Foreign investment

LSR's Foreign Portfolio

ESG Risk Assessment

LSR's investments in foreign markets are through securities and investment funds. This means that LSR is not a direct investor in companies, but invests in funds that in turn invest in stocks and bonds globally. Assessment of environmental, social and governance factors (ESG factors) for the foreign portfolio is therefore based on the rating of each fund invested in. The funds themselves have set ESG criteria and vary, from being index funds with weak ESG goals to funds that could be classified as impact investors with clear and strong ESG goals.

Rating - Morningstar

An EGS assessment of a foreign portfolio is based on a risk assessment from Morningstar. Such an assessment is assigned to all listed mutual funds that have a measurable risk management framework around the majority of assets in each fund's portfolio. Morningstar uses a scale of 1 – 5, with 5 being the best rating when assessing the EGS risk assessment of funds.

Rating		Notes
5. High	︎︎︎︎︎🌐︎🌐︎🌐︎🌐︎🌐︎	Outstanding management of EGS factors
4. Above average	︎︎︎︎🌐︎🌐︎🌐︎🌐︎	Good management of EGS factors
3. Average	︎︎︎🌐︎🌐︎🌐︎	Average management of EGS factors
2. Below average	‍‍︎︎🌐︎🌐︎	Poor management of EGS factors
1. Low	🌐︎	Unsatisfactory management of EGS factors

EGS rating of foreign funds owned by LSR

Whether a fund receives one globe or five is determined by the total rating of the EGS risk assessment. Scoring for the overall rating is on a scale of 0-50. If a fund receives a rating of five globes, the score is low, but it indicates that the fund's ESG risk is under control and is therefore low. The opposite happens when a fund receives a one-globe rating. Then the rating is high, the EGS risk is not under control and therefore risk is high.

What is ESG risk?

ESG risk is a risk related to environmental, social and governance issues. In order to assess ESG risk, a so-called risk management framework is used. This framework assesses the scope of important ESG risks that are not covered by a company's risk management.

If a risk falls outside the risk management framework, the relevant company does not have a good supervision of ESG risk, which leads to a higher risk assessment.

Environmental risk: e.g. climate change, green energy transition and environmental regulations
Social risk: e.g. people, workforce, supply chains, customers and society
Governance risk: e.g. business ethics and management

SFDR-categorisation

The SFDR regulation (Sustainable Finance Disclosure Regulation) is intended to ensure uniform information on how financial market participants assess risks related to sustainability and how to take into account the main negative effects of sustainability factors when making investment decisions. The goal of the regulation is to increase transparency for investors and reduce inconsistencies in disclosure.

Investments in funds shall be classified into the following three categories according to the focus on sustainability: