1. Newsroom
  2. Factoring in ESG criteria in Japan
Menu
UBP in the press 09.04.2019

Factoring in ESG criteria in Japan

Factoring in ESG criteria in Japan

Bilan (03.2019) - There are many aspects of Japanese culture that emphasise harmony in terms of people’s relationships with nature and society.


Some people, however, depending on how they regard Japan, may see this notion of harmony as a way of exerting control. But is that enough to make Japan a laggard in terms of environment, social and governance (ESG) considerations? Is control more important for companies than longevity, which they regard as secondary to the need to achieve growth at any price? We think not: we take a more positive view because ESG-related notions are nothing new in Japan. Indeed, they are popular, and so companies are increasingly factoring them into their business approach.

What has changed fundamentally since 2012 – when the Abe government came to power, strongly promoting the Abenomics agenda – is that institutional investors and particularly Japan’s largest pension fund GPIF (Government Pension Investment Fund) have taken an interest in companies that factor in and develop ESG criteria in the conduct of their business. If those companies were starting from scratch as some seem to believe, they would not have progressed far enough for us to be writing about responsible investment in Japan in 2019.

The best example, and by far the most commonly cited one, is that of Hiro Mizuno, GPIF’s CIO, who has become one of the main proponents of responsible investment. He strongly supported the launch of the JPX 400 index, which consists of Japan’s top 400 companies in terms of governance and respect for minority investors. For the person in charge of investments for the world’s largest pension savings portfolio, that was natural. But Hiro Mizuno did not stop there. He and his teams worked to guide their investments using new indexes, such as FTSE Blossom Japan (consisting of companies showing solid commitment to ESG practices), MSCI Japan ESG Leaders and, no less importantly, MSCI Japan Empowering Women. In late 2017, Hiro Mizuno sent an even more radical message by announcing, during the PRI (Principles for Responsible Investment) conference, that GPIF would factor ESG criteria into all its investments going forward.

It goes without saying that GPIF’s stance is having a huge impact on the way companies operate, the way their boards of directors work (since they must now include independent directors), their recruitment and wage policies and their remuneration of senior executives. The impact is being felt especially keenly among the community of investors, institutional or otherwise. Aside from any trend-setting effect or influence that GPIF may be having, the result for investors is an improvement in corporate governance as companies factor in ESG criteria. The most obvious demonstration of these changes is that companies are making better use of surplus liquidity on their balance sheets through constantly rising share buybacks and dividend payments. From the social point of view, women are playing a greater role in the workforce and more of them are reaching high-level managerial positions, gradually contributing to the shift encouraged by GPIF in the wake of Abenomics. Companies with poor environmental records are being punished by excluding them from the aforementioned indexes, but also by the fact that company valuations are increasingly reflecting the attention paid to companies’ carbon footprints by an investor community that has become more critical, and above all more selective.

As regards factoring in ESG criteria becoming the new normal for Japanese companies, then, the recent developments discussed above suggest that Japan needs a structural shift in order to change direction.

Japanese equities

Cedric_Le_Berre_150.jpg
Cédric Le Berre
Senior Analyst

Le news più lette

UBP in the press 07.06.2019

Gold is a good choice for hedging portfolios

Finanz und Wirtschaft - Norman Villamin, CIO Private Banking at Union Bancaire Privée (UBP), advises investors to use asymmetric strategies to protect their portfolios against market risks.

UBP in the press 30.07.2019

Take profits or run the risk of a correction

Le Temps (29.07.2019) - After a booming first half of the year, the second one is bound to become challenging for active managers.

UBP in the press 26.08.2019

UBP fast-tracks its private banking operations in Asia

Hubbis (22.08.2019) - Michael Blake is CEO of the Asian private banking operations of Union Bancaire Privée (UBP) and is presiding over a phase of dramatic growth for the business in Asia, where assets under management have surged more than 50% since 2016.

Altro da leggere

UBP in the press 17.10.2019

A pragmatic approach to the carbon-reduction effort

The Good Investment Review (10.2019) - The very different roles of Emerging and Developed markets

UBP in the press 08.10.2019

Cyberprotection: new criterion when choosing a private bank?

Le Temps (07.10.2019) - Private banking can never rest, and its latest challenge is to combat cybercrime.

UBP in the press 03.10.2019

What investment opportunities do demographic trends offer?

Bilan (02.10.2019) - Climate change, demographic movements, changing consumer behaviour and innovation are transforming our old habits.