The $1.3 trillion Government Pension Investment Fund in Japan (GPIF) has started allocating a huge planned ¥3 trillion ($26.7bn) shift into shares with strong ESG characteristics by making an initial ¥1 trillion ($8.8bn) move into three ESG indices for Japanese equities; two run by MSCI and one by FTSE Russell.
The GPIF has a total of about ¥30 trillion in Japanese equities, primarily passively tracking the TOPIX index, so the ESG move represents circa 10% of its domestic equity exposure.
GPIF, the world’s biggest pension fund, began its mandate search for the new ESG indexes in 2016.
In the tender statement, the fund said it was implementing the ESG indices 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”.
The effort by GPIF is being seen as a spur for Japanese companies to improve their ESG performance to ensure they meet the new index criteria. Speaking at RI Europe last month, GPIF’s Executive Managing Director and Chief Investment Officer, Hiromichi Mizuno, told the audience that more needed to be done on ESG investment.It finally selected two “broad” indices covering all ESG factors, and one “thematic” index focusing on gender diversity. All three have outperformed the broader Japanese market over the past five years. Another “thematic” index focusing on environmental factors is under consideration.
The new indices selected for the capital shift are the:
The indices are all newly launched.
The MSCI WIN index comprises companies whose gender diversity initiatives have been determined by MSCI ESG Research to encourage more women to enter or return to the workforce – a stated aim of the Japanese government.