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Japan’s largest insurer to assess ESG performance of $663bn portfolio

Nippon Life says it will consider reducing investments in domestic companies with persistently high carbon emissions and sovereign bonds with low ESG ratings

Nippon Life Insurance, the largest Japanese insurer by revenue, has said that it will introduce ESG ratings for all investments across its ¥70trn ($663bn) portfolio from April 2021. The initiative aims to improve investment returns and reduce risks by increasing positions in companies with leading sustainability performance.

The announcement comes after an internal analysis of the insurer’s holdings since 2008 found that investee companies with high ESG ratings performed better on the stock market compared to the portfolio average.

The insurer said it will directly engage with domestic portfolio companies to assess their sustainability performance in areas such as carbon emissions, and will consider selling off shares and bonds from companies who do not improve on poor performance.

For sovereign bonds, Nippon Life will use data from the World Bank and other sources to reduce the amount of holdings with low ESG ratings, while property holdings will be assessed through external environmental certifications.

The announcement comes after an internal analysis of the insurer’s holdings since 2008 found that investee companies with high ESG ratings performed better on the stock market compared to the portfolio average. Factors considered include environmental performance, quality of corporate disclosures, board governance and employee working conditions.

The move by Nippon Life, first reported by local outlet Yomiuri Shimbun, comes as other large Japanese insurers are looking to increase their exposure to sustainability factors. Recently, Dai-Ichi Life Insurance announced a ¥400bn ($3.7bn) allocation to an ESG index fund, while Meiji Yasuda Life Insurance reportedly introduced an ESG policy in May.

Earlier this year, Sumitomo Life Insurance said it aimed to allocate ¥300bn ($2.8bn) to investments which are “aimed at resolving ESG issues” by 2022.

 Additional reporting by Ella Milburn.