LSR's long term investment vision

Halla's article was published on the website of IcelandSIF, an association of financial institutions, pension funds, and insurance companies dedicated to promoting knowledge and discussion on sustainable investments. Halla currently serves as Vice Chair of IcelandSIF’s board.

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Fiduciary Duty and Long-Term Vision of Investors

The origins of the Pension Fund for State Employees (LSR) date back to 1919, making the fund over 105 years old. In its early years, the fund’s assets were only invested in deposits and bonds, but since 1997, LSR has been investing in equities, both domestic and foreign. This shift has led to increasing demands on the fund’s investment strategy.

Foresight and Sustainability in Investments
Members of LSR typically contribute to the fund throughout their working lives and then receive payments upon retirement. As a result, LSR is a long-term investor and makes investment decisions with a long-term perspective. Value creation, quality, and growth are key priorities for the fund. Additionally, strong governance and ethical business practices are crucial, as LSR believes they enhance corporate success and mitigate investment risks.

Likewise, innovation, sustainable resource utilization, and responsible corporate operations align with LSR’s long-term investment vision, supporting long-term value creation. These principles also shape the fund’s ownership and sustainability policies.

Given the nature of its operations, LSR has a significant fiduciary duty. The fund prioritizes the interests of its members in the formation and execution of its investment strategy. LSR firmly believes that, in the long run, sustainable business practices and responsible resource management are essential for the financial success of companies. The fund evaluates various sustainability factors when selecting investment opportunities and emphasizes their long-term importance. In doing so, LSR contributes to the prosperity of the fund, its members, and society as a whole.

Responsible Investments and Active Shareholder Engagement
LSR places great importance on being a responsible investor and engaging actively with the companies in which it invests, always with a long-term perspective in mind. The fund has established a shareholder policy outlining its role in the companies it invests in. This policy covers matters such as board member selection, corporate governance assessment, voting at shareholder meetings, and other aspects of shareholder rights. Generally, LSR supports well-founded, rational, and beneficial proposals that promote long-term growth for the company.

LSR is committed to attending shareholder meetings and actively participating in discussions and decision-making. The fund carefully reviews proposals presented at these meetings and assesses whether it should submit its own proposals. LSR also expects company boards to justify their proposals adequately and to explain how they serve the long-term interests of both the company and its shareholders.

Risk-Based Investment Practices Can Enhance Member Well-Being
LSR’s core mission is to pay pensions to its members and provide financial security to their spouses and children in cases of disability. The fund collects contributions from its members and must invest them wisely until the time comes to distribute benefits—often many years later.

When making long-term investments, it is crucial that the companies in which the fund invests are well-managed, continuously improve their operations, and contribute to both their own success and the well-being of society through sustainable business practices. By adhering to a risk-based investment approach, pension funds can contribute to the long-term financial well-being of their members.