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Impact Investing

IPE special report May 2018

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Japan’s GPIF pushing asset managers on governance, ESG offerings

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The world’s largest pension fund has called on asset managers to improve their corporate governance, according to its chief investment officer.

Speaking to delegates at a Responsible Investor conference in London yesterday, Hiromichi Mizuno, CIO of Japan’s ¥145trn (€1.24trn) Government Pension Investment Fund, said because the fund was prohibited from directly owning Japanese companies, the fund’s stewardship activities were focused instead on the role of intermediaries such as asset managers. 

Rather than asking Japanese corporates to improve their corporate governance, the fund is asking asset managers to improve theirs, he said.

“They have to have best-in-class corporate governance before they ask their portfolio companies to improve their corporate governance,” said Mizuno. “I’m not very satisfied so far.”

The fund has also asked asset managers to manage its money while “having long-term ESG factors in mind”, he said, as it was the managers’ responsibility to come up with ways to deliver long-term sustainable returns. Asset managers that did not live up to expectations would receive a “smaller cheque” – and some already have, according to Mizuno.

“[Asset managers] have to have best-in-class corporate governance… I’m not very satisfied so far.” 

Hiromichi Mizuno

The GPIF was keen to hear new ideas for this, or even about a new business model of asset management, he added.

The CIO also spoke of the need to pay attention to index vendors – how they operate and what goes into their indices – as they can sometimes “have much more influence than the CIO of a public pension fund”.

Last year the GPIF put out a tender for ESG indices for Japanese equities. Mizuno said that GPIF had been selecting providers and would back its chosen indices with a “meaningful” cheque.

Mizuno said he wanted to incentivise Japanese corporates to perform better on environmental, social, and governance issues, and allocate more to corporates and managers that took such issues seriously.

GPIF also wanted to bridge a communication or transparency gap between ESG researchers and the companies they evaluate, he said.

Mizuno said he was “tired” of hearing those assigning ESG scores to corporates saying companies were not good enough or did not disclose the necessary information, while on the other side corporations said they did not know what information the ESG researchers were looking for.

The GPIF was therefore demanding that index vendors and ESG researchers disclose the methodology they use so companies know what information is being sought, said Mizuno.

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