Legal & General's Resilient Earnings Amid Outflows: A Blueprint for Sustainable Growth and Shareholder Returns in Turbulent Times

In the second quarter of 2025, global markets grappled with a cocktail of challenges: geopolitical tensions, energy price swings, and investor caution. Yet, Legal & General (L&G) emerged as a standout, demonstrating how strategic foresight and a focus on sustainable earnings can fortify a company against volatility. This article dissects L&G's financial resilience, its shareholder return initiatives, and the broader implications for investors navigating a fragmented market.

Resilient Earnings: A Closer Look

Legal & General's Q2 2025 results underscored its ability to adapt to shifting dynamics. The company reported an adjusted operating profit of £1,711 million, a 6% year-over-year increase, despite a backdrop of investor outflows. Notably, sustainable investment (SI) funds under L&G's umbrella saw net outflows of £215 million in Q2, a stark contrast to the £10.31 billion outflows in conventional funds. This relative resilience highlights the growing appeal of SI strategies, even in turbulent times.

The rebound in SI equity indices, driven by technology and energy efficiency sectors, played a pivotal role. For instance, Legal & General's sustainable equity funds attracted £491 million in Q2, reversing Q1 redemptions. This aligns with broader trends: clean energy investment is projected to hit $2.2 trillion in 2025, while the climate adaptation market is expanding at a 21% annual rate.

Strategic Pillars: Sustainable Growth and Capital Allocation

L&G's 2023–2028 strategy is anchored in three pillars: Sustainable Growth, Sharper Focus, and Enhanced Returns. The company's Institutional Retirement division, for example, aims to write £50–65 billion in Pension Risk Transfer (PRT) by 2028, leveraging a capital strain of less than 4%. This not only secures future profits but also generates permanent capital to fuel its Asset Management division.

In Asset Management, L&G's private markets platform is set to grow to £85 billion in AUM by 2028, up from £48 billion in 2023. This expansion is underpinned by a focus on fee-based earnings, which now constitute a larger portion of its revenue mix. Meanwhile, the Retail division is leveraging its Workplace Defined Contribution (DC) platform to target £40–50 billion in cumulative net flows by 2028.

Shareholder Returns: A Balancing Act

L&G's commitment to shareholder returns is evident in its capital return program. A £500 million share buyback in 2025, coupled with a 5% dividend increase in 2024, signals confidence in its earnings resilience. The company also raised its full-year 2024 dividend to 21.36p per share, with a target of 2% annual growth through 2027.

This approach is supported by a robust Solvency II coverage ratio of 232% in 2024, up from 224% in 2023. Such metrics provide a buffer against market shocks, ensuring that L&G can sustain returns even during periods of outflows. The cumulative Solvency II operational surplus of £5–6 billion from 2025–2027 further reinforces this capacity.

Navigating Outflows: Lessons for Investors

While L&G's sustainable funds faced outflows in Q2, the magnitude was significantly lower than conventional peers. For example, sustainable bond funds saw £488 million in outflows, compared to £8.1 billion for conventional bonds. This disparity reflects investor preference for SI strategies during uncertainty, as SI portfolios often underweight energy sectors (which suffered from falling oil prices) and overweight technology and green bonds.

Investors should note that L&G's outflows were concentrated in specific categories, such as Equity Sector Real Estate Global (outflows of £1.04 billion). However, the company's diversified approach—spanning institutional retirement, asset management, and retail—mitigated broader risks.

The Road Ahead: Strategic Priorities and Market Positioning

Looking forward, L&G's focus on fee-based earnings and capital efficiency positions it to thrive in a low-growth environment. Its 6–9% core operating EPS CAGR target from 2024–2027, coupled with a 20%+ operating return on equity, suggests a disciplined path to value creation.

Moreover, L&G's environmental initiatives—such as a 37% reduction in investment portfolio GHG emissions in 2024—align with global decarbonization trends, enhancing long-term resilience. As climate adaptation markets grow, L&G's early investments in green infrastructure and energy transition projects could yield outsized returns.

Investment Implications

For investors, Legal & General's Q2 performance offers a blueprint for navigating volatility:
1. Diversify Exposure: L&G's multi-divisional strategy reduces reliance on any single sector.
2. Prioritize Sustainability: SI strategies, while not immune to outflows, have shown relative resilience in 2025.
3. Monitor Capital Allocation: L&G's buybacks and dividend hikes signal a commitment to shareholder value, even amid market headwinds.

In a world where macroeconomic uncertainties persist, Legal & General's blend of sustainable growth, strategic focus, and disciplined capital returns makes it a compelling case study—and a potential long-term holding for investors seeking resilience.

Final Note: As markets oscillate between reinflationary risks and deflationary pressures, Legal & General's ability to balance growth and returns will be critical. Investors who align with its strategic vision may find themselves well-positioned for a future where sustainability and profitability are not mutually exclusive.