Japan’s GPIF Studying Stewardship Impact

Both passive and active managers are expected to take a proactive stance on ESG-related engagements, says stewardship head.  

Japan’s Government Pension Investment Fund (GPIF), the world’s largest asset owner with US$1.4 trillion in AUM, is reviewing the impact of its stewardship activities and ESG investments to inform future activities, according to Mari Murata, GPIF’s Head of Stewardship.  

“GPIF believes it is vital to integrate ESG factors and stewardship activities into the investment process to increase corporate value and promote the sustainable growth of the capital market as a whole,” said Murata, speaking at Economist Impact’s fifth annual ‘ESG and Climate Risk Week’ on 13 September.  

“It is crucial to examine whether GPIF’s activities can be connected to companies’ behavioural changes and higher ESG ratings.”  

As first outlined in GPIF’s ‘Stewardship Activities Report’ published in March, collaborative studies will run over the course of 2023 and 2024. Through these studies, GPIF will consider causation links between its engagements and improvements in investee companies’ ESG ratings, external asset managers’ voting behaviours, the impact of ESG investment on corporate behaviour, and the degree to which improved ESG-related performance drives stronger financial returns.  

As a signatory of Japan’s Stewardship Code since 2014, GPIF is committed to upholding its eight principles in its engagement activities. These include monitoring investee companies so that they can appropriately fulfil their stewardship responsibilities with an orientation towards the sustainable growth of companies, work with companies through constructive engagement, and develop the skills and resources needed to appropriately engage and make proper judgements in fulfilling their stewardship activities. 

GPIF expects its external asset managers across active and passive funds to also take a proactive stance in engagements on ESG-related issues, said Murata. 

“It’s just as important that we manage our relationships with asset managers,” she said.  

“We continuously monitor the stewardship activities of all our external managers, and we believe passive managers can play just as important a part in [corporate] engagements, especially in dialogue on ESG issues, which can take a long time to resolve.” 

In July, a paper published by the European Corporate Governance Institute (ECGI) analysed an experiment undertaken by GPIF in 2018, where it gave its largest passive manager – Japan’s AM One – a remunerated mandate to improve the ESG performance of portfolio companies.  

AM One was tasked with targeting its engagement efforts on the most valuable companies in the portfolio and almost all of the Topix 100 large-cap constituents at least once on ESG issues.  

The ECGI paper noted that engagement by the asset manager did result in improvements in some of the ESG scores for mid- and large-cap companies.  

In April, GPIF withdrew US$3.7 billion managed under ESG indices and reallocated the funds to track the Morningstar Japan ex-REIT Gender Diversity Tilt Index, to better support gender diversity efforts by Japanese corporates.  

“Our ESG investments are promoted based on the concept of ensuring our beneficiaries’ long-term economic benefits by reducing the negative impact of environmental and social problems on capital markets,” said Murata.  

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