GPIF seeks to drive governance momentum
Despite widespread scepticism about Japan’s commitment to improving corporate governance, the country’s main state retirement fund is looking to build momentum in this area through discussions with domestic corporates and strengthening its monitoring of environmental, social and governance activities.
The Government Pension Investment Fund (GPIF) has provided AsianInvestor with some insight into its discussions with domestic corporates and foreign asset owners.
Last month, it hosted the first meeting of the Business and Asset Owners’ Forum (BAOF). The discussion platform came about because the $1.1 trillion pension fund receives many requests from listed companies seeking “sustainable and constructive dialogue”, it said in a paper seen by AsianInvestor.
The companies at the first meeting were Asahi, pharmaceuticals company Eisai, steel maker JFE Holdings, Nissan Motor, telecoms firm NTT, electronics company Omron, cosmetics maker Shiseido and bathroom products firm Toto.
GPIF’s president, Norihiro Takahashi, talks about creating a virtuous circle by formalising its principles on issues such as proxy voting and creating effective dialogue with companies.
In April, the fund surveyed 400 Japanese companies to examine their relationship with asset managers that own their stock. At the same time, it has been encouraging its external managers to improve their governance in order to prevent conflicts of interest.
GPIF has singled out what it sees as “excellent” corporate governance reports chosen by its external managers, commending firms such as cosmetics firm Kao, Omron, precision tools maker Disco and Shisheido for “an honest attitude”, transparency of disclosure and effective communication.
Takahashi said that if companies fulfilled their corporate governance and disclosure responsibilities, they would attract more investors, including GPIF.
However, there are still doubts about the level of commitment to change in Japan's boardrooms. An August report by UK-based asset manager Hermes said: “A year after the introduction of Japan’s governance code, it is feared that some corporates are just paying lip service to greater accountability.”
Moreover, the Financial Times reported this week that just one pension fund not linked to a financial firm – that of Secom, a security company – has signed up to Japan’s stewardship code, set up by prime minister Shinzo Abe in 2014 to accelerate Japan Inc’s progress on governance.
New department
Not to be deterred, GPIF is also beefing up its monitoring of environmental, social and governance (ESG) activities. Earlier this month it set up a new division in its public markets investment department focused on stewardship and ESG.
The division has seven staff, comprising two permanent individuals and five working across other parts of the investment department. The initiative aims to strengthen GPIF’s fiduciary activities, said Hiroshi Komori, senior director of the public markets department.
It will also coordinate its involvement in the Global Asset Owners’ Forum (GAOF) that GPIF set up in July, and its advocacy of an ESG index for Japanese equities. The forum aims to teach Japanese pension executives how to emulate ESG practices applied in the US and Europe.
GAOF members include several US pension funds, such as California State Teachers’ Retirement System, California Public Employees’ Retirement System, the State Board of Administration of Florida, the State of Wisconsin Investment Board and The Regents of the University of California.
Things are at an earlier stage in Asia, but institutions in the region are increasingly implementing ESG strategies within their portfolios. Major asset owners making moves in this direction include Korea’s $473 billion National Pension Service and Taiwan’s $103 billion Bureau of Labor Funds.