Latest GPIF Report Shows that Sustainability Can Pay Off

Japanese ESG investments are doing very well. The country’s $1.47 trillion Government Pension Investment Fund (GPIF) said today that four of five ESG indices topped the Tokyo Stock Price Index (TOPIX) and market averages since April 2017.

The GPIF has invested about $32.4 billion of its AUM into these indices.

The indices that consist primarily of medium and large-cap stocks with a focus on ESG are :

• The MSCI Japan ESG Select Leaders Index;
• The MSCI Japan Empowering Women Index, and,
• The FTSE Blossom Japan Index.

That said, the GPIF said that market conditions led to underperformance by the MSCI Japan ESG Select Leaders Index and the MSCI Japan Empowering Women Index before that April 2017 period. The fund said that ESG investments can benefit from the small-cap stock phenomenon.

“As the scope of ESG scoring expands to small-cap stocks,” the report said. “ESG index performance will be able to benefit more from the small-cap effect and smaller companies will have an incentive to improve their ESG scores.”

GPIF Will Expand Japanese ESG Investments

The world’s largest retirement fund (with $1.5 trillion in assets) has been a major proponent of ESG investing in recent years. The group has seen a 307% increase in Japanese sustainable assets from 2016 to 2018.

The firm’s chief investment officer Hiromichi Mizuno has led the shift toward these assets since 2015 when he joined the firm. The GFIP has called for major changes in the markets. Last year, it said it would pay higher fees to passive managers for carrying out stewardship. (Those managers are Fidelity and Asset Management One). It regularly seeks “a new business model” for passive management that incorporates these standards.

GFIP invests roughly 90% of its assets in a passive manner.

Japanese ESG Investments and Disclosures

Meanwhile, the uptick in ESG news from Japan comes as the nation prepares to host the 2020 Olympics in Tokyo. According to the Financial Times, Japanese companies now lead the world in environmental disclosures compared to their rivals in Europe and North America. Further, about 200 companies in Japan have complied with the Task Force on Climate-related Financial Disclosures.

That disclosure agreement is the brain-child of Bank of England governor Mark Carney.