World’s largest pension fund revises investment principles to incorporate ESG

Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, has revised its investment principles to formally include environmental, social and governance (ESG) factors.

Announcing the revision in a tweet, the JPY144,903bn (€1trn) GPIF said: “Incorporating ESG in every asset class, we aim to maximize long-term returns.”

It’s the latest step by the influential investor to integrate sustainability – and it sends a clear signal to external asset managers whose efforts to address ESG, it believes, is insufficient.

In its 2016 annual report it said: “Although all external asset managers entrusted with domestic equity investment professed to be addressing ESG (environmental, social and governance) issues, few are actually doing so as part of their engagement activities. On the whole, asset managers give consideration to ESG issues only in relation to governance or the exercise of voting rights. Therefore, their efforts to address ESG issues, particularly environmental and social ones, are not sufficient.”

At the RI Europe event in June, CIO Hiromichi Mizuno – who is on the board of the Principles for Responsible Investment (PRI) – explained how he was “not very satisfied so far” with asset managers on governance.In a stark warning to fund managers, he said: “You will receive smaller cheques. Some asset managers received smaller cheques this year.”

And just this month the GPIF teamed up with the World Bank to research “practical solutions for integrating sustainability solutions into fixed income portfolios” on what they termed a “first step”. The fund would be a partner on an initiative to “promote strategies for including ESG criteria in investment decisions”. Link

Investment Principles’ old wording:
“By fulfilling our stewardship responsibilities, we shall continue to maximize medium- to long-term equity investment returns for the benefit of pension recipients.”

New wording:

“By fulfilling our stewardship responsibilities (including the consideration of ESG (Environmental, Social, and Governance) factors), we shall continue to maximize medium- to long-term investment returns for the benefit of pension recipients.”