Japan’s government pension fund and World Bank partner to mobilise capital markets for ESG

World’s largest pension fund and development bank team up to tackle sustainable investment obstacles

The world’s largest pension fund has 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”.

Japan’s $1.37trn Government Pension Investment Fund (GPIF) will be a partner on an initiative to “promote strategies for including ESG criteria in investment decisions”, it said in a joint statement with the World Bank Group, which comprises the International Financial Corporation (IFC), the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICDSID).

The ultimate aim, the pair added, “is to direct more capital towards sustainable investments”.

GPIF’s Chief Investment Officer Hiro Mizuno – fast becoming a leader in mainstreaming responsible investment, following the fund’s decision to move more than $8bn into ESG indices earlier this year, demanding that all external managers disclose their voting decisions – said the latest move sought “to make a valuable contribution towards the Sustainable Development Goals (SDGs), providing practical solutions to catalyse the development of sustainable fixed-income markets”.Speaking at RI Europe this year, Mizuno also warned asset managers that they would receive “smaller cheques” if they don’t prioritise strong governance.

The joint statement claims that investors increasingly want to make a positive impact with their capital allocation, but points to obstacles around standards and data quality. It also highlights the fact that “the link between investment performance and sustainability considerations is better understood in equity than in fixed income”.

In a bid to address these issues, the research will focus on areas such as benchmarks, guidelines, rating methodologies, disclosure frameworks, reporting templates and risk correlation for incorporating ESG into bond portfolios – particular for sovereign issuance and green and social bonds.

The World Bank said it wanted the efforts to “transform the way asset owners and managers see investment opportunities” to help support the UN’s SDGs. Pointing to the $10trn+ that is currently invested in negative interest rate bonds, and nearly $25trn in low-yielding government securities, it concluded that “there’s never been a better opportunity to do this”.