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Publication of the Report: "Verification of the Effects of ESG Factors and Corporate Value"

GPIF has conducted research on "Study on ESG factors contributing to the improvement of corporate value and investment return" as part of its "Measuring the Effects of Stewardship Activities and ESG Investment Project." Following the completion of the project, we are pleased to publish the report as detailed below.

GPIF believes that the sustainable growth of investees and the overall market is essential for earning stable income over a long period on its managed assets, and therefore engages in sustainability investment. This effectiveness measurement quantitatively verified how the Key Performance Indicators (KPIs) of our adopted ESG indices affect corporate financial information and corporate value indicators while we continue our ESG investment. Specifically, we conducted a multiple regression analysis using a firm/time fixed effects model, where the dependent variable is a corporate value indicator and control variables are included.

The main analytical results showed that diversity-related KPIs (such as the ratio of female directors and the ratio of female new hires) have a statistically significant positive impact on corporate value indicators like Tobin's Q and PBR. Additionally, corporate governance-related KPIs (such as performance-linked compensation systems and the ratio of independent outside directors) have a statistically significant positive impact on ROE. However, some diversity-related KPIs also showed results inconsistent with an ESG perspective regarding PBR and ROE.

Furthermore, this report analyzed the temporal changes in the impact of ESG index KPIs on corporate value indicators. As a result, a statistically significant positive change was observed in the impact of the establishment of nomination committees on ROE, from the initial analysis period of 2014-2017 to the most recent period of 2019-2022. However, a negative change was observed for anti-takeover measures.

Through this project, we have demonstrated that some KPIs related to ESG indices showed both statistically significant positive impacts on corporate value indicators and results inconsistent with an ESG perspective. GPIF will continue its multifaceted examination of sustainability investments, and shall undertake bold reviews if the effects of investment anticipated at the start of investment period are considered to be highly unlikely to be achieved as expected going forward.

The quantitative analysis in this report was conducted by EY Strategy and Consulting Co., Ltd. under commission.