The Government Pension Invest Fund of Japan (GPIF), the world’s largest pension fund, is set to significantly increase its ESG holdings.
The fund currently has 3% of its $1.3trn in assets allocated to environmental, social and governance (ESG) interests, but is preparing to expand that to 10%, according to Bloomberg.
Chief investment officer Hiromichi Mizuno said the fund wanted to increase ESG allocation to the point where it “impacts results”, which would be around 10%.
Mizuno is quoted as saying: “Just three percent doesn’t have much effect on our performance, there’s no point unless it makes a difference on our performance from a fund manager’s perspective.”
In June the GPIF published its stewardship principles, in which ESG was highlighted.
The document said: “GPIF believes that it is vital to integrate ESG factors into the investment process to promote sustainable growth of corporate value and better medium- to long-term risk adjusted return for GPIF. Asset managers should consider the materiality of ESG issues in relevant sectors and circumstances of individual investee companies and deal with those issues accordingly.”
It added that asset managers should engage with companies on ESG issues and that they should also become signatories to the UN Principles for Responsible Investment.
The principles added: “Asset managers should give careful consideration to ESG issues when exercising voting rights, with the objective of enhancing investee companies’ corporate value over the medium- to long-term.”
Japan has been going through a corporate governance transformation since 2014 when the government under Shinzo Abe—and part of what has become known as Abenomics—produced a new stewardship code for investors.
That was closely followed in 2015 with a new governance code for companies, which aimed to not only make companies more transparent, but more responsive to investors.
Overall, Abe wanted more diverse boardrooms and homegrown companies that were more attractive for overseas investors.
The stewardship code has been met with muted support, while in June last year, a report from NGO the Rainforest Action Group, said the new governance code had failed to increase the integration of sustainability issues into business operations.
A note of optimism for governance was struck last month when it emerged that Japan’s investors, were, for the first time, preparing to reveal their voting records.