TOKYO (Reuters) - Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund with $1.3 trillion under management, plans to raise its allocation to environmentally and socially responsible investments to 10 percent of its stock holdings from 3 percent now, the head of FTSE Russell said.
GPIF said this month it had allocated 1 trillion yen ($8.9 billion) or 3 percent of its stocks portfolio to companies that have strong environmental, social and governance (ESG) practices using a new ESG index created by FTSE Russell.
Raising that allocation target to 10 percent based on the pension fund’s updated financials, should see GPIF pour a total of 3.5 trillion yen ($29 billion) into ESG-related investments, in a big boost for ESG investing globally.
“They have been very bold. They’ve said they are putting 3 percent of their investment into ESG related investments and they have said they will increase that to 10 percent over time,” Mark Makepeace, chief executive for FTSE Russell told Reuters during a trip to Tokyo on Friday.
“I think that gives us opportunities to improve the ESG practices of companies in Japan,” he added.
GPIF has selected FTSE Blossom Japan index, a new index compiled by FTSE Russell for the Japanese pension fund, as well as MSCI Japan ESG Select Leaders index and MSCI Japan Empowering Women index.
A spokesman for GPIF said on Friday the pension fund had not yet set a formal ESG allocation target, but confirmed that GPIF President Norihiro Takahashi had said publicly the fund was planning to raise its allocation to 10 percent without elaborating on the timeline.
ESG investing is gaining momentum globally, especially in the United States and Europe, amid growing evidence companies with stronger environmental and governance practices deliver higher returns over a five- to 10-year investment horizon.
GPIF’s move is expected to prompt smaller Asian corporate and public pension funds, which have so far been slow to adopt ESG investments, to allocate more into such stocks.
“GPIF is very influential not just in Japan but across the region and internationally,” said Makepeace. “I think the activities of GPIF will be very, very important. They are watched by other investors.”
Reporting by Junko Fujita and Takashi Umekawa; Editing by Michelle Price and Jacqueline Wong