Japan’s GPIF expands ESG focus with World Bank green bonds


Japan’s Government Pension Investment Fund is expanding its partnership with the World Bank by investing in World Bank-issued green, social and sustainable development bonds, said Hiromichi Mizuno, GPIF’s executive managing director and CIO, speaking on a panel Wednesday at the Milken Institute Global Conference in Beverly Hills, Calif.

Mr. Mizuno said the move is part of the $1.6 trillion Tokyo-based pension fund’s commitment to promote environmental, social and governance principles throughout the pension fund’s portfolio.

The World Bank’s treasury also manages the investments of the $27 billion pension plan, said Jingdong Hua, vice president and treasurer of the World Bank, who spoke on the same panel. Mr. Hua said he was thrilled with the World Bank’s partnership with GPIF and other asset owners.

In November, the World Bank green bonds raised $1.3 billion.

Investing in green bonds is a way to make sustainable investments, Mr. Mizuno said. GPIF officials are investing in the bonds in its passive portfolio, and GPIF expects to consider ESG in investments across asset classes, he said.

All of the panelists, led by moderator Christopher Ailman, CIO of the $227.8 billion California State Teachers’ Retirement System, West Sacramento, agreed that because asset owners are long-term investors, and risk and return should also be viewed on a long-term basis, their staff members and the public should take a long-term view of their portfolios’ risks and returns. The other panelists included Jerry Albright, CIO of the $145.4 billion Texas Teacher Retirement System, Austin; Amy McGarrity, CIO of the $49 billion Colorado Public Employees’ Retirement Association, Denver; and Kim Y. Lew, vice president and CIO, Carnegie Corp. of New York’s $3.5 billion foundation.

Institutional investors should consider climate change and other ESG factors as risks to the portfolio rather than just as an investment strategy, he said.

“Most of the ESG risks (such as the impact of climate change) will materialize in the five- to seven-year time frame,” Mr. Mizuno said. “That’s why nobody is paying attention.”

At CalSTRS, among a number of other ESG-related initiatives, Mr. Ailman said in an interview that he plans to ask every public company he can what company executives are doing to prepare for a 1.5-degree and a 2-degree Celsius global temperature rise. Eventually, he expects to also ask private equity portfolio companies, he said.

Ms. Lew said she considers the impact of ESG factors on returns.

“We stay close to our asset allocation. The return is from manager selection,” Ms. Lew said. “Managers that do consider ESG should be more sustainable. We have a small staff. We are more likely to invest in a manager that considers (ESG).”

Panelists also noted that considering climate-change risks and other ESG factors helps in hiring and retaining talent.

Pension funds must have the best talent, and the best employees today are concerned with ESG issues, said Texas Teachers’ Mr. Albright.

When it comes to ESG, Texas Teachers tries “to punch at our weight level,” Mr. Albright said.

With 35% of the pension fund is invested in alternative investments, “we are not intimidated to ask our private markets managers what they are doing” regarding ESG, Mr. Albright said.

He added that Texas Teachers officials try to reflect the values of the teachers who are the pension plan’s beneficiaries.

Colorado Public Employees’ Retirement Association, Denver, has 60% of its $49 billion portfolio is internally managed, Colorado PERA’s Ms. McGarrity said.

“That gives us the opportunity to incorporate ESG factors,” Ms. McGarrity said. However, the pension fund does not have an ESG mandate “nor do we want one,” she added.

Even so, pension fund officials have a fiduciary duty and there is “an opportunity cost of missing out on hot-button investments,” Ms. McGarrity said.

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