Japan’s GPIF Finds Portfolio Firms Proactive on ESG Disclosure

A report from the pension giant reveals a ‘virtuous cycle’ of providing non-financial information.

Japan’s $1.7 trillion Government Pension Investment Fund (GPIF) has reported that a survey it recently conducted shows its portfolio companies are proactively working on environmental, social, and governance (ESG) information disclosure.

The findings came from the pension giant’s sixth annual survey of listed companies that aims to evaluate the ESG stewardship activities carried out by its external asset managers. The survey, which received responses from 681 of the 2,186 targeted companies, focuses on how portfolio companies view asset managers’ engagement activities. It also tries to determine the actual status of constructive dialogue between the companies and asset managers, as well as the changes that have been seen since the previous survey.

The GPIF said companies are carrying out information disclosure not only through integrated reports, but also through new disclosure criteria such as the Task Force on Climate-Related Financial Disclosures (TCFD).

“Moreover, there has been a growing virtuous cycle, where the disclosure of non-financial information of investee companies including ESG information is further increased, and more and more investors have been utilizing such information,” the fund said in its report on the survey.

The survey also found that due to the COVID-19 pandemic, 78.1% of companies said they saw changes in the content and themes of dialogues with institutional investors, particularly concerning the “S” in ESG, such as health, safety, and work reforms for employees. Additionally, more than half of the companies said their ESG initiatives have changed.

“Corporate governance” was indicated as the main theme in the companies’ ESG activities by 71.7% of the respondents. The theme indicating the largest increase in response rate from the previous survey was “climate change” (+9.7%), which is a repeat from the previous survey, followed by “health and safety” (+8.0%), and “environmental opportunities” (+3.8%).

The report said that “this indicates that increased attention is being paid to a wide range of ESG themes, such as environment (E), represented by climate change-related issues, and society (S), which reflects the impact of the COVID-19 outbreak in addition to governance (G).”

The survey also found that 31% of respondents have endorsed the TCFD, of which 67% said they had already followed the TCFD recommendations in disclosing information. And 90% of the respondents  indicated that they disclosed information partially or fully in terms of governance, strategy, risk management, and indicators and goals. Additionally, many companies cited issues common to corporations and society as the major themes in their ESG activities, including corporate governance (71.7%), climate change (63.6%) and diversity (43.2%).

“For a pension fund like GPIF, a long-term orientation and the sustainable growth of its investee companies and the market as a whole are essential in increasing long-term investment returns,” Masataka Miyazono, president of GPIF said in the report. “GPIF considers that it is important to carry out engagement activities from a long-term perspective in order to increase corporate value over the long term, and thus encourages its asset managers to act in line with this policy.”

He added that “proactive disclosure of ESG information by investee companies is extremely important for investors to efficiently understand, carry out dialogues, and make investment decisions.”

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