GPIF sees geopolitical tensions as ESG incentives | Asset owners
Geopolitical tensions and rising energy prices only further incentivize Asian policymakers and investors to adopt ESG strategies, according to the $1.6 trillion Japanese Government Pensions Investment Fund (GPIF). dollars.
GPIF will also use its strong bargaining power as the world’s largest pension fund to drive ESG adoption across Asia.
“Nobody can deny the importance of climate change in the medium and long term. Rising energy prices will further induce Asian countries to think more seriously about energy policies and the development of new energies,” said GPIF Governor Naoko Nemoto.
The crisis between Russia and Ukraine, as well as US-China tensions, have driven up energy prices globally. However, Nemoto told a Financial Times webinar on Tuesday that she thinks global trends and coordination around ESG will not be affected much.
One of GPIF’s medium-term goals is to increase alternative investments, which amounted to 0.92%, or $15 billion, of the $1.6 trillion portfolio by the end of 2021. The maximum share of alternative assets is capped at 5%.
“We are very keen to explore more investments in Asian markets. When we increase investments in Asia, ESG factors are quite important,” Nemoto said.
She pointed out that as global markets face challenges such as rising interest rates and inflation, ESG is an important factor in ensuring resilience, as she discovered during the pandemic that Companies with good ESG scores have more stable stock performance and can attract more long-term investors.
“This [has been] designed by many other Japanese investors [besides GPIF] that ESG strategy and disclosure would be important for Asian companies, to attract more funding,” she said.
GPIF portfolio at the end of 2021. (Source: GPIF)
The Japanese pension fund is also increasing its investments in ESG indices every year. More recently, the GPIF adopted an ESG index, the FTSE Blossom Japan Sector Relative Index, for investments in Japanese equities. It will passively invest $6.2 billion to track the index. There are now eight ESG indices for Japanese and foreign stocks adopted by the GPIF, it said in a statement. announcement Wednesday.
“GPIF will aim to deliver long-term benefits through the sustainable growth of portfolio companies and the market as a whole through its ESG investing and management activities, continuing to improve the indices we have already adopted. and adopting new indices,” said Masataka, chairman of GPIF. Miyazono said in the announcement.
Index selection is primarily based on FTSE Russell’s ESG ratings. Assessing the attitude of corporate management towards the risks and opportunities of climate change is also taken into account, the GPIF said.
The expansion of GPIF into ESG indices has prompted companies to improve their ESG performance in order to be included in these indices and attract funding from GPIF, Nemoto said.
This also applies to wealth management companies. “We choose asset management companies based on the integration of ESG and their know-how in data analysis. And for asset management companies, it is very important to be selected by the GPIF,” Nemoto said.
In March, the GPIF published lists of companies nominated by its asset managers for doing well in ESG integration and disclosure.
He asked the external Japanese equity asset managers to each nominate up to 10 companies for creating excellent most improved integrated reports in 2021, as well as explain why they chose these companies and what they expected in terms of improvements.
For foreign equity investments, the GPIF also asked its external managers to nominate up to five companies for “the excellence of the Task Force on Climate-Related Financial Disclosures (TCFD)” and up to three companies each for “the excellent disclosure of governance, strategy, risk management, and metrics and objectives”.
Companies selected by GPIF external asset managers for their excellent communication TCFD
(Source: Disclosed by GPIF on March 23, 2022)
These requests resulted in lists of nearly 100 companies that performed well in the categories. They were disclosed by the GPIF in March with detailed remarks on why these companies were nominated and evaluated.
“GPIF is very stewardship oriented and has been quite vocal and tough on external managers. Since 2018, they only pay management fees to asset managers who outperform the benchmark. In addition, they recently revised their operational policy, which is now very specific around what they expect from asset managers and ESG,” said Diego López, Managing Director of Global SWF.
“We haven’t seen anything as detailed and strict in the industry, and it will certainly have an impact on how other sovereign investors may begin to look at this topic. We believe the alignment of owners asset managers and asset managers will be a key theme in the coming years, and the GPIF could set an important trend around ESG,” López said.