What is ESG and what is your Society doing about it?

Since Sheffield Mutual was formed back in 1892 its goal has been that of best serving its members and the community. A lot has changed since then, but this important ethos continues to be at the heart of everything we do. In this article I will give a brief overview of some of the activities which Sheffield Mutual has done around climate change, society and our governance over 2022 to best support future generations of members.

What is ESG?

Environmental, Social and Governance or ESG is a set of standards that are not only embedded in investing vocabulary but also used to dictate business culture and mentality. It is primarily used as a tool for socially conscious investors (like Sheffield Mutual) to use to help them screen investments but is also about doing the right thing and to hold companies to account.

• Environmental – looks at the controls and disclosures an organisation has in place to limit its impact on environmental factors.
• Social – places an onus on how an organisation acts within its community, does it do the right thing? Does it support the community in which it operates, through things like charity and community work?
• Governance – scrutinises an organisation’s leadership, such as the diversity, equality, inclusionary makeup of the business, including the Board.

Environmental and climate change

Climate change risk is seen as one of the biggest systemic risks to market stability.

The Society has an environmental impact and footprint through its operations: travel, energy usage, waste, and water and through our commercial property and investment portfolios. Initiatives and policies continue to be implemented in line with recommendations from the Climate Financial Risk Forum (CFRF) and our regulators.

The Prudential Regulation Authority (PRA) states that financial risks of climate change can be categorised as:

• Transition risk – is the implications of transitioning to a low carbon economy and the impact that could have on businesses and investments. For example, if an organisation is not seen to be transitioning away from polluting activities, then this may have an impact on their business, commercials and even turn potential investors away.
• Physical risk – is the actual physical risks caused by climate change, such as increased intensity of storms, high temperatures or sea levels rising.
• Liability risk – is the risk of compensation for losses being sought in response to physical or transition risks from climate change.

We continued to work on reducing the Society’s carbon footprint and offset 40 tonnes of CO2e through Make it Wild tree planting in 2023, further planting following the AGM which was generated by your voting, and ensuring that the office is powered by 100% renewable electricity sources. We reduced our direct holdings in oil and gas in 2021, this continued throughout 2022. We also exclude companies that are significantly involved in coal production. We do not invest knowingly or directly in industries relating to armaments, tobacco, gambling, or pornography. Russell Investments (our Outsourced Chief Investment Officer), who along with the Board manage investments, are part of the UK Stewardship Code and has been a signatory of the UN Principles for Responsible Investment since 2009.

Social

The Social element of ESG refers to the relationship Sheffield Mutual has with its stakeholders, its community and its people. At the top of the Society’s social strategy is charitable activities. The Chief Commercial Officer leads this through various schemes:

• The Community Fund – a pot of money each year to support the social needs of the local community. In 2022 the fund donated £2,470 to nine charities, including: Mencap, Sharewear Clothing Scheme, Children’s Heart Surgery Fund and a local Scout group.
• The Charity Award – is an annual award for our members to nominate a charity to be given the chance to be awarded with financial funding and an opportunity for the charity to gain exposure. In 2022 the Society donated £7,500 to three charities: The Clothing Bank, Thornberry Animal Sanctuary and LimbBo Foundation.
• Employees’ charity of the year – the team at Sheffield Mutual select a charity each year, which was The Children’s Hospital Charity in 2022. The chosen charity is awarded with £2,500. The team then raises money through various social and events activities throughout the year and they are able to use their time through volunteering days to support the charity operations.

Other activity

• The Social and Events team organised a collection of items to be sent to Ukraine to support those escaping the war.
• Some Board members hold charity trusteeships outside of Sheffield Mutual, including RSPCA Sheffield and Sheffield Hospitals Charity.
• The Finance and Investments Committee has a strategy of acquiring several community based commercial properties, such as medical centres and childcare nurseries.

ESG: Governance

The Governance element of ESG refers to how a business is governed particularly around shareholder rights, board diversity and board compensation.

In 2021 Sheffield Mutual introduced two sub-committees to the Board which are made up of independent non-executive directors.

• The Nominations Committee, which is chaired by the Senior Independent Director, is responsible for the Board diversity and nomination process. It was formed to establish a diverse and inclusive Board, including ensuring independence of its members is maintained. In 2022 the sub-committee increased the female representation of the Board from 18% to 25%.
• The Remuneration Committee advises the Board on non-executive, executive and employee remuneration based upon extensive research of the industry and market.

Paul Galloway
Chief Operating Officer