Soken Inc., IJ's operator, published a magazine called “ESG 2018”, as a special issue of their quarterly manazine “AL-IN” in late September. This magazine, focusing on ESG, reported that the government has been strongly encouraging corporate and investment society to take actions in ESG field for the last four years, but only big corporations and public pension funds has responded up until then.

ESG Investment in Japan,
Strongly Pushed by the Government

After keeping the wait-and-see attitude for years, Japanese corporate pension funds are now strongly encouraged by the Government and corporate society to seriously consider ESG (environmental, social and corporate governance) investment.

According to the magazine “ESG 2018, recent developments is as follows;

The Abe administration worked out a growth policy called "Japan Revitalization Strategy" in 2014. This strategy highlighted on strengthening corporate governance by selective action of both corporates and investors.

In the same year, the Ministry of Economy, Trade and Industry (METI) issued an influential report called "Ito Report", which is more like a policy proposals. The report illustrated an "investment chain" including both corporates and investors as the key to sustained growth of Japanese economy. The investment chain works well by efforts of corporations and institutional investors with the same goal.

At the same time, the Financial Services Agency (FSA) announced two action guidelines — the Stewardship Code, for institutional investors, and the Corporate Governance Code, for listed companies. Later, FSA made revisions and now, the two Codes are more clearly ESG-oriented. Some of the listed companies, especially large companies operating internationally, responded quickly. They have written integrated reports, based on the international-standard IIRC (International Integrated Reporting Council) frame work.

Among Japanese institutional investors, the Government Pension Investment Fund (GPIF) is the leader in ESG investment. GPIF is already holding domestic stock portfolio based on ESG index. And the giant pension fund has discussed with asset managers to enhance "engagement" with the listed companies.

Meanwhile, corporate pension funds have kept the wait-and-see attitudes. CIOs of pension funds have strongly believed for a long time that their utmost duty is to seek higher return and in their mind, ESG investment and good return are incompatible. But now pension CIOs have been encouraged to reconsider ESG investment. Their plan sponsors have become ESG conscious, following the Governance Code, and some of them have actually started discussing ESG investment with pension CIOs. It is likely that ESG investment by Japanese corporate pension funds will increase gradually.

 

AL-IN magazine "ESG 2018", Part 2: https://investmentjapan.jp/managers/1159/