Asia Sustainable News (20-26 Aug 2023)
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Nikkei Articles (Machine Translated by Nikkei)
ESG Light and Shadow, The Road to Restructuring: GPIF Quantitatively Analyzes ESG Investment: Exploring the Causal Relationship between Corporate Value Enhancement (24 Aug)
The Government Pension Investment Fund (GPIF) is one of the world's largest pension investors and is often compared to a whale. They have also been a leader in ESG (Environmental, Social and Corporate Governance) investment in Japan. In fiscal year 2023, it began the world's first quantitative analysis of the effects of ESG investments.
GPIF's assets under management at the end of fiscal year 2022 exceeded 200 trillion yen. Of this amount, ESG investments that began in fiscal year 2017 totaled approximately 12.5 trillion yen, a 2.2-fold increase from the end of fiscal year 2019. The company will operate on the basis of nine ESG indices, which are composed of companies that have a good management system for the transition to decarbonization and companies with low emissions relative to their sales.
In 2018, the firm also introduced the "Engagement-enhanced passive" approach, which invests in a broad range of stocks linked to the Tokyo Stock Exchange Stock Price Index (TOPIX), but with an emphasis on corporate outreach. This is a method to encourage many companies to take ESG measures by collaborating with asset management companies such as Asset Management One and Resona Asset Management, which are active in dialogue with companies.
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There are two quantitative analyses. One is to examine the causal relationship between stewardship activities, such as dialogue between the entrusted asset management company and the company, and how they are related to the improvement of corporate value. The other measures the extent to which ESG investments by the GPIF influence corporate behavior. If GPIF can prove a causal relationship that passive management based on ESG indices has advanced diversity promotion and decarbonization efforts, such as women's activities, it will solidify the theoretical basis for GPIF to promote ESG investment.
Prior to the analysis, the GPIF replaced the ESG index. It reduced the amount invested in indices with lackluster investment returns and adopted the Morningstar index, which increases the ratio of holdings in companies that promote the advancement of women. The new indexes eliminate industry bias and otherwise limit the risk of deviation from the overall market price movements. The aim is to minimize the blurring of investment returns due to factors other than ESG.
Masataka Miyazono, board chairperson, explains the significance, "The hurdles are very high, but if we can scientifically prove that it works, it will be easier to explain to the public." Even within the market, skepticism persists as to whether ESG-conscious investments will lead to improved returns. "Flatly, not assuming a conclusion"(Masataka Miyazono) 2 years of analysis.
Will ESG investments contribute to improved investment returns over the medium to long term? Research is also underway in other countries.
A Bank for International Settlements (BIS) study found no significant evidence that companies issuing green bonds, which limit the use of proceeds to environmentally friendly projects, are more successful in reducing emissions than companies that have not issued such bonds. If emissions increase in other projects, they will be offset. Instead of issuing bonds for each project, the BIS advocates that it is more effective to evaluate and rate the overall emissions.
?"When investors engage in more dialogue with a company, the company's ESG score goes up." In July, Japanese and European researchers published the results of such a study. If included in the ESG index, it will be easier to attract money from investors like the GPIF, which focuses on the index.
Nippon Life Insurance released a document titled "Advancing ESG Investments and Loans" on 7th. It will work to strengthen ESG ratings, which measure the fforts of investee companies, and to expand dialogue with investee companies. It was also the first major domestic lender to exclude new oil and gas projects from its portfolio of investments and loans. "As the world moves toward net zero, we need to fulfill our responsibilities as an investment management organization" (Section Manager, ESG Investment and Loan Promotion Office).
Balancing decarbonization and energy security, both of which are becoming increasingly difficult due to the Ukrainian crisis. How can it enhance management and market sustainability through ESG promotion? Japan's leading institutional investor "the Seiho" and the Whale take on the challenge. Long-term efforts, including verification of effectiveness, are essential. (https://www.nikkei.com/article/DGXZQOUB16B500W3A610C2000000/)
Other Articles
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Otsuka Corporation procures renewable energy and purchases "non-fossil fuel certificates" for 30 years (23 Aug): Otsuka has entered into a "Virtual PPA (Power Purchase Agreement)" agreement with a group company of Renova, a specialist in renewable energy development, to purchase non-fossil certificates in exchange for procuring electricity derived from renewable energy sources. This will reduce carbon dioxide (CO2) emissions by the equivalent of 5,700 tons per year. (https://www.nikkei.com/article/DGXZQOUC227HA0S3A820C2000000/)
China's disposable diapers, the rise of domestic competitors, support for saving money and patriotism: Japan "God diapers" are overshadowed by popularity, competition overheated due to declining birthrate (23 Aug): China's diaper market is at a turning point. While strong faith in foreign brands has turned products made by Japanese and other companies into "god diapers," Chinese companies with superior cost performance are increasing their presence as people become more frugal. With the rapid decline in birthrates in China, Chinese companies have begun to expand overseas, and competition with Japanese companies is likely to occur in emerging markets in Asia and elsewhere. (https://www.nikkei.com/article/DGKKZO73806070S3A820C2FFJ000/)
Kurita Water Industries uses AI to improve water treatment and convert to water-saving and decarbonization services (24 Aug): Kurita Water Industries Ltd , Japan's largest company specializing in water treatment, is working to transform its business. It aims to restore profitability by developing high value-added products and services that help combat global warming and other issues by combining its knowledge of water with digital technology. Collaboration with a US startup company with strong artificial intelligence (AI) capabilities has begun to produce results. (https://www.nikkei.com/article/DGXZQOCD08BTA0Y3A800C2000000/)