GPIF, the World’s Largest Pension Fund, Allocates $12.5 Billion to ESG Strategies
Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund with approximately $1.6 trillion in AUM, announced today that it has allocated ¥1.3 trillion ($12.5 billion) to passive investment strategies against two newly selected ESG indices, under the investment themes of General ESG and Diversity. According to GPIF, the fund expects its investment in the two indices to improve long-term returns by promoting the sustainable growth of individual investee companies and the market as a whole.
GPIF selected the MSCI ACWI ESG Universal Index, calculated by MSCI, as a new general ESG-themed benchmark for foreign equities. This index is designed to curb ESG risk inherent in the portfolio while limiting tracking error from the parent index.
For its diversity-themed benchmark for foreign equities, GPIF selected the Morningstar Gender Diversity Index (GenDi). GenDi weights constituents based on a multifaceted gender equality evaluation that focuses on aspects such as policies for the proactive appointment of women and establishing an environment that promotes the success of women.
According to the pension fund, the selection process involved the evaluation of each general ESG- and diversity-themed foreign equity index, including due diligence on the providers. Evaluation criteria included ESG ratings playing a central role in the constituent selection/weighting process, index ESG disclosure, a clearly disclosed rating methodology, and adequate governance and conflict of interest management structures of the ESG ratings agencies.
Masataka Miyazono, President of GPIF, said:
“By selecting a new general ESG index for foreign equities, GPIF has embarked on passive equity investment that incorporates all elements of ESG (environmental, social and governance) in both our domestic and foreign portfolios. Furthermore, a significant body of empirical research indicates that strong gender diversity has the potential to boost corporate performance. We consider these two indexes to be firmly in line with our objective of improving long-term returns through enhanced sustainability of individual issuers and the market as a whole.”