92 Time September 23, 2019
There’s a loT of responsibility that comes with
managing a fund with $1.5 trillion in assets—a
responsibility that Japan’s Government Pension
Investment Fund (GPIF), the largest pension fund in the
world, faces every day. We have more than 5,000 stocks
and 3,400 bond issuers in our portfolio, and the fund is
designed to operate with a 100-year, multi generational
time frame.
Unlike investors with a shorter time horizon, we
consider climate change to be
a systemic risk affecting the
entire range of our investments,
one that can’t be eliminated
simply through diversification.
We could certainly reduce
the carbon footprint of our
portfolio dramatically if we
divested from certain carbon-
intensive industries, but this
would only result in a transfer
of ownership to investors
who are not as concerned
about climate issues and thus
would do little to contribute
to a less carbon-intensive
world. Our approach, rather,
is to encourage companies
with a large carbon footprint
to adopt a more sustainable
business model. I believe long-
term investors have a duty to
support corporate leadership
that is embarking on a low-
carbon transition.
a beTTer way for us to deal with climate change is to
integrate environmental, social and governance (ESG)
issues throughout our whole investment process. We
require all our asset managers to include these criteria
in their investment analysis and decisions. Our equity
portfolio managers are also obligated to engage with the
companies they invest in on critical environmental issues.
In addition, over the past two years, Japan’s pension
fund has been aggressively investing—a total of around
$32.8 billion as of the end of March 2019—in funds that
take into account ESG factors. Last year, we selected two
climate-focused benchmark indices
that incorporate two key elements:
They seek out companies with high
carbon efficiency within an industry.
They also highly value companies
that proactively disclose climate
information. We don’t divest; we
rebalance and engage.
We recently began using ESG factors
in making decisions for our bond
portfolio as well. In partnership with
the World Bank Group, we have worked
to cultivate the green bond market.
Encouragingly, we’ve seen signs
that these bonds are becoming more
mainstream.
Skeptics question the effect of ESG
investment on financial performance,
but we emphasize that climate change
and other ESG-related risks materialize
only over the long term. Assessing the
financial validity of ESG investing over
a span of only a few years is therefore
misleading. Having said that, almost all
our ESG indices have outperformed the
market since inception.
Since our ESG investment began
in earnest in 2015, we are encouraged
that our efforts have reverberated
throughout the business community—
particularly in Japan, where many
companies are making a dramatic push
to improve their ESG profile.
The GPIF of Japan will continue on
this path, but we cannot do it alone.
We call for deeper collaboration among
shareholders, financiers and policy-
makers everywhere. Together, we
can work toward the goal of creating
a more sustainable world for future
generations.Mizuno is the executive managing
director of Japan’s Government Pension
Investment FundThe pension fund
trying to change
the world