Japan looks set to become the beachhead in Asia for environmental, social and governance-focused investment, and the country's huge Government Pension Investment Fund is ready and willing to lead the charge.
On Sept. 6 — almost a year after the ¥129.7 trillion ($1.25 trillion) fund joined the London-based Principles for Responsible Investment network — Hiromichi Mizuno, executive managing director and chief investment officer, told PRI members in Singapore for the organization's annual conference that the Tokyo-based GPIF hopes to become a “role model for Japanese investors,” and Asia more broadly, in integrating ESG factors into investment activities.
PRI signatories pledge to “adopt and implement” the principles agreed on by the organization's 20 initial asset owners brought together by then-United Nations Secretary General Kofi Annan in 2006. Those principles call on signatories to incorporate ESG concerns into their investment analysis and decision-making processes, as well as their engagement with investment managers and investee companies, with the caveat being that such efforts be consistent with their fiduciary duties.
In remarks to attendees as a candidate for one of two asset owner positions to be filled on PRI's 14-member board later this year, Mr. Mizuno conceded GPIF is relatively “new to responsible investment,” but he described himself as a true believer, recalling that the PRI's principles struck him as “quite obvious” from the start.
“We need to work hard as financial professionals and as investors to (ensure a) channeling of capital to companies that are seriously taking those ESG factors” into account in running their businesses, Mr. Mizuno said.
The chief investment officer pointed to the request for proposals GPIF issued on July 22 for “new ESG indices for our equity investment ... as a sign of our ambition” to create that flow of capital.
The GPIF wasn't the only asset owner at the conference moving in that direction. In comments following a Sept. 7 panel discussion on building relationships between ESG-focused asset owners and money managers, Christopher J. Ailman, chief investment officer of the West Sacramento-based California State Teachers' Retirement System, noted that his $193.4 billion pension fund's investment team is drawing up RFPs now for ESG-focused equity mandates.
Still, as the world's largest single pool of pension money, with ¥24.9 trillion — or about $240 billion — in allocations to passively managed Japanese equities as of March 31, GPIF has the potential to singlehandedly move the needle in terms of ESG-managed assets.
GPIF spokesman Shinichiro Mori said the fund's “ESG-focused index investment will be part of our passive domestic equity allocation,” but the scale of that investment can only be determined after reviewing the “investment capacity” of the proposed indexes, he said.