GPIF Publishes the FY2019 ESG Report

September 29th, 2020

We at Government Pension Investment Fund (GPIF) are responsible for providing stable income to multiple generations of retirees, and thus our investment horizon spans several decades. Within such a long timeframe, the latent risks associated with negative externalities generated by individual companies - that is, environmental, social, and governance (ESG) issues - will very likely materialize. This has the potential to significantly impair the value of the assets we invest in. Similarly, since our portfolio includes virtually all investable assets, the sustainability and stable expansion of the market as a whole is critical in protecting and growing the pension reserves entrusted to us by beneficiaries. We work to limit these externalities and promote the holistic growth of the market through ESG investment.

Every year, we provide pension beneficiaries with a summary of the variety of different ESG initiatives we engage in through our ESG Report. We've just published the report for fiscal year 2019, which for the first time quantifies the physical and transition risks and opportunities of climate change inherent in our portfolio in terms of the potential change in the value of these securities.

Through the report, we hope to assess whether or not our ESG activities are resulting in more sustainable financial markets and improving long-term risk-adjusted returns as intended, and that it will therefore serve as evidence of the long-term benefits of these initiatives.

Chapter 1: GPIF's ESG Initiatives
ESG Index Selection and ESG Index-Based Asset Management
ESG in External Equity and Fixed Income Management
Stewardship Activities and ESG Promotion
Engagement with Index Providers and ESG ratings agencies
ESG in Alternative Asset Management
Collaboration with Overseas Public Pension Funds and Other Institutions
Support for TCFD and Climate-Related Financial Disclosure
Review of ESG Activities and Future Outlook

Chapter 2: Measuring the Impacts of ESG Activities
ESG Index Performance
Portfolio ESG Rating
ESG Rating Ranking by Country
ESG Rating Correlation
Women Advancement at Japanese Companies
Portfolio Climate-Related Risk
Analysis of Risks and Opportunities Using Climate Value-at-Risk

〈Comment from MIYAZONO Masataka, President of GPIF〉
We at GPIF believe that the consideration of ESG factors in the investment process is critical to enhancing the sustainability of pension reserves, and have thus actively promoted a variety of different ESG initiatives since becoming a signatory to the Principles of Responsible Investment (PRI) in 2015. In this our third report, we expand on last year's TCFD-aligned disclosures by examining physical risks and opportunities related to climate change for the first time. We also use an innovative analysis methodology that enables us to reflect climate change risks and opportunities in the value of both equities and bonds - two asset classes completely different in nature - in a consistent way. We hope that this report acts as a valuable reference tool for other asset owners and asset managers in their own reports.