April 2, 2015 / 10:06 AM / 4 years ago

UPDATE 1-Japan's GPIF may consider governance in stock investments

(Adds comment, market reaction)

By Takashi Umekawa

TOKYO, April 2 (Reuters) - Japan’s trillion-dollar public pension fund said on Thursday it could consider factors like corporate governance, in addition to investor returns, when deciding on stock investments.

The Government Pension Investment Fund, the world’s biggest pension fund, decided in October to double the allocation for share holdings in its 137 trillion yen ($1.1 trillion) portfolio, while slashing investments in low-yielding government bonds, in line with a push from Prime Minister Shinzo Abe for greater returns and risk-taking.

The move by the mammoth fund, which is being followed by other big Japanese institutions, has helped push Tokyo shares to 15-year highs this year.

In a mid-term plan announced on Thursday, GPIF said it would consider taking account of “environmental, social and governance” (ESG) factors in equity-investment decisions, while pursuing profits.

GPIF’s announcement helped buoy sentiment and push Tokyo shares up 1.5 percent on Thursday, but investors were sceptical whether the potential change would boost returns.

The plan offered no specifics about how this might affect its portfolio. Fund spokesman Shinichiro Mori said GPIF’s Investment Committee will discuss this issue.

“If you say you’re prioritising the environment and such things and then your returns worsen, then it all comes to nothing,” said Masaru Hamasaki, head of market and investment information at asset management firm Amundi Japan.

“ESG and socially responsible investing aren’t directly linked to a company’s financials, so it’s not related to the stock price,” he said. “Paying attention to ESG won’t necessarily lead to outperformance.”

GPIF also said on Thursday it had chosen “transition managers” to handle the transferring of assets from old to new investments. Nomura Asset Management Co was chosen for domestic stocks, BlackRock Japan Co for domestic stocks and foreign bonds, and Russell Investment for foreign stocks. ($1 = 119.6800 yen) (Editing by William Mallard, Simon Cameron-Moore and Muralikumar Anantharaman)

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