green assets. Our aim is to have 70% of our assets under management in alignment with net zero by 2030 and to work with clients reach net zero by 2050 or sooner across all assets under management. Under the operate pillar, we are changing the way we operate to decarbonize our business including the businesses we control. This includes in the housing and commercial property business areas where our strategy is to deliver social value alongside climate transition. As a first step, we will reduce our absolute Scope 1 and Scope 2 greenhouse gas emissions by 42% by 2030 on the way to achieving net zero operations by 2050. Our transition plan sets out how we plan to achieve these long-term goals and some interim milestones, including the key actions we are taking now or plan to take and how we will monitor and report our progress. We cannot do this alone. So the plan sets out the dependencies we have on our external environment as well as the challenges and risks we face. It is important that we make public our plans for addressing climate change and ensure our shareholders agree, and this is why we are presenting the plan to you for an advisory vote today. As you would expect, we've discussed it with some of our larger institutional shareholders as we have developed it. And we welcome both their input and their support. We know that plans don't always provide contact with reality. And over such a long-term plan, the external context will change and our understanding of what actions are required will evolve. So we expect to review our plan every 3 years or sooner, if needed. But while it can obviously be adapted, we do think it is important to set out both what we intend to do and just as importantly, how we intend to do it. I know how frustrating it can be when organizations make net zero pledges for future decades without any clear sense of how they will get there. That, as you well know, is not the L&G way. I hope you find our transition plan informative and see that Legal & General is committed to maximizing its contribution to combating climate change. Your support today for this major undertaking is important to us. Thank you.

Thank you, Nilufer. Thank you, Nigel. I'd now like to ask Jeffrey to run through the formal business of the meeting before we move on to taking questions.

Thank you, Chairman. We will now move on to the formal business of the meeting. The notice of meeting was published on the company's website and made available to shareholders on the 12th of April. It is also available to view under the document section on the Lumi Platform, for those of us who joined today online. As in previous years and with your permission, I propose to take the notice of meeting as read and confirm that all resolutions will be decided on a poll. Thank you. I will now formally propose that each of the resolutions as set out in the notice of meeting and appearing on the screen behind me is put to the meeting as a separate resolution. Further, that resolution #24 to 28 are put to the meeting as special resolutions. As usual, we will keep the poll open throughout the duration of the Q&A session to allow you plenty of time to vote or to change your vote. The poll will close at the end of the question-and-answer session. For those of you with us today in person, please complete the poll card, which you should have been given when you registered this morning. You can do this by putting a tick or cross in one of the boxes marked for, against or withheld or by indicating the number of shares you wish to vote on any of these 3 options. If there is anyone present who is entitled to vote and who does not have a poll card, please raise your hand and a colleague will bring one to you. Finally, please ensure that you have signed a poll card and placed it in the ballot box at the doorway as you leave. For those shareholders attending online, the voting icon will appear on the navigation bar. Once you click on this, the resolutions will appear on your screen, along with the for, against and withheld voting options. Simply select one of these options to cast your vote. Your vote will have been submitted when the voting option icon changes color having selected it and a vote received message appears. If any person attending the meeting online is having any difficulties with using the platform, there is a user guide available in the documents tab and on Pages 11 and 12 of the notice of meeting. As usual, the company's registrars will act as scrutineers. And the final result of the voting will be announced to the London Stock Exchange and posted on the company's website as soon as possible. If you would like a paper copy of the results posted to you, please let the colleagues know on your way out. Chairman, I will now hand back to you to open the question-and-answer session.

Thank you, Jeffrey. And I will now take questions from shareholders. [Operator Instructions]. Wonder if I could perhaps take the first question gentlemen, number 4.

[Nick Steiner], private shareholder. Thank you for the presentation, and I did like the videos on the inclusive capitalism. A question on clean energy. You split it -- your investments into sort of 3 solar panels, wind, wave and tidal and then the heat pumps. How do regulations affect the progress of these companies in different jurisdictions? And secondly, do you see these as sort of slow-growing investments? Or is there a chance that these may proceed quite quickly and give a good return on investments?

Thank you, very good question. And Nigel?

Yes. It is a really good question because we're -- I think we're at the moment of inflection in the U.K. The U.K. The U.K. to a certain extent, got a lead when they introduced contract for differences for offshore wind a number of years ago when I think John was indeed at the treasury helping make that happen. Since that time, we've gone slower, I think, than other parts of the world, and you'll have seen the headlines around America and the [ IRA ] that they are introducing, which will have a massive impact on the whole of the climate change and renewables debate worldwide. Similarly now in both the U.S.A. and China in the last few weeks and the speed of progress that's happening there is much quicker than here in the U.K. Taking these 3 areas, solar, we would like to see that speed up absolutely in the U.K. and retrofitting has to be a really important part, both of leveling up and our transition to net zero. I think on the offshore and onshore wind, we've had planning in the U.K. moving up and down all the time on onshore wind in particular. And there is a renewed enthusiasm for offshore wind right now. One of the technical problems, as you're probably aware of, is connecting all of this renewable energy into the grid, and unfortunately, the National Grid has as many planning problems as we've encountered in the U.K., which means it's very difficult to actually integrate the strategy in the U.K. On ground source heat pumps, they're very successful, as you know, in Scandinavia, and we're very excited by the fact that we do have the largest factory in the U.K. It is actually still very small by the potential demand for ground source heating. But we're enthusiastic. It's another area that we'd like to bring third-party investors to co-invest alongside us. LGIM has just been working with onshore, offshore and new renewables business, NTR, which also does a lot of solar to launch a fund across the world. We're finding there's a lot of interest in that fund, which can invest right across Europe. So I think in big picture terms, I think we've reached a lull in the U.K., but there's a determination by the government and absolute determination by us to try and speed things up in all 3 areas.

But just to be clear, where we make investments. We do so because we can believe we can generate a good economic return for you as shareholders or for our clients. And we do see all these areas as ones where, if anything, we're frustrated because we see an opportunity, and we'd like to be out there grabbing it. Next question, please. Yes, gentleman #1.

I'd like to thank the Board and the [BET] in London. A lot of companies now seem to be cutting off [indiscernible] even though they're listed in head offices in Windsor. I was hoping to enjoy the diversion of the musical HSBC last year, but the [indiscernible] and Rolls-Royce and [BEA] have all scattered off to the wilderness of Hampshire. Thank you for the meeting here at London. The other thing is, I am 64, is the question I have, and I've had with quite a few companies is over boarding. 3 members of the current Board, I consider as over boarding or very much approaching it. And I would like to see what you say about it?

Well, first of all, let me say thank you for your comments about the AGM location. The question of nonexecutive directors' ability to spend proper time on their duties is a really fundamental one for the effectiveness of the Board and certainly a very important consideration for me. I mean I want to be crystal clear that we are very, very lucky to have the Board members we do. They -- all of them spend considerably more time on their duties to you as shareholders of Legal & General than they are contractually required to do. Obviously, we do consider carefully any Board commitment or other commitments that Board members take on and it's an important responsibility of mine to ensure that Board members do have proper time, whether or not it were normal times or whether at times of stress where the Board needs to meet more frequently. And I am crystal clear that the Board is more than throwing its time and energy at the business of the company. Next question, please. Gentleman here.

[John Farmer], Chairman. Diversified shareholder for some decades of Legal & General and attending many AGMs. Having read the annual reports. May I first warmly congratulate you on your welcome at this AGM from entrance to a cavalcade of smiling faces and particular welcome that's by far the best I've encountered for as long as I can conveniently remembers. So very well done. I have a composite question on the AGM and annual report, Chairman, but also other questions, which I'm quite prepared to intersperse with other shareholders over. Certainly the annual report, Chairman, I have excellent eyesight, evidenced by as a yachtsman being able to spot distant navigational buoys, which others are peering for through binoculars, but I've found your gray taxing, except in good daylight. Would you darken the print, please? And perhaps something related to the unhelpful pastoral contrasts and also, as books do print across the page, not in columns, which I suggest would save paper and certainly scrolling, if read online. Would you like to respond on that before I go on?

Well, let me say first, thank you for your very kind comments at the outset. It's very good to see you at our AGM again, and thank you for your warm comments. We constantly strive to make these events rewarding for shareholders, and we will continue to try and make them better. I think all I would say on the format of the annual report, you have here our Finance Director, Jeff Davies, the company's Secretary, Geoffrey Timms. They've heard your comments. We take it very seriously. We want the annual report to be read, and we want it to be comprehensible and visible. So we've heard your comments, and we'll take them into account.

Thank you, Chairman. Can I endorse this choice of AGM venue entirely appropriate. And as has been touched on in my previous question, to an appropriate 11:00 a.m. time to allow us to get here. That raises a serious point that Legal & General has a powerful and respected role in pressing for good corporate governance, has this year been a succession of FTSE 100 AGMs clashing, including your I'm afraid today with Legal & General -- I'm sorry, with Lloyds Banking Group in Glasgow, and Next Plc in Leicester at 9:00 a.m. and a space of inconvenient times. There are 2 aspects to this, would you use your influence such as through the GC100 Committee of FTSE 100 corporate company secretaries to avoid FTSE 100 AGM clashes and secondly, these outlandish times or locations.

So thank you, and it's a point you have raised in the past. It is genuinely difficult for major companies because there are quite a lot of them, and there's a limited range of options. We do strive to avoid conflicts. I'm pleased that we've managed to avoid conflicts with any major insurer this year, unlike in some past years. But I've heard your comments. You're right, we have a significant voice as a major shareholder in British companies, the Chief Executive of LGIM is sitting in the front row. She's heard your comments. So thank you very much.

Thank you, Chairman, I have other constructive questions, but I'm...

Why don't we give others a chance, and if we have time, we can come back. Thank you very much. Next question, do we have any online questions? No. And next question, gentlemen number 2.

[Dhillon Shah], private shareholder and customer. I was very pleased to -- a follow-up on a question that was asked before. Pleased to hear that we -- that LGIM or Legal & General, focus on their return first. But this is a question on the climate transition. You've mapped out 3 areas where you invest your personal -- your corporate assets, how you operate, I think those are perfectly valid. But the influence part is -- the influence part on your AUM, that's client money. And my question is about the risk to the Board. You maintained directors and officers liability policy, I'm sure. And the risk to the asset managers, you maintain a professional limited policy in the event that a return -- shareholders get affected or asset owners or your investors have a negative impact, how do you manage the risk of your influence when against a client's request?

Nilufer, do you want to take that?

Let me kick off with that. Thank you for that question. And I guess you start with how you manage client funds and how we see that overall in climate should be no exception from other aspects of risk related to investments and it shouldn't have a different focus from, say, data risk, IT risks that companies or even government risk and shareholders talked about governments today. And LGIM has an active ownership plan that's been produced for the last 12 years that sets out their stewardship role and their objectives. Before any investment is made, the risk is assessed on that investment and the long-term proposition for clients. We're very mindful of those duties when we make investments on the part of clients.

I would echo that. And as Nilufer says, in a sense, climate is merely a subset of a much wider category of risk that we manage as a company, both on our own behalf, your behalf as shareholders and on behalf of our clients. And the skill we have as a company, and I hope demonstrated over many years, is managing those risks and doing so well, external events do hit us. Nigel talked about some of them in his opening remarks. But actually, it is -- we have demonstrably dealt with any of these issues that hit us extremely well as a company. And we are very resilient for that reason. Can I take question #3, please.

My name is [Leon]. I'm here on half of ShareAction Group. As you know, ethnicity pay gap reporting captured a difference in the average pay of staff, for black, ethnic, Asian minority groups within the company compared to the average pay of white staff. Could the Board provide an overview of Legal & General's latest position regarding its own ethnicity pay gap reporting in the U.K. economy, particularly in how the government has issued guidelines. Additionally, would the Board be willing to meet with ShareAction and the Good Work Investor Coalition, to discuss this issue further.

Thank you for your question, which is a very timely one. As it happens, the Board Nominations Committee had a meeting on this very topic yesterday. And we are certainly intending to publish our ethnicity pay gap. There are some data issues. And I -- we will publish numbers once we are sure that they are telling us the correct thing. But I can tell you that we have set ourselves as a company. Having set ourselves demanding targets in relation to gender diversity. We have now set ourselves very demanding target in relation to ensuring that the talent base in the company is as ethnically diverse as possible. And we are making very good progress towards those targets, which the Board has really encouraged about. I'm itching to publish the ethnicity pay gap. Indeed I asked the team whether I could do so today, but they said the data wasn't ready, and they're correct. But when it is ready, we will publish it. And yes, absolutely, we'd be delighted to meet with you as you suggest. Thank you, gentlemen here, number 4.

I'm [Roland Baker], I'm an individual shareholder, and I have an annuity with Legal & General. It's more than 10% of my total retirement income. I'm interested in Note 16 on Page 196 of the [Rewards & Accounts], which is where we set out where the credit quality is of the assets, which I assume are backing the annuities. And we've got a certain amount of movement between this year and last year between AAA, AA, BBB, B and internally rated. If those are the assets backing the annuities, since I think before you took office, Mr. Chairman, I've asked at this meeting before as to are we satisfied with the credit quality of the portfolio, having moved it presumably in order to obtain additional yields to finance the annuities and be sure that we're not at risk, particularly since we've now started including the lifetime mortgages. There's GBP 4 billion worth of lifetime mortgages in the other and internally rated. And with the lifetime mortgages, we have made the main sensitivity to property prices, but there is also a mortality risk. Where we look at the tables on which you've set out how you calculate your mortality risks, taking lifetime mortgages with the guaranteed over 50s acceptance paces, you've used that English Life table 15 from the Office of National Statistics, which I'm not sure is included in the continuous mortality investigation bureau. There is a mortality risk on lifetime mortgages because your assumption on the pension scheme is that a 40-year old now in deferment might live to 89 when they collect their pension, and you're giving lifetime mortgages around 55. So there's the possibility of a 33-year accumulation period, which given how property prices might move and what the mortality risks are, could leave us liable to an exposure. And it's not clear that the negative equity risk that we face for that has been reinsured. I'm not sure where it says in the accounts specifically, we have reinsured that risk, and how we have reinsured it?

Thank you for your question. Jeff?

Yes, thank you. A couple of points there. On the credit quality, we're obviously very happy with that. We constantly address it. We haven't actively changed the way that we're investing. We still aim very much at a single A-rated portfolio on average, which is what we've been maintaining. We monitor that very closely across both the investment team and risk, and it's something that we report regularly to the Board as well. We also do a deep dive into many sectors and segments and are constantly trying to look forward to see where issues may be and Nigel himself has been key in a lot of that and anticipating what is happening in financial markets. And so we've had no defaults since 2009 and even then, it was just GBP 25 million across the whole portfolio in all of that period. And so yes, we're not complacent. We're very comfortable and happy with the credit portfolio, and we continue to add to that in a prudent way, we believe, but look to optimize returns for shareholders at the same time. On the lifetime mortgages, I could talk endlessly with you later, if you like, on this. But just a couple of things. You said that we issue at 85 -- sorry 55. The average age on lifetime mortgage is around about early 70s, about 72. And in terms of the non-negative equity guarantee, the loan to value is about 30%, just over 30%. So there's a lot of headroom and actually the period to go on the mortgage, if you like, is a lot lower. And so we're comfortable at those. A lot of those were issued at lower interest rates as well. So they're not accumulating that much. So we obviously model all of this risk. We look at the sensitivities. We look at how much of a downturn in the property market, we can withstand and those assets still be of good quality and good ratings. They get a lot of scrutiny from everybody you can imagine, including the regulator to ensure that we're modeling those correctly and not taking too much credit for them. And we also have significant underwriting criteria to ensure we're not concentrated in any part of the country or exposed to other physical risks. So there's a lot of diligence that goes into those. Happy to talk you through the economics of them afterwards, if you like.

And trust me, when Jeff says he'd be happy to talk about it, he really would be happy to talk about it. And could I take the next question please. The lady, #3.

My name is Catherine Howarth, Chief Executive of ShareAction and acting as our corporate representative. Very pleased to be back at L&G's AGM. And I'd like to wish Nigel Wilson extremely well for his next steps after years of hugely successfully leading the company. Thank you for your very positive response to [Leon's] question. My own is about the financing of your proprietary assets or the investment policies on those. Last year, the government announced reforms to Solvency II. For all the talk of freeing up the sector to invest in the low carbon transition, we were a bit disappointed by the lack of actual requirements on insurers to invest and underwrite in a way that supports the U.K.'s net zero commitment. Legal & General, like many others in finance have made long-term net zero pledges and now issued a transition plan, which we'll vote on later. For your proprietary assets, is the Legal & General Board willing from here on to rule out investment in an insurance of new fossil fuel projects, in light of the international energy agencies warning that further expansion of the oil and gas sector is incompatible with staying within 1.5 degrees of global warming. And in addition, is Legal & General willing to commit its public support to mandatory sustainability safeguard for all insurers, in Solvency U.K. and in Solvency II in the EU such as higher coal requirements for environmentally risky assets, particularly fossil fuel assets.

Nigel, do you want to have a shot at that one?

Yes. I think the theme of what you're talking about is very much at the heart of our company that we want to do the racing, particularly in climate. On the specific risks we take, we do take them very seriously. And part of our engagement is -- in our stewardship role is to identify with companies themselves as to what the risk is and how they get treated. Their own treatment from the rating agencies, et cetera, is -- which should be reflected in the pricing of the -- and the rating of their particular debt instruments or whatever they're doing. And that would be reflected in anything we do. We don't finance any fossil fuel assets within our proprietary business directly and direct investments in specific lines or whatever. I think the -- on all of the issues, whether things are mandatory or just nudges provided, I think being realistic, these are only going to be nudges in the U.K. than actually the direction of travel. And even also in role it became a soft compulsion, not a hard compulsion. And I know for many, many hours of discussing these issues with the treasury, they're much more comfortable in giving soft compulsion rather than mandatory compulsion. And we have tried on occasions to get the mandatory as John is fully aware of, I don't know, when he was at the treasury. It's just too difficult to achieve the mandatory. We'll definitely get more support, I think, for a wider range of assets under Solvency II. And because a lot of the renewable assets and new assets, they don't often have the track record necessarily to qualify for Solvency II matching adjustment. So one of the reasons that we've been asking for a reform of the Solvency II rules is to allow us to invest more of our assets into the transition to net zero. And I think we've won that debate, and I'm very optimistic that the government will -- and the regulators will come to some agreement with us and the rest of the industry, if not later this year or the beginning of next year. All sides are working very well together. I think in trying to get this new investment framework, which will give us a lot more headroom and a lot more opportunities to invest in transition to net zero and assets here in the U.K. So at the moment, it's actually easier to invest in transition to net zero assets in the United States than it is in the U.K. and that can be the right outcome that we have as a society.

And next question, please. Yes, gentleman here. Number 3, yes.

Chairman, I missed your words of wisdom because I was late in arriving.

I'm sorry, I am tempted to repeat them, but I won't.

Right. I have 2 questions. By the way, I'm [Harry Brown], and I'm hidden away inside a nominee account, which we hope we can all get back on the share register eventually and change that situation. Now I quite like -- I think this bright page here, your virtuous circle of inclusive capitalism has quite a ring to it. I don't quite know what it means. And I think you mean what it means, but we won't go into that, but it has quite a ring to it. Now my question, 2 of them, Chairman, you have -- you hold shares and the previous speaker was talking about this, you hold shares in most companies in the U.K. and probably in America as well. Now I understand that you use your own analysts to assess them all, you can let me know if that's true. And I'd love to know how you decide on your voting decisions at all these companies, good, bad and indifferent, that's question one. And question two, I think people like to come to AGMs in the flesh as it were. And I'm just wondering how many questions you get online because I'm not sure many people can be bothered quite frankly.

Thank you for both of your questions, and thank you for your compliments on our yellow page. So if it's not clear what it means, we clearly need to do a little bit more work on it. On your second question, we're very clearly committed to holding our AGM in physical person. We were very pleased to be able to do that once we were able to after COVID was over. Having learned how to do hybrid ones, we offer that facility. You're right, we're not getting very many questions online, though, in fact, still none so far. But we'd like to offer our shareholders the range of choices. But we have no intention of moving away from physical meetings. On your question about how we make voting decisions, Michelle Scrimgeour is Chief Executive of LGIM, which is the largest fund manager in the United Kingdom, and she'll answer your question.

Thanks, John, and thanks for the question. So you're right, we are fortunate because we are large, and we think about this all the time because our responsibility is to manage our clients and our customers' money in the best possible way. That's why we have an asset management company. Our analysts work together actually with our stewardship team. So we have analysts across the whole of LGIM, and we have stewardship team across the whole of LGIM, not just in the U.K., to bring our best brains together in a global research and engagement process to decide how -- what we think about companies, and where we want to invest our investors, so our clients and our customers' money. That's what we do. Those decisions are never taken likely. We are very transparent about how we intend to vote. So on our website, we have voting policies, how we have voted. And furthermore, when we're engaging with companies, we talk to them about how we intend to vote. So you've heard the Board talk about engagement that starts with a deep understanding, full engagement, transparency and disclosure. I hope that answers your question. But again, I'm very happy to pick that up afterwards. Thank you.

Thank you, Michelle. Next question, please. Yes. gentlemen, I think you asked a question already, let me take some new ones, and then I'll come back to you if we have time. The gentleman at the back, number 4.

Mr. Chairman, [Monica Rednam], shareholder for some years. First, let me comment about Mr. [ Farmer's ] point about clashes. You also clashed with Vistry this morning, a major house builder, which I wanted to attend because I wanted to hear about prospects for the housing industry, obviously, in which you have a considerable interest as well. Having recently had to dispose of, I think, it was a prefabrication business at a loss, not one of your best investments, perhaps despite good intentions. Now you say you've done very well this year. You say your balance sheet is in good order as earlier today. Well, why is the share -- why the investors don't seem to believe you? The share price has gone from [ 3.5p ] down to [ 2.3p ] in the last 2 years. Where are you going to get the growth from to put your share price back up? Or are we all going to sit on a loss for more years than we want to really? Are you expanding overseas? Are there any further prospects in North or South America or even India, which seems to be the growth story this year. I'd really like to know where your growth is coming from.

Thank you very much. I mean, let me say first, the share price does move around. And the Board shares your frustration. We -- as you've heard, we have we continue to deliver outstanding and very consistent financial results. And part of our responsibility is to convince investors to put a proper value on that, and that is absolutely a responsibility we accept and take very seriously. On where the growth is going to come from, I will ask Nigel to comment.

Yes. I would only echo John's point. The whole area of equity ownership in the U.K. is going to be reviewed by the CMIT, the Capital Markets Industry Taskforce, which I'm a member of because -- there are massive PE differences or multiple differences between the U.K. and the United States and elsewhere. The U.K. has been seen from an equity point of view as a pretty unattractive place to invest, and we need to change that. In terms of the growth opportunities, we already have a very successful American business. We've got 4 lines of business in there. We've got our asset management business, which is about $250 billion of AUM. We have our insurance business, which is 1.5 million customers, about $1.4 billion of revenue and very profitable in the United States. We have our pension risk transfer business, which is the fourth or fifth largest last year in terms of the $1.8 billion that we did. And we've recently launched our LGC business. We're very much trying to replicate the success that we've had in the U.K. and there's very few U.K. businesses have been successful at scale in the United States. We've actually got 4 businesses. As we mentioned earlier, we're now the seventh largest asset manager in Japan. We have over 100 billion of assets in Asia, about EUR 100 billion of assets in Europe right now. We have a growing business in the Middle East. Yes, we're in housing and CALA continues to be a very -- a terrific brand and as Vistry announced this morning, there's a sense of resilience in the housing market right now. But we are also committed to build to rent housing, which has been successful just for both LGC and LGIM. We're committed to a formal housing at scale, which you have seen I mentioned a few times in the slides. And later life living housing, which is our partnership with the NatWest pension scheme. There was some discussion earlier about clean energy. We have huge hopes for clean energy. As I mentioned, it's a bit of a lull at the moment, but the technological advancements that are happening across the world and indeed in the U.K. give us great confidence for the years ahead that Clean Energy will be a very important part of the future growth of this company. So the net-net of all of that is that we have a great growth strategy. It's delivered tremendous growth in earnings per share, return on capital over a number of years, that has not been reflected in the share price, and that has as much to do with international investors' perception of the U.K. Brexit didn't help. The [trust] government didn't help. I think the low growth, lower productivity that we've seen in the U.K. didn't help. And you're right to encourage us to expand internationally because I think, a wider group of investors will appreciate the fact that we can be successful outside of the U.K.

Next question, please, gentlemen here.

My name is [Ian Brindly], and I am a shareholder. Looking at the company's plans on climate risk management, it's very numerically driven and driven towards numerical targets for emissions reduction. However, climate mitigation happens out in the real world and to achieve a net zero global economy fundamentally requires a complete reengineering of the global energy infrastructure. We know to achieve this requires a significant increase in the production of certain key minerals, sometimes order of magnitude increases. And yet when mineral extraction companies seek to expand their activities or exploit new resources, they often are pushed back from responsible investors because mineral extraction itself has a negative environmental consequences and often impacts negatively on local communities. So my question is, what is our vision for what our net zero global economy looks like out there in the real world, what is our reference or framework case and what is our actual vision that we measure progress against? And if I may throw in a second question.

Your first question is quite a big one. Anyhow feel free.

We're starting to see in the United States, push back or so called anti-ESG movement and push back against fund managers, who even dare to mention the letters, E, S and G in any of their publications and people moving funds and accounts away from such fund managers. Have we encountered any such pushback? And if we have, how have we responded?

Thank you. Thank you very much. Your first question was a very large one, but we will try and tackle that. Let me just say, first, you're right that we have set ourselves some hard targets. I think we make no apology for that. We believe in setting ourselves clear targets and holding ourselves to account, and that's the way the whole company is run. But you're also right that we have to be very thoughtful about how we're going to achieve that and make sure that we think carefully about second order consequences and trade-offs and so on. I'm going to ask, either Nigel or Nilufer, whether they want to have a crack.

Yes. I agree with the themes that you came up with there. And indeed, on the positive side, the progress that's being made in solar is breathtaking at the moment where you can now produce solar [0.02, 0.03, 0.04 cents] per kilowatt hour, and that's going to have a huge transformational effect on economies. Offshore and onshore wind are also going to have a very positive effect on the future. And so we see renewables as playing a huge role. We have not chosen to invest so far in nuclear fission. We have invested a small amount of capital in nuclear fusion, which is a very, very long-term bet, but it's actually making huge progress right now as a firm. So we definitely see ourselves playing in that sort of space. As you mentioned, the mining companies are in a slightly different area because as you rightly point out, where the rare minerals are found across the world is in difficult places. And they're going to have to invest in a lot more mines to get more minerals to help finance the particularly EV cars and stuff like that. That's an area where we'll have positive engagement along the lines that Michelle was talking about. The wages, the rights of workers in those particularly difficult and challenging areas. It's fair to say that the engagement we have with the major multinationals, the BPs, the Shells, the Glencores. In general, it's very positive because as Michelle articulated, we're very transparent in the way that we engage with them, and it's a very active and open and honest discussion about what are their plans for the future.

Thank you. On your second question, you're right, there is a debate in the United States, quite a politicized debate. And all I would say is, as Nigel says, we aim to be very transparent about how we I believe we can best meet our clients' requirements and investment objectives. We believe that ESG has a very important part to play in that. And we, I believe, both in this country and the United States. Many, many clients have found the strengths that we have, the understanding of these issues that we have in the company to be something that is commercially attractive, and we win mandates as a consequence of it. We lay out our positions as best as we can. The climate transition plan is a very important part of that. And clients will decide where to where to -- which fund managers to use and make them make their judgment about that. And now I'm very excited that we do have an online question, and Jeffrey will tell me, what it is?

Thank you, Chairman. Yes, we have from Mr. [Birch], who first of all says, he very welcomes the opportunity to attend online. Mr. [Birch] is asking, is effectively the strategy of the company, these sort of setting stones until the next AGM, then obviously, Nigel successor together with the Board will be then taking it forward from them.

Very good question. Thank you. I mean, clearly, I think the first thing to say is this is a long-term business. We've had a Chief Executive who has done a fantastically good still. And we've been very lucky that Nigel has been able to do that for us and with us. And I hope very much that whoever succeeds him will also be able to do a long stint. And the Board determines the strategy of the company. We think the strategy is a very strong one. We think it has an enormous continued potential. There's lots to do, and we're energetically getting on with it. And the fact that the Chief Executive is changing doesn't create -- must not create a hiatus. Clearly, if a new Chief Executive has new ideas, that will be additive. And that will be the discussion with the Board and ultimately, to put to shareholders in gatherings like this one. The 1 thing I really do want to say is, just to go back to something I said in my opening remarks, we are very clear that the values of the company and the commitment to what we call inclusive capitalism is something where we absolutely see continuing whoever is the Chief Executive, and we will certainly appoint a Chief Executive who is enthused by that because the Board would not do anything else. Next question please, at the back, number 4, yes.

Thank you for having the AGM here. It's really nice to be here. A couple of questions. What percentage of your staff are working at home? And are you encouraging them to come back to the office, number one. Number two, your ETF business, how successful has that been?

Thank you. If Nigel could answer the first question, and if Michelle could take the second.

Yes. We've always had a policy of some people working from home. And if I use our U.S. underwriters, they've always worked from home, which is a long-standing agreement we have with them. We've always encouraged part of the working week if people need to work from home, they will work from home. Typically, we've been trying to get people to come into the office for 2 or 3 days pretty much across the world. Most people are finding that, that is allowing them to both be collegiate, collaborative and productive, and it seems to be working pretty well for us right now.

Thank you. And Michelle?

And I'm really pleased with our ETF business. So we acquired the business just over 5 years ago. We have a fantastic team. We've been adding to the team. That team is very embedded in our overall business here at LGIM. I would say we're just getting started. So I think there's massive potential for this business. It is one of the top selling areas for us in Europe. And we are going to continue to build on that as we think about, as we've heard from the Board, internationalizing the company. We're very focused on thematic investing, which also links very much with the themes you've heard from the Board today, what L&G stands for. And we're going to do more with that with those analysts I spoke about earlier, how do we use our own intellectual property, our own ideas alongside some of the index providers and package that so that people can access that more. So I'm very, very excited about this business, but I just feel there's so much more for us to go to. Thank you.

I think we have time for 2 more questions. Could I take this gentleman here?

I welcome the dividends, but the share price is quite low, not going anywhere for last 5 years. I think someone mentioned that. Artificial intelligence coming up, AI, how that's going to affect your company. You are a big company. And are you looking at it? And my last bit would be, have you invested something in say, green hydrogen, that kind of thing?

Thank you. Your reference to the dividend is an important one as -- is important when looking at the share price, and I agree with that the share price is not where we would wish it to be. But it is very important in looking at the shareholder return to bear in mind the dividend we have been able to pay. We were -- for example, you will remember that a number of major financial sector businesses chose not to pay dividends during the COVID crisis. We were determined to do so. And that's been very important to us and something that our shareholders I know valued. Nigel has recently been discussing AI with Bill Gates. So he's well equipped to answer your question.

I think listening would be more appropriate word rather than discussing. I had the privilege of spending a couple of days and the whole of the senior team from Microsoft in Seattle with a number of other global CEOs, including several members from the U.K. It is truly amazing, the progress that's been made, and it is something that we have used sparingly so far in the U.K. as indeed other -- there isn't really a global leader in this right now. But you're right to point out this is a massive mega trend across the world. It will allow us to build a better business for our customers, a consequence of using AI very efficiently. I think -- and again, I was in Beijing recently, I got driven around, but within Beijing traffic for 45 minutes by an autonomous vehicle. There was no driver and so the progress that's been made in the use of technology to improve customer lives is fantastic. However, there's lots of risks associated with it as well. And so we've been spending quite a bit of time thinking of the regulation that's required around this particularly exciting, but AI is a technology which can be replicated by bad people. And consequence of that, I think we need to be very measured in how we, as a firm, but also as an industry, how everybody responds to the opportunities provided by AI.

There was also a question about hydrogen.

Yes, hydrogen, actually, we're having a debate on that tomorrow at our capital committee. So it's interesting that the shareholders are coming with very relevant things. That there are currently things that we are that we are debating. And the fact that energy can be produced so cheaply, it is allowing green hydrogen to become much more of a financial opportunity not just for ourselves, but for the U.K.

Thank you very much. And for those interested, obviously, there've been a range of questions about environmental matters. Simon Gadd, who sat in the front row and might just stand up -- so people can see who he is, is our group Climate Change Director, and he will be delighted to talk to shareholders afterwards. I think we do have time for 1 last question. Maybe the gentleman at the back, number 3.

My name is [Riam]. I'm a private shareholder. It's been mentioned before, what I'd like to mention again is the share price is minus [17.77] over the last 5 years. All the good news is that you give us every AGM sounds great, but the underlying current is that the share price is down. And this year -- I mean last year -- 1 year, share price has been down [ 8.37]. It was explained to me in some other AGMs because I'm not quite sure about share buybacks. But I was told that if a company does a share buyback, and gives the dividend as well. It actually shows the board's confidence in the performance of that company now and in the future. And that reflects in the marketplace for other investors to look at. Could I have your comments on that, please.

Thank you for your comments. And look, as I've said already, the Board shares shareholders' frustration the share price is not in a stronger position. It is important to look at total shareholder return. And just to bear in mind if you include the dividend, which one should, so the 5-year return for L&G has been essentially in line with the FTSE 100 over the last 5 years and much, much stronger over the last 10 years. Now we wish to do better than that. We are determined to do better than that. On the general question of buybacks, I'll ask Nigel whether he wants to add anything, but it's certainly something the Board keeps regularly under review. And it's absolutely something that would be open to us if we thought it was the right thing to do for shareholders. It's something we have to balance against the fact that we have fantastic investment opportunities, investment opportunities that deliver great returns in our businesses and across our businesses. And the message that I hear consistently from shareholders is that they want us to take advantage of those opportunities and to deploy capital into them. So it's an important balance for the Board to strike, but one on which, as I'll say, we have an open mind. And Nigel, is there's anything that you want to add?

No, I agree with everything you said there, Chairman. The only other point I'd add the question earlier suggested that there's -- we're unusual that we're in a financial services business in the U.K. who has huge opportunities to grow internationally. And most of our U.K. competitors, whether they're the banks, the fund managers or the other insurance companies have shrunk dramatically their international footprint, and it hasn't proven to be a great equity story. And at the moment, we're delivering a 20% plus return on equity and the vast majority of our shareholders are thrilled that we're actually delivering a 20% return to return on equity. But I would like to say and just agree with you that the share price performance has been disappointing. And Jeff and myself are going to be out on the road in the next couple of months seeing a lot of shareholders and indeed some new potential shareholders to see whether we can get the share price to increase and give a better overall performance because the dividend performance has been terrific. But actually, the share price performance hasn't been as good as we want it to be.

I think we have one final comment from one of our online shareholders. Jeffrey, can you, I can't quite see it.

Yes, it was just from Mr. [Hussain], who thanked the Board for presenting online. He thinks that's especially helpful for investors who live outside London. So we just...

There's another perspective. We will continue to do both. We're very committed to physical meetings. We're very happy to offer the online facility for those for whom it's convenient, but it's great to see so many willing to come and spend time with us today. I appreciate it. And so ladies and gentlemen, that concludes the formal business of the AGM. I now declare the 2023 AGM formally closed. If anyone has any further questions or would like to speak to any of the Board or executive committee members, we will be available downstairs during lunch. Alternatively, you can e-mail or write to us at any time. I would really like to thank you all for joining us today. I invite those of you that are here with us in person to join us for a light buffet lunch downstairs. We have some helpers at the back of the room who will direct you there. Thank you very much.