Japan’s GPIF in major tender for ESG manager/index for domestic shares

Mandate opens today and will close at the end of September.

The world’s largest pension fund, the JPY 140 trillion ($1.32 trillion) Japanese Government Pension Investment Fund (GPIF), today launches a search for a passive manager running an ESG index of Japanese shares, in a move that would likely see tens of millions of dollars, and potentially much more, managed on the new underlying benchmark.
The tender will run from July 22nd to September 30th. In a tender statement in Japanese, the fund said it was implementing the ESG index because “one can expect middle and long-term risk reducing effects and excess return from ESG in the passive management of Japanese stocks considering ESG factors.”
GPIF did not say how much it intends to invest in the strategy, instead saying that the passive manager/index builder should suggest an appropriate strategic amount.
Because of the size of the fund, investment allocations tend to be large. The smallest amount GPIF allocates to a single Japanese stock fund is understood to be ¥6.6bn ($62.1m).
GPIF said applicants to the tender must have sufficient experience with ESG index building or sufficient experience with applying data and calculating indices based on data from ESG research houses. They also need to be anexperienced index manager with a Japanese office. It said it would accept applications for numerous ESG index styles.
Other stipulations are that the index methodology is public with adequate data disclosure. It said it will require the manager/index to avoid any extreme bias for specified stocks, and to have capacity to “invest considerably”.
The GPIF signed up to the United Nations-supported Principles for Responsible Investment (PRI) in September 2015, saying it would also ask its external managers whether they were signatories:
Link to RI story
RI reported in April this year that the fund had released its first ever survey of companies on the JPX Nikkei Index 400 to evaluate the stewardship activities of its external asset managers and to “grasp [the] real situation of constructive dialogues.”
In Japan, the move by GPIF is being compared to that of the Canada Pension Plan Investment Board (CPPIB), which tied up with S&P and asset manager RobecoSAM to create the S&P Long-Term Value Creation (LTVC) index, investing in about 250 companies that take a long-term view and have a sustained history of financial quality.

With reporting by Elena Johansson.