GPIF invites proposals for ESG indexes for foreign mandates

09 November 2017   Category: News, Asia, Global, Japan   By Hui Ching-hoo

Japan’s Government Pension Investment Fund (GPIF) is inviting proposals for environmental, social and governance (ESG) indexes for its offshore equity passive strategies.

The GPIF includes ESG factors in its portfolio in order to “reduce negative impact on the environment and improve its long-term return”, it says in a statement on November 2.  

The Japanese pension fund giant says qualified applicants must have “sufficient track records” of ESG index compilation, and must have a representative office in Japan.

The fund will accept submissions until January 31, 2018.

The request for proposals does not specify how many foreign ESG indexes will be adopted and when they will be applied to the fund’s foreign equity strategy, Naori Honda, the GPIF’s public relations manager, tells Asia Asset Management (AAM).

Earlier this year, GPIF President Norihiro Takahashi outlined a target to raise the fund’s ESG investment position to 10% of its total assets in the long run, from 3% currently.

But according to Ms. Honda, “the situation is different now” and that “the GPIF has asked all its asset managers to integrate ESG into their investment processes” following the implementation of its Stewardship Principles in June.

The Stewardship Principles are a set of rules that the GPIF requires its external asset managers to follow. The principles include corporate governance structure, ESG integration, and management of conflict of interest.

Ms. Honda also points out that the GPIF launched a joint research programme with the World Bank in October to incorporate ESG factors into fixed income portfolios.

“In other words, it could be said that 100% of our portfolio should be regarded as ESG investment in a way,” she says.

According to Ron Bundy, chief executive officer, benchmarks North America at London-based index provider FTSE Russell, it’s difficult for index providers to offer customised ESG index solutions to their institutional clients because different investors define ESG investing differently.

Index providers “are trying to provide building blocks to institutional investors and allow the investors to take these building blocks to create the portfolios [that meets their ESG objectives],” Mr. Bundy tells AAM.

In July, the GPIF adopted three ESG indexes from FTSE Russell and New York-based MSCI as benchmarks for its domestic equity passive strategies.

According to the fund, those indexes do not incorporate any environmental factors. It says it will select an environmental index for its foreign mandates because factors such as climate change are an important issue from a global investment perspective.  

The GPIF had 156.8 trillion yen (US$1.37 trillion) in total AUM as of September 2017, up from 132.1 trillion yen a year earlier.