GPIF: ESG disclosure is still an issue

Japan’s Government Pension Investment Fund, which expanded its ESG scrutiny to alternatives last year, expects more detailed reporting, its president says.

Government Pension Investment Fund, the world’s largest pension fund, believes there is inadequate disclosure on environmental, social and governance issues among global listed companies and asset managers.

Norihiro Takahashi

“We recognise that the availability and robustness of ESG data is still under development,” GPIF president Norihiro Takahashi said in Hong Kong on Thursday at the FT Investing for Good Asia conference. “This is why we selected three ESG indices [two broad indices and one geared towards empowering women] to encourage our asset managers and companies to disclose their ESG information. Our ESG service providers are also expected to disclose their ESG methodology to the public.”

He added: “I believe ESG is a very relevant factor for a long-term investor like GPIF. And we need to promote ESG investment by reducing the negative impacts of corporate activities on the environment and society to improve our long-term portfolio returns.”

The Japanese pension giant, with $1.4 trillion under management, is becoming a force for change not just in Japan’s pension community but also among global asset owners. Since setting up its ESG division in 2016, GPIF has ramped up research, knowledge sharing and initiatives among global asset owners, asset managers and investee companies.

In October GPIF revised its investment principles and expanded the scope of its ESG investments from equities to all assets in its portfolio, including alternatives and fixed income, Takahashi said.

GPIF has a 5 percent target allocation to alternatives, of which just 0.10 percent had been invested as of end-September. It is selecting global fund of funds managers for private equity, Private Equity International understands.

Domestic bonds made up almost 30 percent of GPIF’s assets as of end-December. Domestic equities accounted for 26.1 percent; foreign equities, 25.1 percent; foreign bonds, 14.1 percent and short-term assets, 7.1 percent. It has ownership in 5,000 listed companies globally and allocates nearly 90 percent of its equities portfolio in passive management.

“GPIF is a very unique role of model for […] small pension funds, especially in a time like now where small pension funds are struggling to gain good returns performance, while wanting to make good investments for the future,” Takahashi pointed out.

“We are all working very hard to create a new market for future generations and to develop ESG data in emerging markets, including analysis of sustainable indicators such as natural resources or human capital.

Takahashi also noted that technology and data will revolutionise ESG investing. It teamed up with Sony Computer Science Laboratories in December to look into using artificial intelligence in its investment decisions and manager selection.

“There is a lot of uncertainty in the world. Adopting AI will have a huge impact not just for pension funds like us but on the asset management industry. This is a good thing for the next generation.” Takahashi said.