Japan’s largest life insurer, Nippon Life Insurance, regards engagement via dialogue with investee companies as the most important factor in keeping track of ESG-related information as well as making more accurate forecasts of future performance.
“[Using] various information sources, we identify material ESG factors for each sector and each investee. Because material ESG factors clearly vary by sector and investee company, the key point is in how to obtain more relevant information,” said Takeshi Kimura, a special adviser to the Nippon Life board, during a panel discussion of AsianInvestor’s Mandating Change Week event on Monday.
“Among various operational sources, including disclosure reports, engagement through dialogue with investee companies is the most important opportunity to obtain ESG-related information,” Kimura, who was a former Bank of Japan official for more than 30 years, said.
“This is because we can obtain forward-looking information through dialogue with investee companies. With more forward-looking non-financial information, we can make more accurate forecasts and make our assessment on corporate value of investees more appropriate. This is a crucial point to enhance the effectiveness of ESG integration,” Kimura said.
“With this kind of positive feedback cycle between ESG integration and engagement, we can build a more competent ESG framework and make our portfolio more robust,” he added.
Nippon Life has invested in more than 1,500 Japanese companies, with 70% of them listed on the Tokyo Stock Exchange.
Last year alone, Nippon Life had engaged in over 1,000 discussions with more than 700 companies. It has had intensive conversations on climate change with carbon-heavy companies, Kimura said.
Among its carbon-heavy investees, 80% have disclosed risks and opportunities related to climate change, and more than 90% have disclosed a greenhouse gas reduction target, he noted.
“If our investee company does not improve its behaviour for years, we will exercise our voting rights or make divestment decisions. However, that is the last resort. Before using the last resort, we leverage engagement activities to effectively influence investees’ behaviours,” he said.
MAKING AN IMPACT
Nippon Life has $690 billion worth of assets under management (AUM). Earlier this year, it pledged to achieve net zero in its investment portfolio by 2050 – the same timeline as the Japanese government. It is the first institutional investor in Japan to set such a target.
So far, its ESG-themed investments have reached $10 billion, and are targeted to grow to 1.5 trillion yen ($13.2 billion) by 2023.
Environmental themes account for two-thirds of these ESG-themed investments, and include green bonds as well as loans for solar and wind-power generation projects. Social themes account for the rest of the investments, and include hospital projects in developing countries as well as desalination projects to address water shortage, according to Kimura.
“We have also begun impact investing, although its scale is still small,” said Kimura. “I think impact integration can be positioned as an advanced form of ESG integration.”
He noted that Nippon Life is still learning and accumulating impact investing measurement methodologies through fund investments, but it aims to implement its own measurement methodologies itself when the time is ripe.
Recently, Nippon Life made an impact investment via its first sustainability-linked loan of $30.8 million to fund a Japanese lease financing provider’s carbon reduction target. The interest rate of the loan is subject to change, depending on the company’s achievement of relevant sustainability performance targets.
“To focus on shaping sustainable development goals, we need to broaden the analysis of individual investees’ financial material ESG issues, and also include parallel analysis of the most important outcomes to society and the environment at the systemic level,” Kimura stressed.