GPIF should go public on ESG materiality to push the market: report

Disclosure would influence asset manager behaviour.

Japan’s €1.2trn Government Pension Investment Fund (GPIF), the world’s largest pension fund, should actively disclose material ESG information in order to influence asset managers and ESG reporting framework developers, according to a new Nissay Asset Management (NAM) report.
The recommendation is part of an in depth study on ESG disclosure and practices that GPIF commissioned Nissay to carry out in November last year.
The study analysed the state of ESG information disclosure among major global pension funds, finding that ‘universal’ asset owners (funds that own most of the market) in particular were likely to disclose ESG information with the motivation of influencing the broader investment chain. The study looked at the top 30 global pension funds in terms of assets under management (AUM), as well as sovereign pension funds within the top 300. Nissay Asset Management’s Toshikazu Hayashi, one of the main researchers for the project, said: “Asset managers are always paying attention to the movement of asset owners, especially large ones, so disclosure would be expected to be influential to asset manager behaviour.” GPIF published its first annual ESG report in 2017, but according to Hayashi, the report assumes its audience to be the general public rather than investee companies. He said: “Its contents are mainly about their ESG investment activities, and do not necessarily include discussion about concrete ESG issues which they consider material for their investment management.”GPIF is known domestically and internationally as a vocal proponent of ESG, having shifted billions into three ESG indices. In 2017, it revised its evaluation criteria of external asset managers, weighting more heavily towards stewardship and ESG-related activities. Last year, it retained Mercer, the investment consultant, to review the external manager remuneration structures. The NAM study recommends that asset owners should consider engaging with ESG framework developers to promote better alignment of standards. Hayashi said: “Framework developers and standards setters won’t be able to ignore asset owner demands for information disclosure, because many of them were originally developed to improve corporate information disclosure for investors.” GPIF’s active disclosure of important ESG factors for its investment management would also provide insights for companies unsure about what kind of ESG information to disclose, according to the report. It recommends that because GPIF is not legally allowed to engage with companies, ESG information disclosure should be utilised as an alternative engagement tool. Hayashi explained: “Many companies are confused by the sea of different ESG information disclosure frameworks and standards. We believe a clear message from asset owners would work as an important guidepost for companies, as well as entire investment communities.”
The final report of the NAM study is yet to be published.