Japan’s GPIF presses on with ESG efforts after exit of renowned CIO Mizuno

Since replacing former CIO and ESG torchbearer Hiro Mizuno in March, the Government Pension Investment Fund (GPIF) has continued to make progress on sustainable finance.

Under Goldman veteran Eiji Ueda, GPIF has launched the full version of its Index Posting System (IPS), a new mechanism for continuously collecting index information and analysing alignment with the pension giant’s ESG mission.

The pilot phase of the IPS was launched last year with the fund soliciting ideas for foreign equity ESG indices, foreign equity diversity indices, and domestic and foreign green bond indices. Now GPIF is accepting a wider variety of indices.

The streamlined system, which asks index providers to directly input index information, plays into GPIF’s ongoing efforts to refine its approach to passive management through directly engaging with index providers. The vast majority of GPIF’s assets are passively managed.  

All the data and information flowing through the IPS will be aggregated and analysed on GPIF’s Index Data Entry and Analysis System (IDEAS) – a cloud-based analytics platform. There, it will be combined with ESG and other non-financial and financial data to enable efficient benchmark selection and verification of whether indices are in line with GPIF’s purpose for ESG investing. 

Data and analytics provider FactSet is to provide financial, non-financial, and benchmark data for the IPS, delivering over 20 content sets. 

Yumi Tanaka, Regional Director of FactSet Japan, said: “GPIF is taking an extremely advanced approach to improving index selection that will drive results for asset owners. The Index Posting System is an important initiative that leverages technology to adapt to the changes in our industry.”

In an RI webinar last month, GPIF’s Senior Director of Stewardship & ESG, Hiroshi Komori, defended the fund’s controversial suspension of stock lending, saying the decision was partly due to the risk that short-selling could accelerate short termism.

He said there had been some misunderstanding about GPIF’s position: “GPIF doesn't deny stock lending as an investment method, which seems to be the main point of misunderstanding. Short-selling could be a reasonable investment tool if the seller judged the current share price as disproportionate, taking a long-term ESG perspective into consideration. However, it’s not possible to retain enough clarity on who's borrowing stock and for what purpose, and so we can’t have enough confidence that our stock lending is not contributing to short-termism.”

GPIF’s 2019 Stewardship Report said: “There is a concern that stock lending may be inconsistent with stewardship responsibilities because ownership may be transferred to the borrower, resulting in a substantial void in GPIF ownership.”

It said the fund would reconsider the stock lending scheme if issues relating to stewardship and transparency were improved. 

It comes as the fund, which says it integrates ESG into all its assets via its manager selection process, considers appointing a new infrastructure manager specialising in emerging markets, as it looks to diversify its portfolio, according to a new Request for Information. The document is inviting information on fund-of-funds infrastructure managers focusing on EM opportunities “to develop an idea of potential investment going forward”, and other product structures if “appropriate”. The deadline for submitting information is June 12, 2020. 

It is also calling for asset managers for non-Japanese bonds, whether active or passive. There is no deadline for applying, but GPIF will start reviewing passive fund managers on May 22, 2020.