The CIO of Iceland’s Pension Fund of Commerce (Lífeyrissjóður verzlunarmanna, LV) said traditional financial information is no longer enough to assess a company’s value, and sustainability factors must be considered too.
In an article published in Icelandic financial paper Viðskiptablaðið and on the pension fund’s website, Arne Vagn Olsen responded to recent debate in the country about how the emphasis on sustainable investment could be justified by pension funds given their financial responsibilities to members.
Part of the debate has been around the commitment 13 Icelandic pension funds made to green investments late last year via the Climate Investment Coalition (CIC), according to the article.
Vagn Olsen, the chief investment officer of LV, which is Iceland’s second-largest pension fund, said: “Traditional financial information is no longer sufficient to assess a company’s future operations and thus its valuation.
“It is also necessary to take into account various sustainability factors, e.g. whether the company in question needs to buy carbon quotas, for example, and how the company is equipped to meet the increased costs of waste disposal, for example,” he said.
The CIO cited recent articles by others on the topic who had asserted that the current emphasis on sustainability among investors such as LV ran contrary to their legal purpose to maximise long-term profits in order to pay the highest pensions.
But he said: “Pension funds would be failing in their duty if they ignored the risk inherent in sustainability factors when assessing investment options.”
He also mentioned the provision that had been added to the Pension Fund Act 2017 that the board of a pension fund must set ethical standards in investment policy.
Vagn Olsen said he and two particular commentators had the same goal in theory, which was to maximise long-term profits, taking risk into account.
“However, there are many different ways to do this. Lífeyrissjóður verzlunarmanna considers it best to have sustainability as a guiding principle. Otherwise, there is a risk that the fund will be failing in its obligation to act on behalf of its fund members,” he said.
He said that LV had published a policy on responsible investment last year, including a statement that the fund believed investing in companies that founded their operations on a sustainable basis supported sustainable long-term returns.
“This promotes profit maximisation, taking into account risk, as sustainability is one of the risk factors that must be taken into account when valuing companies,” he wrote.