SECOM was among the first Japanese corporate pension funds to invest in environmental, social and corporate governance (ESG), having revised their diversified portfolio after several financial market crises. Hiroichi Yagi has guided the company’s effort.
We initiated ESG investment in 2011 to ensure our pension plan's sustainability, despite a restrictive investment climate.
ESG investment's response to financial crises
Although the investment environment of the last 10 years has been relatively stable, the previous 10 years were marked by turbulence — the Asian Financial Crisis of 1997, the bankruptcies of Enron and Worldcom, and collapse of Lehman Brothers in September, 2008. After steadily growing our assets over time, we experienced several steep declines.
Following these financial shocks, it was clear that opportunities to diversify investment going forward would be far more limited. Harsh negative returns became the norm. Many corporate pension funds found it difficult not only to stabilize earnings, but also to figure just how to keep their pension plans afloat.
There are several ways to stabilize earnings via asset management: diversify investments, add weight to bond investment, and pursue liability driven investment (LDI). None of these is easy to implement.