Sustainability risk
Sustainability risk refers to those risk factors that may have negative effects on operations — that is, environmental, social, and governance factors that may adversely impact the operations, financial position, and long-term viability of a company, investment, or project. LSR therefore emphasises analysing each investment in terms of environmental, social, and governance factors, along with the underlying risk factors associated with the nature of the investment.
In line with increasing requirements for policies on sustainability risk in investments, it is important to be able to monitor, measure, and assess the effects of investments on sustainability factors. This means that when evaluating investment opportunities, ESG factors are assessed from the perspective of financial risk. Sustainability-related risk is considered where relevant in the investment decision-making process alongside traditional investment risk.
By integrating ESG factors into investment decisions, the fund not only gains deeper insight into its long-term risk but also creates opportunities to support sustainable development and increase value creation. LSR places strong emphasis on regular monitoring of risk factors and comprehensive analyses to evaluate their impact on the portfolio. In this way, the fund seeks to protect the interests of its members, support stability in financial markets, and promote responsible investment that delivers long-term returns while ensuring the fund fulfils its core mission.
Environmental risk
The risk associated both with the impact of operations on the environment and the impact of the environment on companies’ operations, such as risks arising from emissions, climate change, natural disasters, unsustainable use of natural resources or changes in regulation.
Social risk
The risk arising from the impact of operations on stakeholders, including employees, customers and society, resulting from insufficient consideration for the welfare of employees and society. This may include, for example, human rights violations, unacceptable working conditions, lack of safety or other factors that negatively affect wellbeing and rights.
Governance risk
The risk arising from weaknesses in corporate governance, including lack of transparency, accountability and appropriate ethical standards in management and decision-making, which may negatively affect operations, reputation, risk profile and long-term value.
Sustainability Risk – LSR Stock Portfolio
A large part of the fund’s equity portfolio has low exposure to sustainability risk, while the degree of exposure depends on the industry to which the companies belong. Just over 13% of assets are considered to have medium exposure to sustainability risk, including companies in electronics and semiconductor manufacturing and wholesale trade. In addition, just over 3% of assets are highly exposed, with the construction and mining industries carrying the greatest weight. Sustainability risk was assessed for almost the entire equity portfolio, or 99.8% of it. Further information on sustainability risk is provided in the fund’s Sustainability Report.