For All
Generations
2022

ESG REPORT
Government Pension Investment FundFor All
Generations
GPIF is committed to fulfilling our fiduciary duty to secure adequate
retirement funds for both current and future beneficiaries.
GPIF promotes ESG based on the concept of securing long term
“economic benefits” for the pension beneficiaries by reducing negativeenvironmental and social externalities in the capital market.

01

GPIF ESG REPORT 2022

3

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P.3
P.5
P.7

Introduction

GPIF in Numbers
ESG Investment at GPIFInterview with the President

11 GPIF’s ESG Initiatives
Chapter 1

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P.13
P.15
P.17
P.19
P.20
P.21
P.23
P.25
P.29
P.31
P.35
P.37
P.39
P.41
P.44
P.45
P.46

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Fiscal 2022 Activity Highlights
ESG-Related Governance and Organizational Structure
ESG Initiatives within GPIF
Column 1: Gender Pay Gap within GPIF
GPIF’s External Public Communication
Support for TCFD and Climate-Related Financial Disclosures
ESG Index Adoption and ESG Index-Based Asset Management
Engagement with Index Providers and ESG Ratings Agencies
ESG in Equity and Fixed Income Mandate
Stewardship Activities and ESG Promotion
ESG in Alternative Asset Management
Collaboration with Overseas Public Pension Funds and Other Institutions
Implementation of a High-Level Study on the Integration of ESG and SDGs
in Investment
Column 2: Academic Research Related to GPIF’s Stewardship Activities
and ESG Investment
Measuring the Effects of Stewardship Activities and ESG Investment
Column 3: Investors Keeping Close Eye on Companies’ Human Rights Initiatives
Review of ESG Activities and Future Outlook

47 Measuring the Effects of ESG Activities
Chapter 2

P.49 ESG Index Performance
P.51 Portfolio ESG Rating, ESG Rating Ranking by Country, and Correlation
Between ESG Ratings
P.55 Gender Diversity in Japanese Companies

P

57 Evaluation and Analysis of Climate Change Risks and Opportunities
Chapter 3

P.59 Disclosure and Analysis of Climate-Related Financial Information:
Composition and Key Points
P.61 Analysis of Portfolio Greenhouse Gas Emissions— Characteristics of GPIF’s Portfolio —P.63 Analysis of Portfolio Greenhouse Gas Emissions— Carbon Footprint and Carbon Intensity —P.67 Analysis of the Status of GHG Information Disclosure and Target Setting
P.69 Implied Temperature Rise Analysis
P.71 Analysis of Government Bond Portfolio Using Sovereign Bond Climate
Value-at-Risk
P.73 Analysis of Real Estate Portfolio Using Climate Value-at-Risk
P.75 Analysis of Avoided Emissions Based on the Bottom-up Approach
P.79 Measuring the Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio
P.83 Nature-Related Risks including Biodiversity and TNFD Trial Analysis
P.90 Editor’s Note

GPIF ESG REPORT 202202

Government Pension Investment FundGPIF in Numbers
Policy Asset Mix
Equities 50%（±11%）
Domestic equities
24.49%
25%（±8%）

Bonds 50%（±11%）
Foreign bonds
24.39%
25%（±6%）

Domestic bonds
26.79%
25%（±7%）

Foreign equities
24.32%
25%（±7%）

Proportions of Passive and Active Investment
Active investment

Passive investment 82.82%

Other
1.06％

ESG Investment

Universal Owner
Asset size

16.12%¥200.1

trillion

ESG integration¥200.1

trillion

Number of GPIF-owned securities
Equities

5,678

stocksAssets undermanagement tracking
Approx.
ESG indexes

Bonds

18,254bonds

Investments ingreen bonds, etc.

Investment
time horizon

03

GPIF ESG REPORT 2022

100

years

¥12.5

trillion¥1.9

trillion

Approx.

Number of Employees1

160

Employees

Specialist Personnel2
Securities analysts

Lawyers

Tax accountants

59
3
1

3
3
20
3

CPAs

Real estate appraisers

MBA graduates, etc.

Ph.D. graduates, etc.

Long-term Investment Performance
Cumulative
returns¥108.4

Assessmentby PRI3

trillion(FY2001 - FY2022)

Rate of return

External Ratings

35.9

%

(FY2001 - FY2022)★★★★

(as of March 31, 2023)

Responsible Asset Allocator
Initiative (RAAI) ranking4

Leaders

The 30 Most Responsible Asset Allocators

1 Employees: As of April 1, 2023 (excluding temporary staff)
2 Specialist personnel: As of April 1, 2023 (some personnel are counted in more than one category)
3 Assessment by PRI: Number of stars from Investment & Stewardship Policy assessment
4 Every two years, the American think tank New America analyzes sovereign wealth funds and pension funds on their responsible investing practices based on the Responsible Asset Allocator
Initiative (RAAI) index, developed in partnership with the Fletcher School at Tufts University.

GPIF ESG REPORT 202204

Government Pension Investment FundESG Investment at GPIF
While investors have traditionally used cash flows, profit margins and other quantitative financial data to evaluate companies,“ESG
investment” also takes non-financial ESG factors into consideration. ESG investment is expected to improve long-term riskadjusted returns by incorporating environmental, social, and corporate governance perspectives into investment decisions.

Why Does GPIF Focus on ESG?

The Relationship Between ESG and the SDGs

GPIF can be described as a “universal owner”; that is, an

The SDGs (Sustainable Development Goals) are international

investor with a substantial level of assets under management

goals set forth by the United Nations in the “2030 Agenda forthat invests in securities spanning the entire world capital

Sustainable Development” adopted at the UN Summit inmarket. GPIF can also be characterized as a “cross-generational

September 2015. The SDGs evolved from the Millennium

investor”, managing assets from a perspective spanning multiple

Development Goals formulated by the UN in 2001 and are

generations. Sustainable corporate value creation by eachtargeted for achievement by 2030. They comprise 17 goals

investee company and the sustainable, stable growth of the

aimed at realizing a diverse, inclusive, and sustainable society.

entire capital market is critical for GPIF – a universal owner andAlthough the ESG issues considered in ESG investment and thosecross-generational investor – to achieve stable income over theof the goals and targets of the SDGs may have different objectives,long run.

they also have much in common, and addressing the former also

For example, if the share prices of some portfolio companies

contributes to achieving the latter. We believe that an active

increase as a result of conducting business activities withoutcommitment to the SDGs and ESG by companies would help topaying attention to their adverse impacts on the environment

improve their corporate value (ESG investment), while at the sameand society for the sake of short-term revenue growth, societytime, the realization of a sustainable economy and society (achieving

and the economy as a whole, including other companies, are

the SDGs) would lead to better return for all assets managed bynegatively affected by such activities. Consequently, the overall

GPIF over the long term.

portfolio of the universal owner will be significantly impaired. In
other words, reducing negative externalities to maintain a

Increased investment opportunities
ESG investment

sustainable capital market and society is vital for maintaining
profitability of the portfolio. This “universal ownership” approach

Increased business opportunities

Return (profitability)

Investors

Companiesof actively working to curb these kinds of negative externalities
lies at the core of GPIF’s ESG investment.
We have published a video explaining this content in simple
terms on GPIF’s YouTube page (only available in Japanese).

SignedPRI
Principles for
Responsible
Investment

Endorsed
2016
ProposedUnitedNations

2015
Adopted

SDGs
Sustainable
Development
Goals

Minimize negative environmental and social
externalities and enhance the long-term return ofthe portfolio across all asset classes
ReturnSocial issues
Negative impact
Positive impact
Multiple
ESG investment generations later

05

GPIF ESG REPORT 2022

GPIF’s Positioning in the Investment Chain

A portion of the pension contributions made by individuals andcompanies, including consideration of ESG. This approach isothers (the actual asset owners) is entrusted to GPIF by the

aimed at creating a virtuous cycle where boosting corporate

Minister of Health, Labour and Welfare as pension reserves. As

value over the long term leads to growth across the entire

the asset owner of these pension reserves, GPIF selects asset

economy and the long-term enhancement of investment returns.

managers to manage these assets and encourages them topursue constructive dialogue (engagement) with investee

Wages

Actual asset owners(Individuals and others who are paying insurance premiums/ future generations)Entrustment ofPension Reserves

Pension special accountPension contributions
Increase inpension reserves

Asset owner(GPIF)

Entrustment of funds(for discretionary investment)

Engagement

Investment returns

Asset managers

Prohibition on
in-house investment
in equities, etc.

(investment fiduciaries)

Investment(exercise of voting rights)

Engagement

Dividends andholding gains

Investee companies, etc.

GPIF ESG REPORT 2022

06

Interview with the President

GPIF is committed tofulfilling our fiduciary duty to secure
pension reserves for future beneficiaries
by investing from a long-term perspective.

Government Pension Investment Fund

President

Q

Even as the trend towards ESG
promotion gains pace in Europe, there
seems to be an increasing movement
against ESG in the United States. Whatis your perspective on this situation?

MIYAZONO Masataka
Trump administration, however, there were many cases
where the federal and state governments did not see
eye-to-eye, and not all of the country is unified in its
attitude. In that sense, perhaps things have not changed
very much. Meanwhile, Japan is in a different situation
to both Europe and the United States. Until recently,

The ESG environment is certainly quite different inJapan was trailing behind Europe in its efforts to codify

Europe and the United States. European countries,

statutory disclosure requirements for sustainability

especially in the EU, are implementing increasingly

information, but it is now catching up.

stringent rules for ESG disclosure, targeting both07

Beginning with annual securities reports andcompanies and investors. They seem to have adopted asimilar disclosures for the fiscal year that ended on

strategy of taking a lead in the development ofMarch 31, 2023, Japanese companies are required tointernational rules with the aim of building sustainabledisclose their views and initiatives related tosocieties while also boosting the competitive strength ofsustainability. Japan’s efforts may not be as eye-industries in the region. By contrast, there are many

catching as those in Europe and the United States, but

recent reports from some political parties and states inthey have sparked little backlash or vacillation andthe United States that give the impression of anseem to be progressing steadily, step by step.

increasingly radical movement against ESG in the

Improving the quality and quantity of ESG information

context of the country’s politics. Even under the previous

facilitates an improvement in the quality of ESG

GPIF ESG REPORT 2022

investment. I believe that GPIF’s ESG investment will

designed to achieve a social or environmental effect ashave benefit from this improvement in disclosure.

well as investment returns. One might assume thatinvestment that pursues both impact (social or

Q

There is an increasing attention in recent
years on impact investment aimed atsolving social issues. What are your views
on impact investment?

environmental effect) and investment returns is the ideal
form of investment for GPIF. However, GPIF’s sole
mission is to generate investment returns. We cannot
invest for the purpose of creating an impact. I thinkthat’s an important restriction from the perspective of

Our mission at GPIF is to contribute to the stability of thenational pension system by managing and investing themaintaining investment discipline, as well.
However, we believe the act of investing does affectpension reserves entrusted to us by the pension

investee companies’ corporate value through businessbeneficiaries, who are the people of Japan, and paying

activities of our investee companies generating a social andour investment returns into the national treasury. That isenvironmental impact which creates revenue and costs

our unique mission. We are prohibited by law fromeventually leading to impact on corporate value. I believe

managing pension reserves for any other purpose. This is

ESG investment, in particular, is an approach based on thisreferred to as the “prohibition of consideration of issues

idea. It is for this reason that we have consistently

except for those that benefit the pension beneficiaries.”emphasized the measurement of impact in our previous

The report from the Financial Services Agency

ESG Reports. In this ESG Report, we have gone evenworking group defines impact investment as investment

further, attempting to measure impact of eligible projects
GPIF ESG REPORT 202208

Interview with the President

financed by ESG bonds in GPIF portfolio and otheryear. This change is too profound to be characterized

investments. We also plan to measure impact as part of oursimply as a trend; rather, we assume it reflects the

Measurement of Effects of Stewardship Activities and ESG

increasing number of serious environmental and social

Investment Project, beginning this fiscal year. GPIF does

issues that must be taken into account. However, thesenot invest in impact, and yet we suppose ourselves as

issues affect assets under management to a varying

among the most impact-focused of all investors.

degree depending on the theme. Moreover, since GPIF
mainly relies on external asset managers, there areQ

Recently, there is growing interest in ESG
disclosure related to human capital anddisclosure based on the Taskforce on
Nature-related Financial Disclosures(TNFD) framework.

I feel that we need to address an increasingly diverse
and extensive range of ESG factors with each passing

09

GPIF ESG REPORT 2022

only some issues that we can address effectively.
We would like to remain constantly alert to thevarious issues that are gaining attention among the
public and work to gather information on them.

Q

In Japan, the Tokyo Stock Exchange has
gained public attention by requiring
companies with a price-to-book ratio(PBR) below 1.0 to disclose andimplement improvement measures.
How do you view this initiative?

Approximately half of the listed companies in Japan
have PBRs lower than 1.0, indicating that their shares

PBR of Japanese companies, a substantial challenge
facing the capital market. In this context, we would liketo ask our external asset managers to pursue even more
active engagement.

Q

How do you view the sustainabilityof GPIF itself?

are valued at less than liquidation value. Although
everyone is aware of this issue, I presume it has always

At GPIF, we have not recruited new graduates for years.

been a difficult one to address and attempt to improve

In almost all cases, we recruit mid-career personnel

the situation, since it might be interpreted as a criticism

from a diverse range of different backgrounds. In thisof some of Japan’s foremost companies. In that sense, I

sense, GPIF is a highly diverse organization. At the same

would like to express my respect for the forthright action

time – and this seems to be a common concern acrosstaken by the Tokyo Stock Exchange.

the asset management industry – our proportion of

PBR is equal to the share price divided by net assets

female employees is still at 27.7%, an extremely low

per share. It is possible to raise PBR by shrinking thelevel. This is shameful for us, as an organization that

denominator through share repurchases or higher

recognizes the importance of gender diversity anddividends, but in general, it’s necessary to increase thediscloses related information to the public, including

numerator: the share price. A PBR of less than 1.0

pursuing passive investment strategies based on genderindicates that the company is not generating returns

diversity-related equity indexes.

above the cost of capital, or that investors doubt that it

In our ESG Report, we disclose gender pay gap

will be able to generate this level of returns in the future.

indicator for GPIF in the same way as for otherIn other words, in either case, there are doubts aboutcompanies. The figure is nothing to be proud of.

its sustainability. If the low PBR is a result of mispricing

However, we think that an accurate understanding of thein the stock market, then one way for the company topresent situation is the first step in finding a solution.

rectify the situation is to actively engage in disclosure

Creating workplace environments where everyone, notand dialogue with investors. However, if the low PBR is aonly women, can find fulfillment and work with a sense

result of low profitability, then it must swiftly act to reviseof purpose will not only boost business performance but

its business portfolio. There might be other cases where

also increase the sustainability of the organization. This,

the sustainability of the business is cast into doubt byin turn, will lead to greater sustainability of pension

the social and economic movement towards net zero.

reserves. This is not an issue that can be solved

We think that dialogue between companies andovernight, but we are working towards a solution.

investors will play a major role in addressing the low
GPIF ESG REPORT 2022

10

Chapter 1 GPIF’s ESG Initiatives

Chapter 1

GPIF’sESG Initiatives

GPIF has been promoting ESG initiatives since we signed the Principles for Responsible
Investment (PRI) in 2015. In addition to building organizations and company structures topursue ESG-related activities, we have also adopted ESG-themed indexes, undertaken
stewardship activities, engaged with index providers and ESG rating agencies, andcollaborated with overseas public pension funds and other institutions. In Chapter 1, we
present these activities together with new initiatives undertaken in fiscal 2022.
11

GPIF ESG REPORT 2022

P.13

Fiscal 2022 Activity Highlights

P.35

ESG in Alternative Asset Management

P.15

ESG-Related Governance and Organizational Structure

P.37

Collaboration with Overseas Public Pension Funds and Other Institutions

P.17

ESG Initiatives within GPIF

P.39

P.19

Column 1：Gender Pay Gap within GPIF

Implementation of a High-Level Study on the Integration of ESG and
SDGs in Investment

P.20

GPIF’s External Public Communication

P.41

P.21

Support for TCFD and Climate-Related Financial Disclosures

Column 2: Academic Research Related to GPIF’s Stewardship Activities
and ESG Investment

P.23

ESG Index Adoption and ESG Index-Based Asset Management

P.44

Measuring the Effects of Stewardship Activities and ESG Investment

P.25

Engagement with Index Providers and ESG Ratings Agencies

P.45

Column 3: Investors Keeping Close Eye on Companies’ Human Rights Initiatives

P.46

Review of ESG Activities and Future OutlookP.29

ESG in Equity and Fixed Income Mandate

P.31

Stewardship Activities and ESG Promotion
GPIF ESG REPORT 2022

12

Chapter 1 GPIF’s ESG Initiatives

Fiscal 2022

Activity Highlights

In fiscal 2022, GPIF continued to promote ESG activities in new areas.
Here we present the highlights of our ESG activities during the year.

Adoption of Additional ESG-Themed Domestic Equity Index

From the indexes submitted to the Index Posting System, GPIF
adopted the Morningstar Japan ex-REIT Gender Diversity Tilt
Index, which is a gender diversity index for domestic equities,
and began passive investment tracking this index.
Please refer to pages 23 to 24 for details.

Engagement with Index Providers and ESG Ratings Agencies
GPIF has been actively conducting dialogue with index
providers and ESG ratings agencies since 2017 when we
started to select ESG indexes for Japanese equities. As
GPIF’s investments are predominantly passive, index
providers and ESG rating agencies play a pivotal role in the
success or failure of our fund management. By ongoing
dialogue with these providers, efforts are underway to
improve ESG rating coverage and rating methodologies.

Please refer to pages 25 to 28 for details.

Engagement Through Our Asset Managers

GPIF promotes constructive dialogue between asset managers
and investee companies. Our asset managers for domestic
equities engaged with 946 companies during the 2022
calendar year. This equates to 40% of all of GPIF’s investee
companies, or 94% in terms of market capitalization.
Please refer to pages 31 to 34 for details.

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GPIF ESG REPORT 2022

Chapter 1 GPIF’s ESG Initiatives | Activity Highlights

Implementation of a High-Level Study on the Integration of ESG and SDGs in Investment
In fiscal 2022, GPIF undertook a High-Level Study on the
Integration of ESG and SDGs in Investment. This study was
implemented to provide an overview of academic research on
the topic, through a broad-based survey of the findings ofleading papers on investment performance in the sustainability
field, including ESG and the SDGs, in Japan and overseas.
Please refer to pages 39 to 40 for details.

Measuring the Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio
Chapter 2
Measuring the Effects of ESG Activities

GPIF is required to invest solely for the purpose of generating
economic benefits for pension beneficiaries and cannot invest
for the purpose of creating an impact. However, we focus on
impact because we believe that the business activities of ourinvestee companies generate a social and environmental
impact which creates revenue and costs, consequently
affecting their corporate value. For our ESG Report for fiscal
2022, we have measured the impact of eligible projects
financed by ESG Bonds in GPIF portfolio.

Please refer to pages 79 to 82 for details.

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

TNFD Trial Analysis
At GPIF, we think it is vital to understand our investee companies’
dependence on the natural environment and their effect on thisenvironment, and to comprehend the natural risks and opportunities that they face. In fiscal 2022, we engaged in a trial analysis
concerning natural capital, including biodiversity, based on the
Locate and Evaluate steps of the LEAP approach under the TNFD
analysis framework.

Please refer to pages 83 to 89 for details.

GPIF ESG REPORT 2022

14

Chapter 1 GPIF’s ESG Initiatives

ESG-Related Governance andOrganizational Structure
The Board of Governors discusses and oversees approaches to ESG investment at GPIF. The
Executive Office advances ESG initiatives through the ESG & Stewardship Department andother departments related to asset management, and reports to the Board of Governors.

Deliberations by the Board of Governors
The Board of Governors, established in October 2017,

meetings, and ESG-related issues were discussed at threemakes decisions concerning important matters such as theof those meetings. The Board of Governors discusses andformulation of the policy asset mix and medium-term plansoversees the promotion of ESG and approaches to ESG

by council decision-making system, and oversees theinvestment at GPIF. Details of the discussions by the Board

execution of operations by the Executive Office.

of Governors are posted on the GPIF website in the form of a

In fiscal 2022, the Board of Governors held 13

summary of the proceedings after a certain period of time.

ESG-related items discussed and reported on at Board of Governor meetings
Meeting number

Meeting date

Agenda item

68th

May 2022

Reported matter

ESG Report (Outline)

72nd

September 2022

Reported matter

2021 ESG Report

79th

March 2023

Reported matter

Stewardship Activities Report 2022

Composition of the Board of Governors
https://www.gpif.go.jp/en/about/board.html

Status of the Board of Governors
https://www.gpif.go.jp/operation/board/

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GPIF ESG REPORT 2022

ESG-related Executive Structure
Investment Department,. The Investment Committee, chaired

2023 for the purpose of promoting initiatives related to moreby the Chief Investment Officer (CIO), deliberates and makes

sophisticated investment. The ESG & Stewardshipdecisions on asset management-related issues, including

Department was newly established as an independent

ESG-related initiatives . Important matters are reported todepartment to boost the expertise of GPIF’s ESG and

the Board of Governors after deliberation in the Investment

stewardship activities, as well as to promote and deepen its

Committee. In addition to comprehensive, regular checks ofinitiatives. The Executive Office implements ESG initiatives

the portfolio management by the Investment Committee, thein coordination of departments relevant to asset

status of ESG investments is also monitored from a risk

management, including the ESG & Stewardshipmanagement perspective by the Portfolio Risk Management

Department, Investment Department, and Private Market

Committee, which meets monthly.

Chapter 1 GPIF’s ESG Initiatives | ESG-Related Governance and Organizational Structure

GPIF adopted a new organizational structure on April 1,

Key departments responsible for ESG

ESG & Stewardship Department

Selecting ESG indexes, evaluating the
stewardship and other aspects of

Main
Responsibilities

Promotion of ESG investment, stewardship
responsibility, and analysis and evaluation of
voting, etc.

external asset managers, andsupporting ESG and stewardshiprelated initiatives across GPIF.
Chapter 2
Measuring the Effects of ESG Activities

Investment Department
Main
Responsibilities

Formulating investment strategy, selecting andevaluating external asset managers for equity and
fixed income, conducting operations related tomore sophisticated investment, etc.

Private Market Investment Department
Selecting and evaluating external asset managers
for alternative assets, etc.

external asset manager evaluation process.

Integrating ESG into its selection andChapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

Main
Responsibilities

Assessing ESG integration as a part of theevaluation of external asset managers
for alternative assets.

GPIF ESG REPORT 2022

16

Chapter 1 GPIF’s ESG Initiatives

ESG Initiatives within GPIF
Number of SDGs training
sessions and internal ESG study
sessions held

5 times

GPIF is committed to promoting ESG investment and promotes
initiatives designed to bolster the organization’s ESG and
SDGs-conscious internal values. Here we present ESG initiatives
being undertaken within GPIF.

SDGs and Diversity-Related Initiatives and Internal ESG Study Sessions
GPIF’s Code of Conduct states, “We are committed to GPIF’s
mission by promoting communication and teamwork andnurturing a diversity of talents and capabilities.” Building on this, inJanuary 2020, GPIF established the SDGs Promotion Group—acommittee reporting directly to the President in order to develop
initiatives designed to bolster the organization’s ESG-conscious
internal values. The Group provides regular training sessions forall of the staff in GPIF on the SDGs and invites external experts tolecture on ESG related recent trends and other issues , for the

Study session (July 2022)

purpose of improving staff’s understanding on this topic. In fiscal

centered working style predicated on long working hours to more

2022, we had one SDGs training session and four internal ESG

flexible working styles based on individual lifestyles and value

study sessions. Here, we would like to introduce one of our SDGs

perceptions. In this training session, GPIF employees learned thetraining session: Promoting Women’s Advancement and Diversity.

importance of establishing systems and reforming attitudes toChanges in the working-age population have made it imperative

enable them to choose their own optimal working style to performthat Japan shifts from a highly homogeneous, organization-

to their best.

FY2022 SDGs training and internal ESG study sessions
July
2022

Title: Recent Trends in ESG Investing and GPIF’s Role
Lecturer: MIZUGUCHI Takeshi (President, Takasaki City University of Economics)

Title: The Structure of Annual Reports by Major Overseas Pension Funds – Trends in Corporate Governance andDecember
Their Influence on Annual Reports by Overseas Pension Funds
2022
Lecturer: FURUSAWA Tomoyuki (former Director-General of the Policy and Markets Bureau, Financial Services
Agency; currently a member of the PIOB)
December Title: ESG Investment at GPIF (Including introduction to ESG Report)
2022
Lecture: GPIF staff members
January2023

Title: Renewable Energy Policy Trends
Lecturer: USHIO Takafumi (Deputy Director, New and Renewable Energy Division, Agency for Natural Resources
and Energy, Ministry of Economy, Trade and Industry)

January2023

Title: Promoting Women’s Advancement and Diversity
Lecturers: UTSUMI Tomoe (Managing Executive Officer, Head of Operations and Chief Diversity Officer, The
Norinchukin Bank)AKAMATSU Takeshi (Head of Diversity Promotion, Diversity Group, Human Resources Division, The Norinchukin Bank)(Note) Lecturers’ titles were current at the time when the relevant session was held.

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GPIF ESG REPORT 2022

Environmental and Other Initiatives
saving initiatives aimed at achieving a decarbonized city, andinitiatives in the area of procurement. As part of ourhas been recognized with an S-rank certification under theenvironmentally conscious initiatives, we established a “BasicComprehensive Assessment System for Built Environment

Policy on Promoting Green Procurement” for fiscal 2022

Efficiency (CASBEE) system.

based on the Act on Promotion of Procurement of Eco-

Chapter 1 GPIF’s ESG Initiatives | ESG Initiatives within GPIF

At GPIF, we promote environmentally and socially conscious

We have also established a “Basic Policy on Promoting

Friendly Goods and Services by the State and Other Entities

Procurement from Facilities Employing Disabled Persons” for(Green Procurement Act). Pursuant to this policy, GPIF works

fiscal 2022 based on the Act on Promotion of Procurement

to ensure that the paper and stationery, office furniture, officeof Goods and Services from Disability Employment Facilities

equipment, appliances, and other office products in the officeby the State and Other Entities . We actively promote thehave a minimal impact on the environment. The building

procurement of goods and services from facilities that

where GPIF is located is promoting energy- and resource-

employ people with disabilities.

Women in the Workplace at GPIF
The advancement of women in the workplace is a crucial partof diversity promotion. Through disclosure based on The Act

issue common to the entire asset management industry.
Moreover, with the revision of the Act on Childcare Leave,

the Workplace, companies have an obligation to confirm theWorkers Caring for Children or Other Family Members,

status of women in their workplaces and analyze the issues

companies with over 1,000 employees are required tothey face. We calculated GPIF’s scores for the five metrics that

disclose the childcare leave uptake rate among their malecompanies are required to disclose under The Act on

employees, starting in April 2023. Although GPIF is not

Promotion of Women’s Participation and Advancement in the

obligated to disclose this information, our calculation reveals

Workplace, shown under (1) to (5) below. These five metrics

that 100% of eligible male employees took childcare leave inare also the quantitative evaluation metrics used in the MSCI

fiscal 2022. Creating work-friendly environments where

Japan Empowering Women Index (WIN index). The result

everyone can find fulfillment and work with a sense ofshows that women only account for a little over 20% of GPIF’s

purpose could boost business performance as well as

employees. GPIF still appears to have room to improve in theincrease the sustainability of the organization. We will work to

areas of recruitment and promotion of female employees, anmake our workplace environments even more work-friendly.

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

Caregiver Leave, and Other Measures for the Welfare ofChapter 2
Measuring the Effects of ESG Activities

on Promotion of Women’s Participation and Advancement in

Women in the Workplace at GPIF

(1) % Female New Hires(2) % Women in the Workforce(3) % Difference in Years Men and Women are Employed by the Company*(4) % Women in Senior Management(5) % Women on Board**[Reference] % Childcare Leave Uptake Rate Among Male Workers***

GPIF
20.8
27.7
-43.5
9.3
16.7
100.0

(Note 1) The data represents FY2022 results for (1) and childcare leave uptake rate among male workers, status as of April 1, 2023 for (2), (4) and (5), and the status as of March 31, 2023 for (3).
(Note 2) The data for (1) includes five staff members who transitioned from regular employees to specialist personnel and excludes staff employed under a continuing employment scheme, seconded staff, temporary staff,
and contract workers. The data for (2) includes regular employees, specialist personnel , staff employed under a continuing employment scheme, seconded staff, temporary staff, and contract workers, but does notinclude executive managing directors or part-time staff. The data for (3) includes only regular employees and excludes staff employed under a continuing employment scheme and seconded staff. The data for (4)includes regular employees, specialist investment staff, staff employed under a continuing employment scheme, and seconded staff.
(Note 3) (3) Difference in Years Men and Women are Employed by the Company* = (Average years women employed – Average years men employed) / Average years men employed.
(5) % Women on Board (Officers)** is the percentage of women on the Board of Governors. Governors are appointed by the Minister of Health, Labour and Welfare.
[Reference] Childcare Leave Uptake Rate Among Male Workers*** = (Number of male workers who took childcare leave or equivalent) / (Number of male workers whose spouse gave birth)(This ratio fluctuatessignificantly from year to year due to GPIF’s small workforce)

GPIF ESG REPORT 2022

18

Chapter 1 GPIF’s ESG Initiatives

Column 1

Gender Pay Gap within GPIF
With the revision of The Act on Promotion of Women’s Participationcompared the pay received by comparable male and female

and Advancement in the Workplace, companies normally employing

employees (see Figure 2).

301 or more full-time employees are required to disclose their gender

At present, GPIF not only has relatively larger proportion of young

pay gap, starting in July 2022. Gender pay gap is one of thefemale employees, but also fewer number of female investment

evaluation metrics used by the Morningstar Japan ex-REIT Genderspecialist personnel employed on a fixed-term basis, who have a

Diversity Tilt Index, which GPIF has adopted as one of its gender

relatively high level of pay. This is the main reason for the gender pay

diversity indexes. Exploring the background to the gender pay gap not

gap at GPIF. Investment specialist personnel require a high level of

only reveals the different treatment given to men and women but also

expertise and, at present, are mostly mid-career hires with experience

exposes various organizational issues.

at private sector financial institutions and similar organizations. The

With employees less than 301, GPIF is not required by law tosmall proportion of women in this talent pool is affecting thedisclose this information. Nonetheless, we calculated the gender pay

recruitment of female staff. In order to increase GPIF’s organizational

gap for fiscal 2022, revealing that female employees earn 70.6% of

diversity as well as inclusion, we think it is vital that we boost thetheir male counterparts (see Figure 1).

attraction of our workplace by creating work-friendly environments

We used GEM App, an application developed by UTokyo Economic

where everyone, not only women, can find fulfillment and work with a

Consulting Inc., to adjust these numbers for the various reasons thatsense of purpose, as well as implementing measures such as humancause gender pay gap (such as age, education, and job category)

resources development for young female staff. Executive Managing

through statistical processing based on economic insight, andDirector (Planning and General Affairs) MORI Kotaro

Figure 1. Gender Pay Gap at GPIF
Gender pay gap (average)
Among all employees (%)

GPIF
70.6

(Note 1) Data is based on the results for FY2022(Note 2) Total annual pay includes basic salary, overtime pay, bonuses, etc., and excludes travel allowances.
(Note 3) Calculated excluding executive managing directors, staff joining or leaving during the fiscal year, staff employed under a continuing employment scheme, seconded staff, staff seconded to GPIF, temporary
staff, contract workers, and staff on leave.

Figure 2. Causes of the Gender Pay Gap（％）

Unadjusted

0

Adjusted for age, number of years of
Adjusted for (b) + divisioncontinuous employment, and education (=b)
and occupation (=c)

-5

-3.1

-10

-9.8

-15

The difference of 19.6% is mainly
due to the relatively large number ofyoung female employees

-20
-25
-30
-35

Adjusted for (c)+ working hours-1.3

The difference of 6.7% is mainly due to thesmall number of investment specialist
personnel , who have relatively high level of
pay among female employees-29.4(Note 1) The definition of each adjustment category is shown below.
No adjustment: Gender pay gap among all 138 employees surveyed
・Adjusted for age, number of years of continuous employment, and education (=b): Gender pay gap adjusted to compare male and female employees of the same age with the same number of years ofcontinuous employment and education
・Adjusted for (b) + division and occupation (=c): Gender pay gap adjusted to compare male and female employees in the same division with the same occupation, in addition to the adjustments in (b)・Adjusted for (c) + working hours: Gender pay gap adjusted to compare male and female employees working the same number of hours, in addition to the adjustments in (c)(Source) Prepared by GPIF using the GEM App developed by UTokyo Economic Consulting Inc.

19

GPIF ESG REPORT 2022

GPIF’s External Public Communication

32 times

Chapter 1 GPIF’s ESG Initiatives | GPIF’s External Public Communication

Speech and Panel Discussions(FY2022)

At GPIF, we proactively send information through media such as
YouTube and Twitter, as well as through conferences andlectures. We aim to provide accessible information to the broad
public, not just investment specialists.

Communicating GPIF’s Initiatives to the Public
We are working to enhance our public relations concerning

TCFD Summit organized by the Ministry of Economy, Trade

GPIF’s ESG initiatives to the broad public and the media, notand Industry and the Japan Investment Conference 2022

just investment specialists. In addition to preparing andorganized by the CFA Society Japan. We also publishedpublishing our annual ESG Report, which presents GPIF’s

papers in academic journals and the like. We aim to further

ESG initiatives and their effects, we announce our selection

strengthen our public communication in fiscal 2023.

of ESG indexes on our website, together with an outline ofeach index.
In addition, we post information targeting a broad
Chapter 2
Measuring the Effects of ESG Activities

section of the public on Twitter and release the YouTube
video, such as “Understanding GPIF in 10 minutes,”series,
mainly for company employees responsible for ESG, IR andengagement with investors. These YouTube videos introduce
and explain GPIF’s ESG investment and stewardship
activities. In fiscal 2022, we joined 32 conferences andlectures (topics including unrelated to ESG), such as theExternal Conference (December 2022)

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

The YouTube video series “Understanding GPIF in 10 minutes”
Understanding GPIF in 10 minutes
GPIF’s ESG Investment

GPIF’s ESG
Investment

GPIF’sStewardship
Activities

Climate change
Risks and
Opportunities

GPIF ESG REPORT 2022

20

Chapter 1 GPIF’s ESG Initiatives

Support for TCFD and
Climate-Related Financial Disclosures
Disclosure consistent
with TCFD recommendations

5th year

Climate change risks are difficult to eliminate completely merely
through diversification and are highly likely to manifest over thelong term. GPIF, as an asset owner, is taking the lead in addressingthese risks.

Climate-Related Financial Disclosure Consistent with TCFD Recommendations
The Financial Stability Board (FSB) established the Task
Force on Climate-related Financial Disclosures (TCFD) in

Governance

December 2015, and in June 2017, the TCFD released its
recommendations on how companies and others can better

Strategy

disclose information related to climate change risks andopportunities. The recommendations published by the TCFD

Risk management

outline a series of information disclosure practices forcompanies and other organizations in (1) governance, (2)Metrics and targets

strategy, (3) risk management, and (4) metrics and targets,in relation to climate change.
For investors, climate change risks occur
simultaneously across all companies and asset classes
and cannot be completely eliminated throughdiversification. Moreover, these risks are highly likely to

the TCFD framework include all ESG activities and are not

manifest at least over the long term, and we believe that

confined to initiatives that is only relevant to climate

GPIF, as an asset owner, should take the lead in addressingchange. This section presents an overview of whatthem. Accordingly, we declared support for the TCFD in

information GPIF discloses for the four TCFD disclosures,

December 2018 and began disclosing information inalong with the corresponding pages in this report.

accordance with the TCFD recommendations in thefollowing fiscal year’s ESG Report. This year’s 2022 ESG

market by further improving its disclosure on ESG in general,

Report is the 5th year of such disclosure.

including climate-related financial information.

It is difficult to separate climate change-focusedinvestment from ESG activities as a whole, and GPIF regards
climate change as one of the most important themes in ESG
activities in general. Therefore, our disclosures in line with

21

GPIF will work to enhance the sustainability of the entire

GPIF ESG REPORT 2022

Disclose the organization’s governance around climate-related risks and opportunities■

GPIF’s Investment Principles and Stewardship Principles clearly state that climate change and other ESG factors shall be taken
into account in fund management, and GPIF actively works to achieve this declaration (page 92).

■

The Board of Governors, which oversees the Executive Office, receives reports on ESG from the Executive Office as necessary(page 15).

■

GPIF’s Executive Office convenes Investment Committee meetings to make decisions on climate change and other ESG-related
initiatives. Organizational structure is in place to implement these initiatives (page 16).

Strategy

Disclose the actual and potential impacts of climate related risks and opportunities on theorganization’s businesses, strategy, and financial planning where such information is material.

GPIF proactively integrates ESG across all asset classes. In equity investment, we incorporate external asset managers’ ESG
activities into their evaluations as well as conduct passive investment based on ESG indexes (page 29). In fixed income
investment, we propose investment opportunities in ESG bonds to our external asset managers (page 30). We also promote ESG
integration in our alternative investments (page 35-36).

■

In relation to the environment (E) in particular, we use indexes for equity investment that focus on each company’s carbon
efficiency (page 23-24) and invest in ESG bonds including green bonds (page 30).

■

In addition to measuring the carbon footprint of GPIF’s portfolio (page 63-66), we measure the impact of eligible projects financed by
ESG Bonds in GPIF Portfolio and analyze the contribution of some of our stock holdings reducing GHG emissions (page 75-82).

Disclose how the organization identifies, assesses, and manages climate-related risks.

GPIF is developing an organizational structure for monitoring the greenhouse gas (GHG) emissions (carbon footprint and carbon
intensity) of our entire portfolio as well as for each fund for which we outsource the management.

■

The Portfolio Risk Management Committee meets monthly to report on risk management status of ESG indexes and otherinvestments.

■

As well as requiring asset managers to actively engage with companies on key ESG issues (pages 31-34), GPIF engages withindex providers to encourage improvement in the evaluation techniques used within the methodologies of the carbon efficientindexes and ESG indexes for domestic and foreign equities that GPIF adopts (pages 25-28).

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities■

Metrics andtargets

Chapter 2
Measuring the Effects of ESG Activities■

Risk
management

Chapter 1 GPIF’s ESG Initiatives | Support for TCFD and Climate-Related Financial Disclosures

Governance

Disclose the metrics and targets used to assess and manage relevant climate-related risks andopportunities where such information is material.

■

GPIF aims to control portfolio risks and secure opportunities for investment return by contributing to curbing greenhouse gas(GHG) emissions across the entire economy, through engagement with external asset managers and ESG investment (pages
23-24 and 31-34).

■

GPIF calculates Scope 1 to Scope 3 carbon footprint and compares these with each portfolio benchmark by asset class. We also
calculate each portfolio’s carbon intensity using weighted average carbon intensity (page 63-66).

GPIF ESG REPORT 2022

22

Chapter 1 GPIF’s ESG Initiatives

ESG Index Adoption and
ESG Index-Based Asset Management
Number of ESG indexes
adopted by GPIF

9

In order to improve the long-term risk/return profile of the portfolio by
reducing ESG risks, GPIF engages in passive investment based on ESG
indexes. In fiscal 2022, GPIF newly adopted the Morningstar Japan
ex-REIT Gender Diversity Tilt Index.

Adoption of a Gender Diversity Index for Domestic Equities
GPIF has used ESG indexes as passive benchmarks since

information on a continuous basis, and adopted thefiscal 2017.We believe that passive investment based on

Morningstar Japan ex-REIT Gender Diversity Tilt Index

indexes that focus on corporate sustainability will not(GenDi J).

only improve the risk/return profile of the portfolio over

The GenDi J Index determines investment weights

the long run, but also enhance the Japanese equity

based on the Equileap Gender Equality Scorecard, in themarket through secondary effects such as thesame way as the Morningstar Developed Markets ex-Japan

improvement of ESG ratings.

Gender Diversity Index, which GPIF adopted for foreign

In fiscal 2022, GPIF screened those gender diversity

equities in fiscal 2020. The Equileap assessment also

indexes for domestic equities that were posted on the

includes gender pay gap as an evaluation metric, which

Index Posting System, the framework for collecting index

many companies are required to disclose from fiscal 2022.

<Characteristics of the GenDi J Index>(1) The weighting of constituent stocks is adjusted based on the Equileap assessment of companies’ commitment togender diversity.
(2) 928 companies are eligible for the index, covering a broad spectrum of domestic equities.
(3) Industry sectors are neutrally weighted, achieving low tracking error and a low portfolio turnover rate.

GPIF’s Expanding of ESG Investment

23

At GPIF, we have progressively expanded our ESG index-

31, 2023, as shown in the table on the right. The total asset

based passive investment since fiscal 2017, when we

size of passive investments tracking ESG indexes has reachedadopted our first three domestic equity ESG indexes. We have

¥12.5 trillion. Please refer to “ESG Index Performance” onsince adopted several new indexes, allocating andpages 49-50 for information on the performance of each

withdrawing assets accordingly. GPIF adopted the GenDi J

index. By investing in these indexes, GPIF aims to enhanceIndex in fiscal 2022. This is the ninth ESG index (including

long-term investment returns through the sustainable growth

domestic and foreign equities) that we invest in as of Marchof our investees and of the market as a whole.

GPIF ESG REPORT 2022

Domestic equities: Comprehensive ESG indexes

Concept andcharacteristics
of index・This index uses the ESG assessment scheme
used in the FTSE4Good Japan Index Series,
which has one of the longest track records
globally for ESG Russell indexes.
・It is a comprehensive ESG index that selects
stocks with high absolute ESG scores andadjusts industry weights to neutral at theindustry level.

FTSE Blossom
Japan Sector
Relative Index
・Assessments are performed based on FTSE
Russell’s ESG rating. For the companies withhigh carbon intensity (greenhouse gas
emissions/sales), management attitude
toward climate-change risks/opportunities isalso assessed.
・The index selects stocks with relatively high
ESG ratings within each industry, and adjusts
industry weights to neutral.

Chapter 1 GPIF’s ESG Initiatives | ESG Index Adoption and ESG Index-Based Asset Management

FTSE Blossom
Japan Index

MSCI Japan ESG Select Leaders Index

・The MSCI Japan ESG Select Leaders Index isa comprehensive ESG index that integrates
various ESG risks into today’s portfolio. The
index is based on MSCI ESG Research used
globally by more than 1,000 clients.
・The index is comprised of stocks withrelatively high ESG scores in each industry.

Index construction

Best-in-Class

Best-in-Class

Best-in-Class

Constituent universe(parent index)

FTSE Japan All Cap Index(1,423 stocks)

FTSE Japan All Cap Index(1,423 stocks)

MSCI Japan IMI(1,083 stocks)

Number of index
constituents

255

530

249

Assets undermanagement (Billion yen)

1,030.5

1,001.6

2,056.2

Domestic equities: ESG thematic indexes (women’s advancement / climate change)
Morningstar Japan ex-REIT Gender Diversity Tilt Index(“GenDi J”)

・MSCI calculates the gender diversity scoresbased on information disclosed under the Act
on Promotion of Women’s Participation andAdvancement in the Workplace and selects
companies with higher gender diversity
scores from each sector.
・The first index designed to cover a broad
range of factors related to gender diversity.

・Domestic equities index that determines
investment weighting based on assessmentof companies’ commitment to genderequality, using the Equileap Gender Equality
Scorecard.
・Ratings are conducted in four categories:(1) gender balance in leadership andworkforce; (2) equal compensation and worklife balance; (3) policies promoting genderequality; and (4) commitment, transparency,
and accountability.

S&P/JPX
Carbon Efficient Index

・Constructed by S&P Dow Jones Indicesbased on carbon data provided by Trucost,a pioneer in environmental assessment.
・This index is designed to overweightcompanies that have lower carbon footprints(annual greenhouse gas emissions divided
by annual revenues) and that actively
disclose their carbon emission information.

Index construction

Best-in-Class

TiltedTiltedConstituent universe(parent index)

MSCI Japan IMI Top 700(699 stocks)

Morningstar Japan ex-REIT(928 stocks)

TOPIX(2,160 stocks)

Number of index
constituents

374

928

1,832

Assets undermanagement (Billion yen)

649.2

520.6

1,643.4

Chapter 2
Measuring the Effects of ESG Activities

Concept andcharacteristics
of index

MSCI Japan Empowering Women Index(“WIN”)

Foreign equities: Comprehensive ESG indexes and ESG thematic indexes (women’s advancement / climate change)

Concept andcharacteristics
of index・One of MSCI’s flagship ESG indexes, thiscomprehensive index adjusts the weight of
constituents based on each issuer’s current
ESG rating and ESG trends to elevate theESG metrics of the index overall.
・The index was developed for large investors
seeking to enhance ESG integration whileachieving the same level of investment
opportunity and risk exposure as the parent
index.

Morningstar Developed Markets Ex-Japan Gender
Diversity Index (“GenDi”)

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

MSCI ACWI ESG Universal Index(ex Japan and ex China A-shares)

S&P Global LargeMidCap
Carbon Efficient Index

・Foreign equities index that determines
investment weighting based on assessmentof companies’ commitment to genderequality, using the Equileap Gender Equality
Scorecard.
・Ratings are conducted in four categories:(1) gender balance in leadership andworkforce; (2) equal compensation and worklife balance; (3) policies promoting genderequality; and (4) commitment, transparency,
and accountability.

・Constructed by S&P Dow Jones Indicesbased on carbon data provided by Trucost,a pioneer in environmental assessment.
・This index is designed to overweightcompanies that have lower carbon footprints(annual greenhouse gas emissions divided byannual revenues) and that actively disclose
their carbon emission information.

Index construction

TiltedTiltedTiltedConstituent universe(parent index)

MSCI ACWI ex Japan ex China A ESG
Universal with Special Taxes Index(2,148 stocks)

Morningstar® Developed Markets
Ex-Japan Large-Mid(1,965 stocks)

S&P Global Ex-Japan LargeMidCap(3,174 stocks)

Number of index
constituents

2,087

1,938

2,136

Assets undermanagement (Billion yen)

1,655.0

488.4

3,477.0(Note) Data is current as of March 31, 2023 (Source) Prepared by GPIF based on data from FactSet and individual index providers.

GPIF ESG REPORT 2022

24

Chapter 1 GPIF’s ESG Initiatives

Engagement with Index Providers
and ESG Ratings Agencies
GPIF has been actively conducting dialogue with index providers and ESG ratings agencies
since selecting ESG indexes for Japanese equities in 2017. In fiscal 2022, we focused our
engagement on improving index methodologies through consultation1.

Improving ESG Ratings and Index Methodologies Through Consultation
As GPIF’s investments are predominantly passive, index

In fiscal 2022, we mainly held dialogue on the themes

providers and ESG rating agencies play a pivotal role in thepresented in Figure 1. In this section, we will present GPIF’s

success or failure of our fund management. GPIF conducts

concerns that was discussed with index providers and ESG

dialogue with index providers and ESG rating agencies torating agencies, regarding changes to the methodology used

improve the sustainability of the market and enhance ourfor the MSCI Japan Empowering Women Index (WIN index)

long-term investment performance.

and the S&P Carbon Efficient Index series adopted by GPIF.

Figure 1. Topics Discussed with Index Providers and ESG Rating Agencies<Changes made by MSCI>
Timing when the
consultation was announced

Major Updates
Change in index methodology: MSCI Japan ESG Select Leaders Index

March 2022

The parent index was changed from MSCI Japan IMI Top 700 to MSCI Japan IMI. This expansionof the investment universe was made possible by the expansion of MSCI’s ESG rating coverage.
Change in ESG ratings: Gender Diversity Score used in MSCI Japan Empowering Women Index (WIN)

November 2022

The percentile value calculation of Gender Diversity Score base year was changed to apply its
recent evaluation from Q1 2023.
Change in index methodology: MSCI Japan Empowering Women Index (WIN)

February 2023

Removed the weighting adjustment based on quality factor scores from the formula used to
calculate the weighting of constituent stocks.

<Changes made by S&P Dow Jones Indices>
Timing when the
consultation was announced

Major Changes
Change in index methodology: S&P Carbon Efficient Index series

January 2023

Added the disclosure status to the TCFD framework as a weighting criterion for constituent
stocks, in addition to the disclosure of greenhouse gas emissions.

(Source) Prepared by GPIF based on data from MSCI and S&P Dow Jones Indices.

1 Consultation is held by the index providers and ESG rating agencies to gather opinions from users of the index or ESG rating to decide on changes to index construction and ESG
rating methodology.

25

GPIF ESG REPORT 2022

Improving Index Methodology – Revising the WIN Index
Chapter 1 GPIF’s ESG Initiatives | Engagement with Index Providers and ESG Ratings Agencies

The WIN index, which GPIF adopted in July 2017, is composed

Quality score.

of companies selected for their high gender diversity scores.

We have conducted passive investment linked to the WIN

These scores are calculated from the three perspectives ofindex for approximately six years. In view of the relatively highAttraction (the ability to attract women), Retention (anrisk (large variation in performance) of this index compared toenvironment where women can continue to work), andother ESG indexes, as well as its poor performance recently, we

Promotion (the promotion of women), based on information

set out to discover the cause of these issues and measures fordisclosed under the Act on Promotion of Women’s Participation

improvement. As a result of our analysis, it became clear thatand Advancement in the Workplace. The weighting of constituent

while the gender diversity score (which evaluates the company’s

stocks reflects their gender diversity scores, in addition toefforts for women’s advancement) made a positive contribution

quality scores which measure financial quality (ROE, debt toto share price performance, the deterioration in performance

equity, and earnings variability). Weights are calculated using thewas mainly due to weighting adjustments based on the quality

formula: Market capitalization weight × Gender diversity score ×

score (see Figure 2 and Figure 3).

Figure 2. Excess Return Compared to the Parent Index (MSCI Japan IMI Top 700) (March 31, 2017 – February 28, 2023)
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%

Chapter 2
Measuring the Effects of ESG Activities

WIN index-4.0%

WIN index (excluding quality score)

-6.0%
-8.0%
Mar. 2017 Sep. 2017 Mar. 2018 Sep. 2018 Mar. 2019 Sep. 2019 Mar. 2020 Sep. 2020 Mar. 2021 Sep. 2021 Mar. 2022 Sep. 2022
(Source) Prepared by GPIF based on data from MSCI,etc.

Figure 3. Gender Diversity Score Spread Return

Mar. 2020

6.0%
4.0%
2.0%
0.0%

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%

-2.0%
Monthly (left-hand axis)
Cumulative (right-hand axis)
Sep. 2020

Mar. 2021

Sep. 2021

Mar. 2022

Sep. 2022

-4.0%
-6.0%

Mar. 2023(Note) We split the constituents of the MSCI Japan IMI TOP 700 index into high and low groups based on their gender diversity scores, and calculated mean returns for eachgroup. The graph above represents the cumulative spread between the high-scoring group and the low-scoring group(Source) Prepared by GPIF based on data from MSCI,etc.

At GPIF, we believe that the sustainable growth of investeeof the quality score weighting adjustment, and it was decided

companies and the capital market as a whole are crucial in

to remove this adjustment.

enhancing long-term investment returns. As an organization

We believe that ESG investment is the most effectivethat promotes ESG investment, we do not welcome variations

when continued over a long period. However, this does notin the performance of ESG indexes due to factors outside themean that an investment, once made, should then be

scope of ESG. Based upon this concern, we communicatedneglected for years. We will continue to make improvementswith MSCI, which provides the WIN index. As a result, ato our ESG investments, as necessary, while monitoring

consultation was held in February 2023 regarding the removalchanges in factors such as performance and disclosure rules.
GPIF ESG REPORT 2022

26

Chapter 1 GPIF’s ESG Initiatives

Improving Index Methodology – Revising the S&P Carbon Efficient Index Series
Japan’s Corporate Governance Code, as revised in 2021,

that many companies are not yet able to provide full

requires that “companies listed on the Prime Market should

disclosure consistent with the TCFD recommendations.

collect and analyze the necessary data on the impact of

The S&P Carbon Efficient Index series adopted by GPIF is

climate change-related risks and earning opportunities on

constructed to give a higher investment weight to companies

their business activities and profits, and enhance the qualitythat disclose their greenhouse gas (GHG) emissions. As noted

and quantity of disclosure based on the TCFD

above, in view of the rising standards required by the market,

recommendations, which are an internationally well-

S&P Dow Jones Indices (S&P) started seeking feedback fromestablished disclosure framework, or an equivalentmarket participants concerning its plan to add information

framework.” An increasing number of companies, especiallydisclosure in line with TCFD recommendations as additionallarge companies, provide ESG disclosures as non-financial

adjustment to the weighting in its index methodologies,

disclosures in their integrated reports, sustainability reports,

which are currently adjusted based on whether the company

or equivalent documents. However, according the TCFD’s

discloses GHG emissions. As a market participant, GPIF also2022 Status Report, in which it analyzes whether or not

engaged in dialogue with S&P on multiple occasions. As a

1,434 companies around the world are actually disclosing

result of consultation, S&P included disclosure consistentclimate change-related information in line with the TCFD

with the TCFD recommendations in its methodology fromrecommendations, only 4% of companies disclosed in line

June 2023, in addition to the disclosure of GHG emissions

with all 11 recommended disclosures by the TCFD. It is clear(see Figure 4).

Figure 4. Weight Adjustment Table Used to Determine Investment Weights in the S&P Carbon Efficient Index Series (In the Case of Mid Impact Sectors)
Carbon Emissions / Net Sales
Ranking Within Industry
1st decile(Top 10%)
2nd decile(Top 20%)
3rd decile(Top 30%)
4th–7th decile
8th decile(Bottom 30%)
9th decile(Bottom 20%)10th decile(Bottom 10%)

Carbon Emissions Disclosure Status
Disclosure Consistent with
Disclosure
TCFD Recommendations
Consistent
Disclosed
Not consistentNot disclosed－
Consistent
Disclosed
Not consistentNot disclosed－
Consistent
Disclosed
Not consistentNot disclosed－
Consistent
Disclosed
Not consistentNot disclosed－
Consistent
Disclosed
Not consistentNot disclosed－
Consistent
Disclosed
Not consistentNot disclosed－
Consistent
Disclosed
Not consistentNot disclosed－

Investment weightadjustment
40%
35%
30%
30%
25%
20%
20%
15%
10%
10%
5%
0%
0%
-5%
-10%
-10%
-15%
-20%
-20%
-25%
-30%

(Note) In the case of high and low impact sectors, the investment weight adjustment is equal to the amount shown in the table above multiplied by 3.0 and 0.5, respectively.
(Source) Prepared by GPIF based on material and other information provided by S&P Dow Jones Indices.

27

GPIF ESG REPORT 2022

Compliance with the Code of Conduct for ESG Evaluation and Data Providers
grounds and expert professional judgement, while keeping

the investment chain. Ever since 2017, when GPIF adopted

abreast of society-wide trends associated with ESG. ThisESG indexes for its domestic equity investments, GPIF has

code applies a “comply or explain” approach. Even if a

advocated the need to ensure the transparency of thecompany publicly announces its support for the code, it ismethods used by these organizations and to improve their

not obligated to implement all of the principles andcommunication with companies.

guidelines therein. An explanation of its reasons for non-

Recently, the growth of ESG investment has fueled

Chapter 1 GPIF’s ESG Initiatives | Engagement with Index Providers and ESG Ratings Agencies

ESG rating agencies play an increasingly prominent role in

implementation would also facilitate a broader

expectations of an even greater contribution by ESG rating

understanding by investors and companies. At GPIF, we

agencies. The Financial Services Agency published themonitor our contracted ESG rating agencies for their

Code of Conduct for ESG Evaluation and Data Providers insupport and compliance with the code. We hope to refer toDecember 2022 to ensure that these organizations provide

this information in our future engagement activities.

appropriate evaluations and data based on rational

Figure 5. Support and Compliance Status of GPIF’s Main Contracted ESG Rating Agencies
ESG Rating Agencies

https://www.ftserussell.com/ja/governance/regulation
https://www.sustainalytics.com/governance-documents
https://www.msci.com/legal/disclosures/esg-disclosures
https://www.spglobal.com/esg/jfsa-statements

Chapter 2
Measuring the Effects of ESG Activities

FTSE
Sustainalytics*
MSCI
S&P Global Sustainable1

Website(Note) Sustainalytics* is a member of the Morningstar Group

More Sophisticated Dialogue with ESG Ratings Agencies and Companies
improvements if they do not understand their present rating.

rating agencies during fiscal 2022 to discuss the inquiries

We request Morningstar that when they receive an inquiry

and opinions they received from the companies that theyfrom a company concerning the company’s own rating, theyrate. More and more companies are consulting with ESG

should provide it with a report indicating the company’s

rating agencies over the course of the rating process, andcurrent rating.

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

As in previous years, GPIF conducted meetings with ESG

according to MSCI, Japan is counted as one of the areas
with a high rate of companies that consult with them out of
the world’s major economies.
We also requested Morningstar to engage actively in
dialogue with companies for its Morningstar Japan ex-REIT
Gender Diversity Tilt Index, which GPIF newly adopted infiscal 2022. Even if companies are working to address
women’s advancement with the aim of increasing theirinvestment weight in the index, it would be extremely
difficult for them to make efficient and pertinent

GPIF ESG REPORT 2022

28

Chapter 1 GPIF’s ESG Initiatives

ESG in Equity and
Fixed Income Mandate
When GPIF evaluates our equity and fixed income managers, we examine their ESG initiatives
on their management. We have also formed partnerships with several multilateral developmentbanks and governmental financial institutions to expand investment opportunities in green andother ESG bonds.

ESG Integration in Asset Manager Evaluations
Most of GPIF’s portfolio assets are managed by external asset

investment analysis and investment decisions,” based on the

managers in Japan and overseas. The Investment Department

definition provided by PRI. In fiscal 2019, we establishedand ESG & Stewardship Department work together to selectevaluation criteria for ESG integration based on this definitionand evaluate asset managers. Asset managers are evaluatedand began comprehensive assessment for asset managers

on their investment policies, investment processes,

according to these new criteria. In addition to evaluatingorganizational structure and human resources. ESG

external asset managers currently working with GPIF, the new

integration is a key part of the investment process review.

ESG integration criteria are also used when selecting new

As a PRI signatory, in 2018 we defined ESG integration as

external asset managers.

“the explicit and systematic inclusion of ESG factors into

ESG Integration in Fixed Income Investments
GPIF and the World Bank Group have been working together

GPIF is committed to promoting ESG investment, noton ESG integration in fixed income investment through efforts

only in equities but also in fixed income and other assets, insuch as publishing a joint research paper in 2018. Following

order to reduce negative environmental and social

up on this research, in 2019, the International Bank forexternalities and enhance the long-term return of theReconstruction and Development (IBRD) and the International

portfolio across all asset classes.

Finance Corporation (IFC) – both members of the World Bank
Group– drew up a new proposal to provide GPIF’s external
asset managers with an opportunity to invest in green, socialand sustainability bonds.
GPIF provides its external asset managers with
opportunities to both integrate ESG into their fixed income
investments and gain excess return by building platforms inwhich they can invest in green, social and sustainability bonds
issued by multilateral development banks and governmental
financial institutions. As of March 31, 2023, we have built
investment platforms with 16 institutions.
29

GPIF ESG REPORT 2022

Breakdown of Green, Social, Sustainability and Other ESG Bonds in GPIF’s Portfolio
trillion1 as of March 31, 2023 (Figure 1). Green bonds

partnership with the World Bank Group in 2019. GPIF’s

account for 61.5% of the total, followed by sustainability

portfolio of ESG bonds has grown in diversity over thesebonds (23.0%), social bonds (14.2%) and transition bonds

four years.

(1.2%) (Figure 2).

GPIF’s external asset managers make their own

In Chapter 3 “Measuring the Impact of Projects Funded

investment decisions to invest in ESG bonds throughUsing ESG Bonds in GPIF’s Portfolio ,” we measure theinvestment platforms and other channels on GPIF’s behalf.

environmental and social impact generated by the projects

The size of those investments has grown to around ¥1.9

funded by these bonds (see pages 79-82).

Figure 1. GPIF's Investment in ESG Bonds

Figure 2. Breakdown of GPIF’s ESG Bond Portfolio (By Type)(trillions of yen)

1.6

FY2022(As of March 31, 2023)

14.2%

1.1

■Green

23.0%

61.5%

■Sustainability■Social■Transition

0.4

2020/3(Source) GPIF

1.2%

1.9

2021/32022/3

Chapter 2
Measuring the Effects of ESG Activities

2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0

Chapter 1 GPIF’s ESG Initiatives | ESG in Equity and Fixed Income Mandate

Four years have passed since GPIF first formed its

2023/3(Source) GPIFInternational Organizations with Investment Platforms in Green Bonds, etc.

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

1 Track record in investment in bonds, calculated by GPIF, in compliance with International Capital Market Association (ICMA) principles, etc.

GPIF ESG REPORT 2022

30

Chapter 1 GPIF’s ESG Initiatives

Stewardship Activities and ESG Promotion
GPIF promotes constructive dialogue between its external asset
managers and investee companies. Our external asset managers

Dialogue coverage(market capitalization basis)

94 %for domestic equities engaged in dialogue with 946 companies
during 2022. This equates to 94% of all of GPIF’s investee
companies on a market capitalization basis.

Status of Engagement Through Our Asset Managers for Domestic Equities
GPIF entrusts its equities investments to external asset
managers, including engagements with investee companies

Figure 1. Dialogue Coverage of GPIF’s Portfolio(Inside: Based on the number of companies; Outside:
Based on market capitalization)and exercising its voting rights. For this reason, GPIF monitors
the stewardship activities of its external asset managers and6%requires them to engage in constructive dialogue with
946 companies;
40%

investee companies. Here, we will introduce the status of
dialogue by our external asset managers for domestic equities
during 2022 calendar year.

■Holding dialogue■Not holding dialogue

As shown in Figure 1, our external asset managers fordomestic equities engaged with 946 companies from

1,401 companies;
60%

January to December, 2022. This equates to 40% of all of
GPIF’s investee companies, or 94% in terms of total
market capitalization.

(Note) Proportional coverage has been calculated based on the number of investee companies (domestic
equity) as of March 31, 2022.

Figure 2. Average Number of Asset Managers Holding
Dialogue and Number of Dialogues per Company per Yearfor Each Market Capitalization Category(Number of asset managers; Number of dialogues)
14.1

14

Figure 2 presents a graphic analysis from the perspectiveof dialogue frequency. For each market capitalization, thenumber of asset managers conducting dialogue percompany, and the number of dialogues per company are12

demonstrated. In terms of companies that held dialogue,

10

companies in each market capitalization category held
dialogue with an average of at least two asset managers

8
6

6.9

6.0

4

totaling at least three dialogues per year. Larger

2

companies held dialogue more frequently. The top 200

4.2

3.7
2.5

3.1
2.2

0

Top 200
Companies ranked Companies ranked
Top 1,001companies
201-500
501-1,000
companies■Average number of asset managers holding dialogue per company per year
■Average number of dialogues per company per year
(Note) Calculated using only companies that held dialogue in each market capitalization category

31

94%

GPIF ESG REPORT 2022

companies by market capitalization held dialogue with anaverage of approximately six asset managers totaling at
approximately 14 dialogues per year (an average of 2.3
dialogues with each asset manager per year). This result islikely to be affected by the tendency towards greater

overlaps and portfolio weights for investee companies withlarger market capitalization.

Figure 3. Proportion of Each Theme in ESG Engagement
for Each Market Capitalization Category (%)
100

each theme in ESG-related engagement for each market

Chapter 1 GPIF’s ESG Initiatives | Stewardship Activities and ESG Promotion

In Figure 3, we present a graph of the proportions of80

capitalization category. The most common ESG theme in55

dialogues with companies in all market capitalization

58

63

70

60

categories is G (Governance). However, whereas E
40(Environmental) and S (Social) themes account for slightly
less than half of all dialogue themes among the top 200

20

18

17

13

20

companies, the proportion of dialogues focused on

26

governance tends to be greater among smaller companies.

0This suggests that the emphasis given to each theme by25

Top 200
companies

20

17

Companies ranked Companies ranked
201-500
501-1,000

Top 1,001companies■E (Environmental) ■S (Social) ■G (Governance)

asset managers depends on the company scale.

(Note) G (Governance) includes the explanations on agenda of general meetings.

Survey of Listed Companies
themes were for Climate Change, Diversity, and Humanget their feedback on the stewardship activities of our

Rights and Community. This suggests an increased

external asset managers and to monitor the nature andawareness among companies of the supplementary

progress of their engagement. We also use the survey toprinciples added in the revision of the Corporate Governancegather their opinions on the ESG indexes we invest in andCode. Figure 5 shows a summary of the major ESG themes

understand companies’ ESG disclosure initiatives. In ourfor each of the 17 TOPIX sector categories. The highest-

eighth survey, conducted in fiscal 2022, we surveyedranked themes are generally common between mostcompanies in the TOPIX and received responses from 735

sectors, but some sector traits are also visible, such as thecompanies, representing 72% of total market capitalization.

high ranking of Health & Safety in the Foods sector, where it

The results of the fiscal 2022 survey indicate little

Chapter 2
Measuring the Effects of ESG Activities

GPIF conducts an annual survey of companies in order tois ranked second.
As noted above, many companies now perceive climate

ESG activities (Figure 4). Compared to the results of the lastchange as the main ESG theme, and progress is being madesurvey, the largest jumps in the rates of recognition as major

in climate change-related corporate disclosure. In Figure 6,

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

change in the ranking of the major themes of companies’

Figure 4. Responses to the Question, “What are the major themes of the ESG activities of your company?” (Multiple responses allowed, up to five)
100
82.3
80

68.0
57.0

60

44.6
40

39.7
27.3

20
0

Climate Change

Corporate GovernanceDiversity

Human Rights & Community■FY2018■FY2020■FY2021■FY2019

Health & Safety

Risk Management■FY2022(Note) Only the top 6 of 25 themes are shown. Presented from left to right in order of proportion of survey responses for FY2022

GPIF ESG REPORT 2022

32

Chapter 1 GPIF’s ESG Initiatives

the number of companies making disclosures in line with theahead, we expect to see further progress in dialogue with

TCFD recommendations has increased substantially, from 249

investors and enhancement of disclosure.

to 462. Moreover, 72% of these companies held dialogue withinstitutional investors regarding TCFD disclosure. Looking

Figure 5. Top Five ESG Themes in Each of the 17 TOPIX Sector Categories
17 TOPIX Sector
Categoriesn

Top Five ESG Themes

Foods

34 1_Climate Change

2_Health & Safety

3_CG

3_Human Rights & Community 5_Supply Chain

Energy Resources

4

1_Climate Change

2_CG

3_Diversity

3_Health & Safety

3_Human Rights & Community 3_Disclosure

Construction & Materials

65 1_Climate Change

2_CG

3_Diversity

4_Health & Safety

5_Human Rights & Community

Raw Materials & Chemicals

83 1_Climate Change

2_CG

3_Diversity

4_Health & Safety

5_Human Rights & Community

Pharmaceutical

16 1_CG

1_Diversity

3_Climate Change

4_Health & Safety

4_Product Liability

Automobiles &Transportation Equipment

26 1_Climate Change

2_CG

3_Diversity

4_Supply Chain

4_Human Rights & Community

Steel & Nonferrous Metals

19 1_Climate Change

2_CG

2_Human Rights & Community 4_Health & Safety

5_Diversity

Machinery

54 1_Climate Change

2_CG

3_Human Rights & Community 4_Diversity

5_Product Liability

Electric Appliances &Precision Instruments

85 1_Climate Change

2_CG

3_Diversity

4_Supply Chain

5_Health & Safety

IT & Services, Others

119 1_CG

2_Diversity

3_Climate Change

4_Human Rights & Community 5_Risk Management

Electric Power & Gas

13 1_Climate Change

2_CG

3_Diversity

4_Human Rights & Community 5_Disclosure

Transportation & Logistics

39 1_Climate Change

2_Diversity

3_CG

4_Human Rights & Community 5_Health & Safety

5_Product Liability

Commercial & WholesaleTrade

56 1_CG

2_Climate Change

3_Diversity

4_Health & Safety

5_Supply Chain

5_Human Rights & Community

Retail Trade

41 1_Climate Change

2_Human Rights & Community 3_CG

4_Diversity

5_Health & SafetyBanks

31 1_Climate Change

2_Diversity

3_CG

4_Human Rights & Community 5_Disclosure

Financials (Ex Banks)

30 1_Diversity

1_Climate Change

3_CG

4_Risk Management

5_Health & Safety

Real Estate

20 1_Climate Change

2_CG

3_Diversity

4_Health & Safety

4_Human Rights & Community

Total

735 1_Climate Change

2_CG

3_Diversity

4_Human Rights & Community 5_Health & Safety■■…G (Governance)■■…Multiple ESG themes■■…E (Environmental)■■…S (Social)

5_Others(Note) Numerical prefixes represent the rank of each theme. CG is an abbreviation of corporate governance.

Figure 6. Number of Company Responses to the Question “Do You Disclosure Information in Line with the
TCFD Recommendations?” Among Companies That Endorse the Recommendations
600

500

49

400

126

300

462
200

100

0

33

GPIF ESG REPORT 2022

69
249
139
FY2020■(1) YesFY2021■(2) Have a plan to disclose

FY2022

Critical ESG Issues Cited by GPIF’s External Managers
domestic equities managers have come to recognize

managers to engage proactively on critical ESG issues. On“Climate Change” as a critical issue. In addition to thethat basis, every year, GPIF surveys our asset managers on“Capital Efficiency” mentioned above, active asset managers

what ESG issues they consider to be critical.

continue to cite G (Governance) issues including “Board

This time, “Human Rights & Community” newly emerged as

Chapter 1 GPIF’s ESG Initiatives | Stewardship Activities and ESG Promotion

GPIF’s Stewardship Principles require external asset

Structure and Self-evaluation” and “Minority Shareholders

a critical ESG issue among all passive managers for equities.

Rights (cross-shareholdings, etc.)” as critical ESG issues.

In Europe, some countries have made it mandatory to

Meanwhile, passive managers continue to perceive a broad

conduct human rights due diligence. In some cases, therange of long-term E (Environmental) and S (Social) issues

consequences extend beyond reputation risk to include ansuch as “Diversity,” “Supply Chain,” and “Misconduct” asincreasing risk of more direct economic impact. It is clear

critical ESG issues.

that human rights have also become a key issue for

For foreign equities, all passive managers emphasize

Japanese companies that trade internationally.

an expanding range of critical ESG issues including “Health

There is also a growing awareness of human rights& Safety,” “Biodiversity,” “Deforestation,” and “Others(Governance),” in addition to “Human Rights &Advance, a collaborative engagement initiative on the theme

Community.” The launch of the Task Force on Nature-of human rights and other S (Social) issues. Also for the first

related Financial Disclosures (TNFD), an initiative

time, all active managers for domestic equities haveconcerning natural capital and biodiversity, established inperceived “Climate Change” and “Capital Efficiency” asJune 2021, has likely played a part in the increased focus

critical issues. In other words, both passive and active

on “Biodiversity” and “Deforestation.”

Chapter 2
Measuring the Effects of ESG Activities

among investors, with the December 2022 launch of the PRI

Figure 7: Critical ESG Issues Recognized by External Asset Managers (%)
Domestic Equities – Passive Domestic Equities – Active Foreign Equities – Passive Foreign Equities – Active

Domestic Bonds

Foreign Bonds

Climate Change

100

Climate Change

100

Climate Change

100

Climate Change

86

Disclosure

100

100

Disclosure

100

Disclosure

100

Disclosure

71

Climate Change

93

Climate Change
Human Rights &Community88

Supply Chain

100

100

Diversity

100

CG

71

CG

86

Supply Chain

71

Board Structure
Self-evaluation

71

Supply Chain

71

Pollution & Resources

65

71

CG

65

71

Diversity

65

76

100

100

Biodiversity

100

CG

100

Capital Efficiency

100

100

Human Rights &Community
Diversity

Human Rights &Community

100

Misconduct

86

Health & Safety

100

100

Diversity

86

Deforestation

100

Board Structure
Self-evaluation
Human Rights &Community
Misconduct

64

Waste Management

59

Biodiversity

83

Supply Chain

71

Others (Governance)

100

Labor Standards

64

Disclosure

59

Capital Efficiency

83

Others (Governance)

71

CG

75

64

Anti-corruption

59

71

Board Structure
Self-evaluation

75

Diversity
Environmental
Opportunities

57

Deforestation

53
53

Disclosure

Board Structure
Self-evaluation
Minority Shareholder Rights(cross-shareholdings, etc.)

83
83

CG
Labor Standards

71

Labor Standards

75

Human Rights &Community

Water Stress
Water Security

71

Capital Efficiency

75

Others53

75

Board Structure
Self-evaluation

53■■…E (Environmental)■■…S (Social)■■…G (Governance)■■…Multiple ESG themes

Water Stress,
Water Security
Others75

Health & Safety53

Supply Chain

75

Product Liability

53

Risk Management
Minority
Shareholder Rights
Environmental
Opportunities
Others (Environmental)

75

Labor Standards

53

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

Misconduct

Minority Shareholder Rights(cross-shareholdings, etc.)
Board Structure
Self-evaluation

75
75
75

(Note) The percentage represents the ratio of the number of managers that selected the relevant issues to the number of active/passive managers. Only the issues cited as “critical ESG issues” by more than 70% of equity
asset managers and more than 50% of fixed income asset managers are listed. For domestic equities, if an asset manager is entrusted to both active and passive mandates, it is counted as the one with larger amountof mandate entrusted by GPIF. The figures for “Foreign Equities – Active” include the responses of external asset managers newly added in fiscal 2022. CG is an abbreviation of corporate governance.
(Source) Survey of GPIF’s external equity and fixed income asset managers as of December 2022

GPIF ESG REPORT 2022

34

Chapter 1 GPIF’s ESG Initiatives

ESG in Alternative Asset Management
Avoided Emissions

Equivalent to117,000
households

GPIF has been developing initiatives to properly integrate ESG in
its alternative asset manager selection and post-selection
monitoring process.

ESG in Alternative Assets
The holding period for alternative assets (infrastructure, real

particularly prominent among overseas asset managers.

estate, and private equity) is generally quite long, and in

Although we use the collective phrase “alternative asset

many cases, the asset manager itself is involved in the

management”, ESG factors and its impacts vary, depending

corporate management and business operations of theon the individual characteristics of the asset and/or business

investee. As a result, more asset managers are focusing onin question. Approaches to ESG integration also differ

integrating ESG into their investment processes not only for

depending on individual investment strategies. With an

identifying the risks that may arise during the holding period

understanding of these differences, GPIF as an asset owner

but also for finding opportunities for sustainable asset value

monitors asset managers’ ESG evaluation and monitors thegrowth and improvement of corporate value. This trend is

status of their investment.

(1) ESG Evaluation in Selecting Asset Managers

that can be applied across all alternative assets. As such,

Since GPIF began selecting alternative asset managers thateach asset manager creates its own unique ESG rating criteria

adopt a multi-manager strategy in April 2017, we have added

and scoring methodology based on the characteristics of thean evaluation of prospective asset managers’ ESG initiatives

asset and the fund manager’s investment strategy. GPIF

to the assessment. Assessments are conducted from many

monitors asset managers for any changes in their ESG-relateddifferent aspects, including through due diligenceorganizational structure, whether or not the diversified funds

questionnaires, interviews with ESG staff, and evaluations byin which they invest are managed by PRI signatories, and thethird-party consultants. Among other things, we look at thestatus of their ESG initiatives. As well as requiring individual

manager’s company-wide ESG policies, ESG integration in theasset managers to provide a report detailing the status of theirinvestment process, their oversight company structure, and

ESG-related investment capabilities and initiatives, we engage

how they report to investors after an investment is made.

in dialogue with them to understand the status of the ESG-

(2) Post-Investment Monitoring

related aspects of their portfolios.

There is still no standardized rating criteria for ESG factors

Real Estate Portfolio Initiatives / GRESB (Global Real Estate Sustainability Benchmark)35

In 2022, 82% of the funds in GPIF real estate portfolio by valueand Australia (APAC), participation rates have remained stableparticipated in GRESB Real Estate Assessment (weighted

at 90% or more ever since measurement began in fiscal 2019.

average asset value as of the end of December each year). This

Fiscal 2022 saw an increase in the number of participating

was an increase of 10%, or 6 funds, from the previous year. In

funds in North America and Japan, boosting the participation

regions where GRESB was introduced early on, such as Europe

rate across GPIF’s entire real estate portfolio.

GPIF ESG REPORT 2022

Trends in GRESB Participation Rate (All GPIF real estate / Japan)
（%）

100
80

59%

52%

43%

40
20
0

49%

21%

10%
2019

82%

2020
2022
2021
All GPIF Real EstateJapan

Chapter 1 GPIF’s ESG Initiatives | ESG in Alternative Asset Management

60

72%

GRESB is an investor-led organization thatprovides a standardized benchmark andvalidated data of the ESG performance ofReal Assets including Real Estate andInfrastructure. GPIF joined GRESB in fiscal
2019 as an investor member in the real estate sector. In
fiscal 2022, GPIF became the first investor member in
the infrastructure sector in Japan.

Analysis of Real Estate Portfolio Using Climate Value-at-Risk
In our climate-related financial disclosures for this fiscal year, we haveextreme cold, there was a large proportion of “negligible risk reduction,”used climate Value-at-Risk (CVaR) to measure the effect of climate

while for (3) fluvial flooding, (4) extreme heat, (5) tropical cyclones, andchange (physical risks and transition risks) on real estate asset values in(6) wildfire, the effect on asset value was “negligible risk” or “noGPIF’s Japanese domestic real estate portfolio, part of the alternative

identifiable risk” in most cases. However, there were some properties

asset portfolio. In our analysis of physical risks, we evaluated risks

for which the risk of (1) coastal flooding fell under “severe risk,”

across six categories of natural disasters: (1) coastal flooding, (2)“significant risk,” or “moderate risk.”

extreme cold, (3) fluvial flooding, (4) extreme heat, (5) tropical cyclones,and (6) wildfire.
In terms of property value, the results of the analysis of physicalIn our analysis of transition risks, we evaluated the potential cost
impact caused by the transition to a low-carbon economy, based on
several climate change scenarios (NGFS). This analysis revealed that ahigher reduction target in the scenario tended to result in higher

few cases where the risk was classified as “severe risk” or “significant

transition risks.

risk.” In terms of the risks of each category of natural disaster, for (2)*Please refer to pages 73–74 for details of this analysis.

Chapter 2
Measuring the Effects of ESG Activities

risks show that in most cases the risk was “negligible risk,” with only aAnalysis of Avoided Emissions from Domestic Renewable Energy Projects
We conducted an analysis of the avoided emissions fromthe domestic renewable energy facilities in GPIF’s
infrastructure portfolio.

Total Power Generated and Avoided Emissions through
GPIF’s Portfolio of Domestic Renewable Energy Projects(GWh)(× 10,000t)

500

25

400

20

300

15

200

10

100

5

facilities in Japan that GPIF invests in through infrastructureamounted to approximately 461GWh in 2022, an increase
from the previous year. We increased our total investment ininfrastructure funds, which progressively invested in solar

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

The total power generated by the renewable energy

power facilities. In addition, some solar power facilities
benefitted from good weather conditions, leading to anincrease in the power generated. The theoretical amount of
avoided emissions from the switch to renewable energyfueled power generation in 2022 increased to approximately
210,000t. This figure is calculated based on the power

0

0
2019

2020

Total power generated (left-hand axis)

2021

2022

Avoided Emissions (right-hand axis)(Note) Total power generated and Avoided Emissions are calculated based on GPIF’s
holding percentage of end investees.

generated, using the Japan Photovoltaic Energy Association(JPEA) guidelines and other information such as the GHG

equivalent to the annual GHG emissions from electricity

emission factors published by power companies. This is

usage of approximately 117,000 households.
GPIF ESG REPORT 2022

36

Chapter 1 GPIF’s ESG Initiatives

Collaboration with Overseas Public
Pension Funds and Other Institutions
GPIF collaborates with a wide range of domestic and global institutions. From fiscal 2022,
GPIF participates as an observer in the ESG Disclosure Study Group.

November
2016

Joined the Thirty Percent
Coalition and the 30% Club

April
2018

Published a Joint Research Paper
with the World Bank Group

Both the Thirty Percent Coalition in the U.S. and the 30% Club in the U. K.

In 2018, GPIF and the World Bank Group published a joint

are initiatives that seek greater diversity in listed company boards by

research paper entitled “Incorporating Environmental, Social andincreasing the proportion of female board members to 30%. GPIF has

Governance Factors into Fixed Income Investment.” Following up

participated in the Thirty Percent Coalition in the U.S. and the Investor

on this research, in April 2019, the World Bank Group drew up aGroup of the 30% Club in the U. K. as an observer since November 2016.

new proposal to provide GPIF’s external asset managers with an

Since December 2019, we have also participated in the 30% Club Japan

opportunity to invest in green bonds.

Investor Group.

2015
September
2015

Signed the Principles for
Responsible Investment (PRI)

2016
October
2018

2017

Joined Climate Action 100+

GPIF has been stepping up its ESG initiatives since we

Climate Action 100+ is an investor-led climate change initiative launched insigned the PRI in September 2015. Each signatory

September 2017. Members of this initiative hold constructive dialogues withorganization reports its ESG initiatives to the PRI andcompanies that have a significant impact on the resolution of climate change issues.

receives a full assessment of its progress. In the mostParticipants discuss improving climate change-related governance, making efforts torecent assessment, as of March 31, 2023, GPIF

reduce greenhouse gas emissions, and enhancing information disclosure. GPIF hasachieved a four-star rating in the PRI Investment andparticipated in Climate Action 100+ as a supporter since October 2018, and also

Stewardship Policy.

participates as an asset owner in the Asia Advisory Group (AAG), which advises theSteering Committee on circumstances and conditions in the Asia region.

37

GPIF ESG REPORT 2022

Chapter 1 GPIF’s ESG Initiatives | Collaboration with Overseas Public Pension Funds and Other Institutions

February
2023

Joined the ESG Disclosure Study Group

GPIF joined the ESG Disclosure Study Group (EDSG) as an observer in February 2023.
This study group provides a forum for free and vigorous discussion between listed companies, investors,
and others regarding approaches to the disclosure of non-financial information to contribute to enhancing
corporate value over the long term. We believe that our participation will be useful in GPIF’s efforts topromote stewardship activities.

December
2018

Declared Support for the TCFD

November2020

Joined JPX ESG Knowledge Hub

GPIF declared our support for the recommendations of the

The ESG Knowledge Hub, established by the Japan Exchange Group

Task Force on Climate-related Financial Disclosures(JPX), is a platform that aims to encourage listed companies to disclose(TCFD) in December 2018. We commenced information

ESG information by providing one-stop access to content anddisclosure in accordance with the TCFD recommendations

information that will assist in understanding ESG investment. GPIF

in August 2019 with our ESG Report 2018 and have done

joined the ESG Knowledge Hub as a supporter when it was firstso every year since.

established in November 2020.

Joined ICGN

2020

August2019

2023

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

August2019

2019

Chapter 2
Measuring the Effects of ESG Activities

2018

Joined CIIInternational Corporate Governance Network (ICGN) is an international

The Council of Institutional Investors (CII) is a network of

network of institutional investors and other organizations. It promotes

institutional investors established by U.S. public pension funds,

better corporate governance and stewardship activities with the aim ofwith the aim of advocating and collaborating in the areas ofadvancing efficient markets and sustainable economies. GPIF joined

shareholder rights and corporate governance in the U.S. GPIFICGN in August 2019.

joined CII in August 2019.

GPIF ESG REPORT 2022

38

Chapter 1 GPIF’s ESG Initiatives

Implementation of a High-Level Study on the
Integration of ESG and SDGs in Investment73％

In fiscal 2022, GPIF undertook a High-Level Study on the Integration of ESG and
SDGs in Investment. Of the 300 academic papers considered in the study, 73%
indicated a positive relationship between ESG and investment performance.

Sustainability-related fields such as ESG and the SDGs are

overview of academic research on the topic, including trends

connected with a diverse range of research fields: not onlyin analysis methodologies. This was done through a broad-conventional fields such as economics, finance, andbased survey of leading papers on investment performancefinancial engineering but also eclectic areas such as

in the sustainability field, including ESG and the SDGs, inenvironmental economics, climate science, and urban

Japan and overseas.

engineering. Active efforts are also being made to leverage

For the study, we selected 300 academic papers publisheddata science to quantify non-financial information, whichfrom 1991 to 2023 using the selection methods shown in 1 tohas been difficult to quantify so far. In fiscal 2022, given this4 below, based on a consideration of the balance between

situation, GPIF embarked on a High-Level Study on thefairness and comprehensiveness. These 300 papers were

Integration of ESG and SDGs in Investment.

classified into six themes (A to F) and checked their analysis

This high-level study was implemented to provide anmethodology and other characteristics (Figure 1).

Selection Methods
1. Number of citations received (cited over 100 times)
2. Qualitative judgement
3. Coverage of the latest topics
4. Coverage of topics unique in JapanOf the 300 academic papers considered in this high-levelstudy, 73% indicated a positive relationship between ESG

As a result, we found clear differences in polarity,and investment performance. In particular, approximately

especially for the factors “ESG data source used in the

90% of papers indicated a positive effect in the categories

analysis” and “Investment performance measurement used

“C: Risk control” and “F: Engagement” (Figure 2).

in the analysis,” while there was little effect from “Field of

Overall, a large majority of papers presented positive

39

field of journal in which the paper was published.

the journal of publication.” Here, of the six factors

results, but there was a chance that differences in analysis

considered, we will explain the difference in polarity due tomethods and publishing journals may have given rise to“Investment performance measurement used in the

different tendencies, so we also surveyed the relationshipanalysis” and “Field of the journal of publication .”between their polarity (positive or negative) and six factors:

The academic papers we considered used return,affiliation of the author(s), period analyzed, analysis universe,market measures (such as Tobin’s Q and cost of capital),data source, investment performance measurement, andand accounting measures (such as ROE and ROA) as

GPIF ESG REPORT 2022

Chapter 1 GPIF’s ESG Initiatives | Implementation of a High-Level Study on the Integration of ESG and SDGs in Investment

Figure 1. Composition of Academic Papers Surveyed by Theme Category
A: Review papers and meta-research10%

Z: Others
20%
F: Engagement
6%

B: Excess return31%

E: ESG bond investment
11%
D: Corporate value 15%

C: Risk control 6%(Source) Report on the High-Level Study on the Integration of ESG and SDGs in Investment

measures of investment performance. Return was the mostinvestment performance. A positive relationship was also

common perspective from which ESG and investment

indicated in 62% of papers published in financial economics

performance were assessed, with 84 papers using thisand investment theory journals, such as the Journal ofmeasure. Where return was used, a positive relationship

Financial Economics.

between ESG and investment performance was observed in

From fiscal 2023, we will commence a review of theeffects of GPIF’s ESG investments and stewardship activities

observed in 81% of cases where market measures wereusing statistical methods such as causal inference (theused (Figure 3). From another perspective, we examined

Effect Measurement Project). Through the high-level study

polarity tendencies by classifying papers by their journal ofdescribed above, we were able to gain useful insights for

publication (financial economics and investment theory,

our Effect Measurement Project, including examples ofaccounting and business management, corporate ethics,

research using causal analysis for engagement impact, as

and other). Among papers published in journals that discusswell as prior research considering spillover effect1 and

ESG from the perspective of corporate ethics, such as themarket risk control effect. We will refer to these results in

Journal of Business Ethics, a relatively large proportion,

GPIF’s Effect Measurement Project.

Chapter 2
Measuring the Effects of ESG Activities

55% of cases. By contrast, a positive relationship was

73%, found a positive relationship between ESG and

Figure 2. Proportion of Polarity (Positive or Negative
Impact) for Each Theme Category
56

B: Excess return60

4 4 N=31

37
18

C: Risk control

11

88

D: Corporate value

76

E: ESG bondinvestment

18

68

21

F: Engagement

11

N=94

Market measures

12

N=17

Accounting measures

4 2 N=46

Return × market andaccounting measures

9 3 N=34

Accounting measures ×
market measures

6 N=18Others

94
0

20

40

60

Return80

100 （％）■Positive (A) ■(A)+(B) Mixed ■Negative (B) ■Neutral(Note) Polarity (positive/negative) types and definitions:
Positive (Negative): Papers indicating a positive (negative) relationship between
ESG and investment performance
Positive + Negative: Papers indicating both positive and negative results
Neutral: Papers not indicating any statistically significant results

13

N=84

12

8

N=52

10

10 N=1015

4 4 N=26

10

22

55
81

20

60
77

38

62

20

40

N=8

6 11 6 N=1878
0Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

A: Review papers andmeta-research

Figure 3. Proportion of Polarity for Each Type of
Performance Measurement

60

80

100

（％）

■Positive (A) ■(A)+(B) Mixed ■Negative (B) ■Neutral(Note) Measure definitions:Market measures: Market price-based measures such as Tobin’s Q and PBR, as
well as cost of capital, risk-based measures, etc.
Accounting measures: Capital efficiency and profitability measures such as ROE
and ROA, as well as net sales growth rate, cash flow, etc.
(Source) Figures 2 and 3: Report on the High-Level Study on the Integration of ESG and
SDGs in Investment

1 This refers to the phenomenon and effect where, for example, the advance adoption of a CSR policy by one company leads to the adoption of similar CSR policies by a number of other similar companies.

GPIF ESG REPORT 2022

40

Chapter 1 GPIF’s ESG Initiatives

Column 2

Academic Research Related to GPIF’s
Stewardship Activities and ESG Investment
At GPIF, we collect information on the latest empirical academic studies in the fields of ESG investment and stewardship
activities as part of our efforts to review our activities from diverse perspectives. The extent of such empirical research islimited, however, as companies do not normally disclose the specific details of engagement with institutional investors.
Moreover, it is impossible to know from outside whether changes in corporate behavior after such engagement are due to theeffectiveness of the engagement or whether they are voluntary changes of their own accord. However, as data in this fieldaccumulate over the years, in an increasing number of cases, researchers are able to obtain and analyze information frominstitutional investors on their engagement activities. In this column, we will introduce three examples of empirical research into
the effects of ESG investment and stewardship activities related to GPIF.
Empirical Research on the Improvement in ESG Performance Due to Engagement by Passive Investment Managers
First, we will present some of the research findings
published by a research group including Professor Marco

ESG scores.
Their findings are presented in Figure 1. The FTSE ESG

Becht of Université libre de Bruxelles, Professor Kazunoriscore (overall score) of the treatment group, where there

Suzuki of Waseda University, and others (Becht, Franks,

was some form of engagement, was estimated to be

1

Miyajima, and Suzuki [2023] ) using information on

0.21pt higher than that of the control group. The effect ofengagement activities provided by Asset Management One

engagement on E (Environmental) themes was estimatedCo., Ltd., one of GPIF’s engagement-enhanced passive

to raise the E score of the treated group by 0.29pt

investment managers.

compared to the control group. The effect of engagement

The research group analyzed whether institutionalon comprehensive ESG themes was estimated to raise theinvestors’ engagement with companies had a subsequent

ESG score of the treated group by 0.16pt compared to theeffect on the companies’ ESG scores. The researchers

control group. Meanwhile, for the MSCI scores, there wasapplied regression analysis using the difference-in-no significant difference between the ESG score (overall

differences method , comparing two groups of companiesscore) of the treated group and the control group in thefrom within the TOPIX 500: companies with which Assetabsence of any form of engagement; however,Management One had engaged during the period fromengagement on G (Governance) themes was estimated to2018 to 2022 (the treated group) and other companies

raise the G score by 0.10pt (Figure 1).

2that have not been engaged (the control group). They

Figure 2 shows the effects of engagement on eachtested the influence (treatment effect) of engagement on

ESG score in more detail by splitting the companies in the

1 (Source) Becht, Franks, Miyajima, Suzuki, “Does Paying Passive Managers to Engage Improve ESG Performance?” (2023 working paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4506415)
2 Difference-in-differences method: a method used to estimate the effect of treatment as the difference between the average change (difference) in the treated group and the average change (difference) in the control group

41

GPIF ESG REPORT 2022

engagement was effective for companies with relatively

from lowest to highest. The results indicate that, for FTSE

low G scores. Governance-themed engagement withscores, engagement was effective for companies withcompanies that had relatively low G scores was estimatedrelatively low E scores. Environmentally-themed

to boost the G scores of the treated group by 0.15pt

engagement with companies that had relatively low E

compared to the control group.

scores was estimated to boost the E scores of the treated

Chapter 1 GPIF’s ESG Initiatives | Column 2: Academic Research Related to GPIF’s Stewardship Activities and ESG Investment

TOPIX 500 into five groups based on their ESG scores,

The study’s authors pointed out that the divergence ingroup by 0.50pt compared to the control group.

results between the FTSE and MSCI ESG scores is due toMeanwhile, for MSCI scores, the results indicate thatdifferences in their ESG scoring methodologies.

Figure 1. Results of Analysis: Does Engagement Affect ESG Scores?

MSCI

ESG Score (Overall)

Details of Engagement
DifferenceStandard error
DifferenceStandard error

All Engagement
0.21***(0.049)0.02(0.028)E ScoreE
0.29***(0.064)-0.08(0.064)

S ScoreS
0.09(0.074)-0.00(0.064)

G ScoreG
0.01(0.043)0.10***(0.035)Chapter 2
Measuring the Effects of ESG Activities

FTSE

Score

ESG Score (Overall)

ESG (Comprehensive)
0.16***(0.046)0.03(0.026)

Figure 2. Results of Analysis: Does Engagement Affect ESG Scores? (By ESG Score Percentile)
FTSE

S Score2
G Score3

10th
0.50***(0.136)0.20(0.151)
0.10(0.120)25th
0.50**(0.196)0.20(0.224)0.10(0.166)Median0.30(0.230)0.10(0.259)-0.20(0.203)75th
0.20(0.202)0.10(0.221)
0.10(0.160)90th-0.10(0.137)-0.20(0.148)-0.20*(0.115)10th-0.00(0.070)0.10(0.124)0.15**(0.063)25th-0.15(0.106)0.15(0.119)0.05(0.092)

Median-0.05(0.122)0.05(0.138)0.10(0.108)75th-0.05(0.106)-0.00(0.119)-0.00(0.094)90th-0.15(0.178)-0.05(0.165)0.10(0.063)

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

E Score1

Percentile
DifferenceStandard error
DifferenceStandard error
DifferenceStandard error

MSCI(Notes) 1 Engagement on E themes; 2 Engagement on S themes; 3 Engagement on G themes

Figures 1 and 2:(Note1) ESG score percentiles have been classified into five groups from lowest to highest (“extremely low,” “low,” “medium,” “high,” and “extremely high”)(Note2) FTSE’s scores are for the period from June 2016 to December 2021. MSCI’s scores are for the period from December 2016 to June 2020 (due to a major change in the method
used to calculate MSCI’s scores in November 2020)(Note3) *** p<0.01, ** p<0.05, *p<0.1(Source) Becht, Franks, Miyajima, and Suzuki, “Does Paying Passive Managers to Engage Improve ESG Performance?” (2023 working paper)

GPIF ESG REPORT 2022

42

Chapter 1 GPIF’s ESG Initiatives

Empirical Research on the Selection and Effect of Engagement by Institutional Investors
Next, we will introduce a study using engagement data(for companies in Japan) from four companies: Amundi,on the results of the previous research.
The study found that institutional investors tended to

Tokio Marine Asset Management, and Fukoku Capital

pursue E and S engagement with companies for which

Management, as well as FIL Investments (Japan)

monitoring was highly necessary, companies with

Limited, one of GPIF’s engagement-enhanced passive

outstanding capital efficiency, and companies withinvestment managers.

outstanding disclosure of governance structure as well as

This study (Hayashi, Kimura, and Inoue [2023] ) was3

environmental and social information. This tendency was

conducted by a research group led by Professor Kotaro

found to be stronger among active investment funds.

Inoue of the Tokyo Institute of Technology (the Inoue lab) andRegarding the effect of engagement, the study found that E

used data on engagement with Japanese companies during

engagement encouraged companies to establish CO2

the period from 2017 to 2020, provided by the four

emission reduction targets and consequently reduce theircompanies listed above. The researchers applied difference-

CO2 emissions, while S and G engagement raised

in-differences analysis and other methods to examine whatcompanies’ proportion of female in management position.

kind of companies were chosen as engagement targets by

The study also examined the effect of engagement on

institutional investors and what changes were brought about

corporate value. The results suggest that Tobin’s Q improvedby this engagement. The Inoue lab had previously conducted

as a result of G engagement, and that there is a difference

empirical research into engagement4 in 2021, which wein effect depending on the engagement theme.

introduced in our 2020 ESG Report. This new study is built
Empirical Research on the Effects of Adopting the Women’s Advancement Thematic Index
Lastly, we will present a study analyzing the effects of GPIF’sshow a larger increase in the proportion of women employed

adoption of the MSCI Japan Empowering Women Index (WINin the treated group than the control group during the periodindex), including its effect in promoting the employment ofafter GPIF adopted the WIN index, especially in positions at

women by companies. In this study, a group of researchers

the senior management level and above. Moreover, thefrom the University of Alberta and elsewhere (Mehrotra,

study revealed a decrease in overtime work and an increase

Roth, Tsujimoto, and Wiwattanakantang [2023]5) used thein the childcare leave uptake rate among male employees atdifference-in-differences method to analyze data from 2013

companies in the treated group. There was also an increase

to 2020, including MSCI gender diversity scores and data on

in holdings of these stocks by institutional investors. The

employment from the Toyo Keizai CSR Surveys conducted bystudy’s authors explained that the adoption of the WIN index

Toyo Keizai Inc. The researchers divided the data into two

provided companies with an incentive for inclusion in thegroups: companies close to the standards for inclusion inindex and encouraged them to change their behavior.

the WIN index (the treated group) and companies far from
inclusion in the WIN index (the control group). Their results
3 (Source) Hayashi, Kimura, and Inoue, “The Selection and Effect of ES Engagement by Institutional Investors” (paper presented at the 2023 Conference of the Nippon Finance Association)
4 (Source) Hidaka, Ikeda, and Inoue, “Motivations and Effects of Engagement by Institutional Investors” (2021 REITI discussion paper)
5 (Source) Mehrotra, Roth, Tsujimoto, and Wiwattanakantang, “Empowering Women by Index Membership : Evidence from a Unique Experiment from Japan” (2023 working paper)

43

GPIF ESG REPORT 2022

Number of Themes
to be Analyzed

4 themes

Chapter 1 GPIF’s ESG Initiatives | Measuring the Effects of Stewardship Activities and ESG Investment

Measuring the Effects of Stewardship
Activities and ESG Investment
GPIF will conduct a project using statistical methods such as causal
inference to examine the effects of its stewardship activities and ESG
investments. We will implement this project in collaboration with external
consultants and researchers from academia and elsewhere across eachof four themes.

About Measuring the Effects of Stewardship Activities and ESG Investment Project
It takes a long time for stewardship activities and ESG

From fiscal 2023 to fiscal 2024, after the elapse of an
appropriate period for data accumulation since the start ofsustainability of financial markets and boosting risk-adjusted

our stewardship and ESG investment initiatives, we will

returns. Therefore, to appropriately implement the PDCA cycle

collaborate with external consultants and researchers from

(Plan→Do→Check→Act) for stewardship activities and ESG

academia and elsewhere to implement a review of theinvestment, it is crucial to examine issues such as whether

effects of these initiatives using statistical methods such as

GPIF’s activities are connected with companies’ behavioral

causal inference, across each of the four themes shownchanges and higher ESG ratings, including causal effectbelow (Figure 1).

between the two, as a first step, without waiting for eventual

Chapter 2
Measuring the Effects of ESG Activities

investment to produce tangible results such as improving theThrough the appropriate implementation of the PDCA

outcomes such as more sustainable financial markets andcycle, we will continue to improve and revise ourhigher boosting of risk-adjusted returns.

stewardship and ESG investment initiatives.

Figure 1. Overview of the Effect Measurement ProjectMeasuring the effects ofstewardship activities

Measuring the effectsof ESG investment

Details (Examples)

Verification of the effects
of engagement

Research into causal effect on ESG ratings andimprovement of corporate value, caused by engagement

Verification of the exercise of voting
rights by investment managers

Trend analysis in voting behavior differences forcompanies with which they have a potential conflict ofinterest and other investee companies

Verification of the effects of passive
equity investment based on ESG indexes

Analysis of the effects of ESG investment on corporate behavior

Research into ESG factors that
contribute to improving corporate
value and investment returns

Research into the causal effect between ESG factors andcorporate value/ investment returns

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

Project Themes(Note) Project themes and the timing of implementation may be subject to change

GPIF ESG REPORT 2022

44

Chapter 1 GPIF’s ESG Initiatives

Column 3

Investors Keeping Close Eye on Companies’ Human Rights Initiatives
Companies may have the risks of, perhaps unintentionally,

Advance initiative are selected3 based on factors such as

violating human rights through their business activities.

their human rights benchmark scores, evaluated by the

Therefore the international community requires them to act

World Benchmarking Alliance (WBA)4 on the basis ofin accordance with regulations such as the OECD

corporate disclosures. As of June 2023, 40 companies had

Guidelines for Multinational Enterprises and the Tripartite

been selected from the resource mining and renewable

Declaration of Principles Concerning Multinationalenergy sectors. The WBA has also conducted evaluations forEnterprises and Social Policy. In Japan, the National

the food and agricultural products sector, the ICT

Action Plan on Business and Human Rights was formulated

manufacturing sector, and the automotive manufacturing

in 2020. This was followed in 2022 by the Guidelines on

sector in November 2022. It may be possible that we would

Respect for Human Rights in Responsible Supply Chains.

be able to see companies added from these sectors to our

These guidelines present the significance of respect forengagement targets in the future.

1

human rights in terms of controlling corporate
management risks and enhancing corporate value.
The PRI Advance, a collaborative engagement initiative

A comparison of the human rights benchmark scores(average) of 22 Japanese companies in these threesectors with their foreign counterparts, evaluated inlaunched in December 2022, is gaining attention in theNovember 2022, reveals that the Japanese companies lag

context of recent developments related to human rights.

behind in almost all measurement themes (Figure 1). There

Advance is an initiative by institutional investors forare no established international standards for thecollaborative engagement on human rights issues anddisclosure of human rights information. In this context, weother social (S) themes. As of June 2023, the number ofthink that the WBA’s human rights benchmark scoreinstitutions participating in the initiative has grown to 255,

framework provides a useful reference point forwith combined AUM of US $37 trillion.2

understanding the factors emphasized by institutional

The target companies for engagement under theinvestors around the world.

Figure 1. Comparison of the (Average) Human Rights Benchmark Scores of Japanese and Foreign Companies
Perfect Score
A: Governance and Policies
A1: Policy commitments
A2: Board level accountability
B: Embedding Respect and Human Rights Due Diligence
B1: Embedding respect for human rights in culture and management systems
B2: Human rights due diligence
C: Remedies and Grievance Mechanisms
D: Performance: Company Human Rights Practices
E: Performance: Responses to Serious Allegations
Total score

10
5
5
25
10
15
20
25
20
100

Japanese
Companies
2.03
1.72
0.31
5.07
2.40
2.67
2.61
2.02
2.29
14.02

Foreigncompanies
2.12
1.61
0.51
5.36
2.39
2.97
4.40
3.25
2.91
18.04

(Source) Prepared by GPIF based on data from 2022 Corporate Human Rights Benchmark.
1 Guidelines on Respect for Human Rights in Responsible Supply Chains (2022)
2 Linked from the Advance website; as of June 22, 2023
3 Advance selects engagement targets based on its sector and company selection methodology.
4 An initiative established in 2018 by the United Nations Foundation, Aviva, and the Index Initiative. It provides various benchmarks for the evaluation of companies’ achievement of the SDGs.

45

GPIF ESG REPORT 2022

Difference
-0.09
0.11
-0.20
-0.29
0.01
-0.30
-1.79
-1.22
-0.63
-4.02

Review of ESG Activities and Future Outlook
Chapter 1 GPIF’s ESG Initiatives | Review of ESG Activities and Future Outlook

GPIF’s Investment Principles state that “sustainable growth of investee companies and the capital market as awhole are vital in enhancing long-term investment returns.” Sustainable growth of our investments and themarket as a whole could never be achieved by GPIF alone. GPIF will pursue ESG investment from the perspectiveof securing long-term investment returns with the cooperation of all concerned parties.

In fiscal 2022, GPIF secured a positive annual return on its

merely aimed at enhancing the long-term returns from theinvestments of pension reserves. However, substantial

funds we invest in (gaining excess returns). For example, formarket fluctuations persisted throughout the fiscal year,

our ESG index-based passive equity investments, we ask

making it an extremely difficult investment environment to

the disclosure of evaluation methodologies to the index

navigate. Under these conditions, ESG indexes for foreign

providers in order to promote an awareness of potential

equities adopted by GPIF all outperformed the policy

inclusion in the ESG index among companies not currently

benchmarks, but ESG indexes for the domestic equities allpart of the index. In our Effect Measurement Project,underperformed. This was partly due to a recoil after the

beginning this fiscal year, we plan to analyze the flow-on

extremely favorable results recorded in the previous fiscal

effects of GPIF’s adoption of ESG indexes.

year, and investment success should not be measured in

We also plan to use statistical methods such as causal
inference to analyze a range of issues based on theimportant to revise our approach if there are any problems.

engagement records submitted to us by our external asset

In fiscal 2022, we repeatedly engaged in dialogue with index

managers. These include what kind of changes in corporate

providers regarding issues such as changes to index

behavior investment managers actually bring about throughmethodology and the adoption of a new gender diversity

their engagement activities and which asset managers

index (the GenDi J index) for domestic equities.

pursue engagement most effectively. We hope to work with

In fiscal 2023, we will step up our review andChapter 2
Measuring the Effects of ESG Activities

terms of single-year performance. However, it is also

our external asset managers to examine efficient andeffective approaches to engagement based on these results.

stewardship activities. As stated in our Investment Principles,

Recently, the national government and local authorities are

GPIF’s ESG investments and stewardship activities are notpursuing Evidence Based Policy Making (EBPM). At GPIF, we

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

verification work to further refine our ESG investments andwill also strive to engage in ESG investment and stewardship
activities based on reasonable grounds.
We believe that ESG risks such as climate change arerisks that GPIF must consider as a cross-generational
investor with investments diversified across a wide spectrumof assets. Our motivation is neither political nor moral, nor
are we chasing a passing trend. These are simply risks thatmust be considered in order for investors to achieve longterm investment returns. GPIF will pursue ESG investment
Executive Managing Director and Chief Investment Officer (CIO)

from the perspective of securing long-term investment

UEDA Eiji

returns with the cooperation of all concerned parties.

GPIF ESG REPORT 2022

46

Chapter 2 Measuring the Effects of ESG Activities

Chapter 2

Measuring theEffects of ESG
Activities

At GPIF, we measure whether our ESG activities are producing the expected results ofimproving the sustainability of financial markets and boosting risk-adjusted returns and hopethat this will lead to the verification of the long-term impact of our initiatives. We therefore
implement continuing, multi-faceted reviews, not only of our short-term investment
performance but also of the factors responsible for the performance of ESG indexes, as well as
various aspects of ESG ratings.

47

GPIF ESG REPORT 2022

P.49

ESG Index Performance

P.51

Portfolio ESG Rating, ESG Rating Ranking by Country, and Correlation Between ESG Ratings

P.55

Gender Diversity in Japanese Companies

GPIF ESG REPORT 2022

48

Chapter 2 Measuring the Effects of ESG Activities

ESG Index Performance
Sharpe Ratio of ESG
Passive Fund forDomestic Equities

0.39

The total performance of passive funds tracking ESG indexes for domestic
equities selected by GPIF had been outperforming market averages since
the launch of the individual funds until fiscal March 2023.
The risk-adjusted return (Sharpe Ratio) of these funds has also
outperformed the market average. We will continue to review performanceof ESG indexes from long-term perspectives.

ESG Index Performance Attribution Analysis
Figure 1* shows the performance of GPIF’s selected ESG

to ‘Benchmark Effect,’ excess return rate had an upward

indexes since the launch of each fund until March 2023,

trend from March 2018 until March 2022. However, theand during the previous year (from April 2022 to Marchsituation changed completely after March 2022, which2023). In fiscal 2022, the return from ESG indexes, forbrought GPIF to revise the WIN index, which wasdomestic equities in particular, underperformed the TOPIX.

underperforming the most within adopted ESG indexes.

However, since the launch of each indexes , these indexes’Fund Effect’ had fell to minus at March 2020 due to fundgenerally outperformed both their parent indexes andallocation etc., and remained unchanged after that.

market averages (TOPIX for Japanese equities and MSCIACWI (excluding Japan) for foreign equities).

adjusted return) of ESG passive fund and TOPIX since the

Figure 2** shows the excess return of passive funds

launch of ESG index based passive fund. The Sharpe Ratio

tracking ESG indexes for domestic equities selected by GPIF

of ESG fund was 0.39, which is 0.02 higher than the Sharpe(ESG passive fund) over the past six years, from June 2017

Ratio of the TOPIX (0.37).

(when we started ESG index based passive investment) toFigure 3 shows the relationship between the Sharpe

March 2023. Here, we have broken down the excess return

Ratio and ESG Ratings. Each ESG index has a higher ESG

into two parts, ‘Benchmark Effect’ and ‘Fund Effect’. When

rating than that of the TOPIX as a whole, and their Sharpe

evaluating ESG passive funds performance, we would first

Ratios have tended to exceed the TOPIX over the six-year

need to calculate composite returns, considering the launch

period from April 2017 to March 2023. In other words, it isof individual ESG passive funds vary. For composite returns

confirmed that these indexes achieve both a reduction in

calculation, we have used time weighted average daily

ESG risk and better Sharp Ratios .

return and total amount of net assets to compute cumulative

These results only cover investment outcomes over atime weighted average return, and accumulate them. The

limited period. We believe that the impact of portfolio ESG

definition for ‘Benchmark Effect’ is the difference in return of

ratings on risk-adjusted returns requires further examination

ESG indexes and TOPIX, while ‘Fund Effect’ is theover the long term. GPIF will continue to examine the various

difference in return of ESG passive funds and ESG indexes.

aspects of the performance of ESG indexes from a long-

As shown in Figure 2, ESG passive funds excess return
rate compared to TOPIX is approximately 1.6%. With regards* Figure 1 shows the investment performance of individual ESG indexes** Figure 2 shows the actual performance considering investment timings etc.

49

Also, in Figure 2, we have calculated Sharpe ratio (riskGPIF ESG REPORT 2022

term perspective, without being swayed by short-term
investment results.

Chapter 1
GPIF’s ESG Initiatives

Figure 1. Returns of Nine ESG Indexes Selected by GPIF
The launch ofeach fundThe launch of each fund to March 2023 (annualized)
Return Rates
ESG Index

Excess Return
Parent Index(Reference) April 2022 to March 2023
Return Rates

TOPIX

Excess Return

ESG Index

Parent Index

TOPIX(1) FTSE Blossom

2017/6

7.06%

0.65%

0.98%

4.96%

-0.43%-0.85%(2) MSCI ESG Select Leaders

2017/6

6.73%

0.32%

0.65%

2.80%

-2.40%-3.02%(3) MSCI WIN

2017/6

5.29%-1.10%-0.79%

0.05%-4.99%-5.77%(4) S&P/JPX Carbon

2018/94.95%-0.13%-0.13%

4.89%-0.93%-0.93%(5) FTSE BlossomSR

2021/11

3.34%

0.94%

0.64%

5.73%

0.34%

-0.08%(6) Morningstar GenDiJ

2023/3

―

―

―

3.39%

0.02%

0.06%

Parent Index

MSCI ACWI
ex Japan

ESG Index

Parent Index

MSCI ACWI
ex Japan(7) S&P Global Carbon

2018/911.84%

0.22%

0.14%

2.65%

1.11%

0.77%

(8) MSCI ESG Universal

2020/1115.85%

0.27%

0.25%

2.23%

0.45%

0.35%

(9) Morningstar GenDi

2020/1216.42%

0.16%

1.55%

2.95%

0.87%

1.07%

Chapter 2 Measuring the Effects of ESG Activities | ESG Index Performance

ESG Index(Note 1) Index returns include dividends. For indexes with investment period less than 1 year, the actual return is shown.
(Note 2) The parent indexes for (1) to (9) (constituent universe) are as follows:(1) (5) FTSE Japan All Cap Index ((5) was FTSE Japan until December 2020)(2) MSCI JAPAN IMI (MSCI JAPAN IMI TOP700 until May 2022)(3) MSCI Japan IMI TOP700(4) TOPIX(6) Morningstar Japan ex REIT
(7) S&P Global Ex-Japan LargeMidCap(8) MSCI ACWI ex Japan ex China A ESG Universal with Special Taxes Index(9) Morningstar® Developed Markets Ex-Japan Large-Mid(Source) Prepared by GPIF based on data from FactSet.

Figure 2. Excess Return Trend of ESG Passive Fund for Domestic Equity
8%
6%
4%

8%

Compared to TOPIX
Sharpe Ratio
ESG Fund：0.39
TOPIX：0.37

2.6%

2%

1.6%

0%

4%
2%

0.3%

0%

-0.6%

-2%

-0.9%

-0.9%

-2%
-4%
2017/3Compared to ESG Parent Index

6%-4%
2018/3Fund Effect2019/32020/3

Benchmark Effect2021/32022/32023/3

Excess Return Rate (compared to TOPIX)

2017/3

2018/3Fund Effect2019/32020/3

Benchmark Effect2021/32022/32023/3

Excess Return Rate (compared to ESG Parent Index)

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities(Note 1) ESG passive fund composite return is calculated by using time weighted average daily return and total amount of net assets.
(Note 2) The definitions for ‘Benchmark Effect’ and ‘Fund Effect’ on the left are the difference in return of ESG indexes and TOPIX and difference in return of ESG passive funds and ESG indexes, respectively.
(Note 3) The definitions for ‘Benchmark Effect’ and ‘Fund Effect’ on the right are the difference in return of ESG indexes and parent indexes and difference in return of ESG passive funds and ESG indexes, respectively.
(Source) Prepared by GPIF based on data from FactSet.

Figure 3. Relationship Between ESG Ratings and Sharpe Ratio for ESG indexes for Domestic Equity and TOPIX
Sharpe Ratio
0.65(5) FTSE BlossomSR

0.60
0.55
0.50
0.45
5.00

(4) FTSE Blossom(1) MSCI ESG Select Leaders(3) Morningstar GenDi J(7) TOPIX (6) S&P/JPX Carbon(2) MSCI WIN

5.50(ESG Ratings)

6.00(Note 1) ESG ratings are based on data as of the end of March 2023. Sharpe Ratios are from April 2017 to March 2023 (annualized).
(Note 2) ESG ratings are the average of FTSE and MSCI (Please refer to pages 52 for the calculation of portfolio ESG rating).
(Source) Prepared by GPIF based on data from FTSE and MSCI.
FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2023.

GPIF ESG REPORT 2022

50

Chapter 2 Measuring the Effects of ESG Activities

Portfolio ESG Rating, ESG Rating Ranking by
Country, and Correlation Between ESG Ratings
Correlation coefficientof ESG ratings(Japanese companies)

0.53

At GPIF, we aim to assess the impact of ESG investment from a variety ofperspectives. To this end, we have measured and provided stationary observations of the ESG ratings of our equity portfolio, the average ESG ratings andlevel of improvement by country, and the correlation between the ESG ratingsof different providers every year since our activities report for fiscal 2017.

Figures 1 and 2 show the trend in each ESG rating forcompanies are among the biggest improvers over the past

GPIF’s equity portfolios as of the end of fiscal year (Marchsix years based on the ratings provided by both FTSE and31), from 2017 to 2023, as well as the ESG rating for

MSCI. Figures 7 and 8 (P.54) compare the distributions ofmarket representative indexes as of March 31, 2023. In the

ESG ratings for Japanese companies as of March 31, 2017

FTSE evaluation for the most recent year, the ESG rating for

and March 31, 2023. The distributions of ESG ratings fromdomestic equities and foreign equities both increased. This

both FTSE and MSCI have shifted to the right, indicating a

is partially attributable to a rise in E scores. Meanwhile, thegeneral improvement in the ratings of Japanese companies.

MSCI ESG rating has continued to improve for both domestic

As ESG ratings deal with a diverse variety of non-and foreign equities since 2017, partly due to higher G

financial information, unlike financial analysis, there are noscores in the most recent year. We compared the ESG

established standard rating methodologies as yet. For thisratings for GPIF’s equity portfolios to ratings for the whole

reason, there is considerable variation among ESG ratings

market (TOPIX and MSCI ACWI (excluding Japan)) as of

by rating agencies, which is shown in Figures 9 and 10

March 31, 2023 . The result shows that GPIF’s equity(P.54). The scatter diagram in Figure 9 shows the ESG

portfolios are outperforming the ESG scores for the TOPIX

scores of the two rating agencies for the same target

and MSCI ACWI (excluding Japan), albeit marginally.

companies as of March 31, 2023, with the ESG scores by

Figures 3 and 4 (P.53) show the ESG rating rankings by

51

FTSE on the vertical axis and those by MSCI on the

country from March 31, 2017 to 2023. These werehorizontal axis. Some degree of positive correlation is

calculated based on the ESG ratings of companies from nine

evident for both Japanese and foreign companies. Figure 10

representative countries included in the major indexes

shows the changes in correlation between each ESG scoreprovided by FTSE and MSCI.

in chronological order as of March 31 every year from 2017

The rankings for both FTSE and MSCI are topped by

to 2023. Although the correlation coefficients are lower forcountries from European and North American countries such

Japanese companies than for foreign companies, the results

as France, the United Kingdom, and Canada. Figures 5 andindicate that the correlation between individual scores,

6 (P.53) show the rate of improvement in each country over

especially for the ESG score, is gradually increasing for boththe last six years and the most recent year. JapaneseJapanese and foreign companies.

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Figure 1. FTSE ESG Ratings
ESG

S

E

G

ESG

GPIF (Domestic Equities)

S

E

G

GPIF (Foreign Equities)

2.43

0.86

0.77

0.80

3.03

0.88

0.95

1.20

2018/3

2.61

0.92

0.83

0.86

3.16

0.93

1.00

1.23

2019/3

2.63

0.96

0.81

0.86

3.35

1.01

1.06

1.28

2020/3

2.95

1.02

0.95

0.99

3.38

1.00

1.09

1.28

2021/3

2.96

1.02

0.98

0.97

3.34

0.99

1.07

1.28

2022/3

3.11

0.96

1.09

1.06

3.26

0.91

1.11

1.24

2023/3

3.29

1.09

1.11

1.09

3.42

1.06

1.12

1.25

1.11

1.25

TOPIX
2023/3MSCI ACWI ex Japan

3.27

1.08
+0.03

Excess Score

Chapter 2 Measuring the Effects of ESG Activities | Portfolio ESG Rating, ESG Rating Ranking by Country, and Correlation Between ESG Ratings

2017/3

1.10
+0.01

1.09
+0.01

3.40

1.05

+0.01

Change in Score

+0.01

+0.01

+0.01

+0.00

Change in Score

Past Six Years

+0.86

+0.23

+0.34

+0.29

+0.39

+0.17

+0.17

+0.05

Past One Year

+0.18

+0.13

+0.02

+0.03

+0.16

+0.14

+0.01

+0.01

(Note 1) Among the stocks held by GPIF, we analyzed those with ESG ratings by FTSE.
(Note 2) ESG scores are calculated as the average ESG scores of companies weighted by their market capitalization in GPIF’s portfolio (excluding stocks for which an ESG rating
was not available).
(Source) Prepared by GPIF based on data from FTSE. FTSERussell.

Figure 2. MSCI ESG Ratings
ESG

E

S

G

Industry
Adjustment

GPIF (Domestic Equities)

ESG

E

S

G

Industry
Adjustment

GPIF (Foreign Equities)

5.29

1.56

2.19

1.02

0.52

5.31

1.40

1.91

1.44

0.56

2018/3

5.44

1.56

2.25

1.09

0.55

5.56

1.34

2.02

1.62

0.58

2019/3

5.51

1.39

2.31

1.16

0.65

5.69

1.21

2.06

1.68

0.74

2020/3

5.79

1.36

2.38

1.34

0.71

6.01

1.21

2.18

1.79

0.84

2021/3

5.92

1.21

2.11

1.58

1.02

6.04

1.13

2.08

1.80

1.03

2022/3

6.37

1.22

2.18

1.79

1.18

6.47

1.17

2.19

1.87

1.24

2023/3

6.93

1.26

2.19

2.11

1.37

6.80

1.21

2.16

2.13

1.29

2.15

2.13

1.27

TOPIX
2023/3
Excess Score

6.87

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

2017/3MSCI ACWI ex Japan
1.25

+0.06

2.18
+0.01

2.10
+0.01

1.34
+0.01

6.76
+0.03

Change in Score

1.21

+0.03

-0.00

+0.01

+0.00

+0.02

Change in Score

Past Six Years

+1.64

-0.30

-0.00

+1.09

+0.86

+1.48

-0.19

+0.25

+0.69

+0.74

Past One Year

+0.56

+0.04

+0.01

+0.32

+0.20

+0.32

+0.04

-0.03

+0.26

+0.05

(Note 1) Among the stocks held by GPIF, we analyzed those with ESG ratings by MSCI.
(Note 2) ESG scores are calculated as the average ESG scores of companies weighted by their market capitalization in GPIF’s portfolio (excluding stocks for which an ESG rating
was not available).
(Note 3) Industry adjustment: Difference between the final rating and the weighted average of each company’s rating for environmental (E), social (S) and governance (G), arising
due to the normalization of ratings by industry.
(Source) Prepared by GPIF based on data from MSCI. Reproduced by permission of MSCI ESG Research LLC ©2023.

GPIF ESG REPORT 2022

52

Chapter 2 Measuring the Effects of ESG Activities

Figure 3. FTSE ESG Rating Ranking by Country
FTSE
March 2017

March 2018

March 2019

March 2020

March 2021

March 2022

March 2023

Latest Value
3.76
3.68
3.31
3.06
2.93
2.88
2.79
2.38
1.73

Figure 4. MSCI ESG Rating Ranking by Country
MSCI
March 2017

March 2018

March 2019

March 2020

March 2021

March 2022

March 2023

Latest Value
8.00
7.59
6.94
6.89
6.42
5.09
4.65
4.52
2.94

Figure 5. Rate of Improvement in FTSE ESG Ratings by Country
Past Six Years
Past One Year

(Rate of Improvement)
0.99
1.0

0.8

Figure 6. Rate of Improvement in MSCI ESG Ratings by Country
2.0

1.86 1.82

1.77

1.7

0.79

1.40

1.4
0.60

0.6

Past Six Years
Past One Year

(Rate of Improvement)

0.58

0.57

0.57

0.53

1.1
0.40

0.4

1.36

0.38

0.8

0.68

0.66
0.51

0.5

0.50

0.2
0.2
0.0

-0.1
Hong Japan Canada China
Kong

India

South
Korea

US

UK

FranceUS

Canada Japan

UK

Hong
Kong

(Note) This figure shows the change over the six years from the end of March 2017 to the end of March 2023 and over the most recent year.
(Note) ESG rating of constituents by country on Figure 3 to 6 is calculated as the arithmetic average.

53

GPIF ESG REPORT 2022

South
Korea

India France China

March 2017
March 2023

(Number of Companies)
120

Chapter 1
GPIF’s ESG Initiatives

Figure 7. FTSE ESG Rating Distribution for Japanese Companies

Figure 8. MSCI ESG Rating Distribution for Japanese Companies
March 2017
March 2023

(Number of Companies)
70
60

100

Chapter 2 Measuring the Effects of ESG Activities | Portfolio ESG Rating, ESG Rating Ranking by Country, and Correlation Between ESG Ratings

50

80

40
60
30
40

20

20
0

10
0-0.4 0.5-0.9 1-1.4 1.5-1.9 2-2.4 2.5-2.9 3-3.4 3.5-3.9 4-4.4← Low (ESG Ratings) High →

0

4.5-5

0-0.9 1-1.9 2-2.9 3-3.9 4-4.9 5-5.9 6-6.9 7-7.9 8-8.9 9-10
← Low (ESG Ratings) High →(Note) Among the companies included in FTSE’s “FTSE All World Index” and MSCI’s “MSCI All Country World Index,” the analysis presented in Figures 3 to 8 focuses oncompanies for which an ESG rating is available.
(Source) Prepared by GPIF based on data from FTSE and MSCI. FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2023.

Figure 9. FTSE and MSCI ESG Score Correlation Chart (as of March 31, 2023)＜Japanese Companies＞

FTSE Scores
3

3

2

2

1

1

0

0

-1

-1

-2

-2

-3

-3

-2

-1

0

＜Foreign Companies＞

FTSE Scores

1

2

3

-3

-3

-2

-1

MSCI Scores

0

1

2

3

MSCI Scores(Note) Normalized (mean 0, variance 1) and plotted ESG rating data from FTSE and MSCI.
(Source) Prepared by GPIF based on data from FTSE and MSCI. FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2023.

Figure 10. Trends in Correlation Coefficient of ESG Score Data from FTSE and MSCI
ESG

＜Foreign Companies＞
E

S

G

ESG

Correlation Coefficient
2017/3

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities＜Japanese Companies＞

0.37

E

S

G

Correlation Coefficient
0.47

0.11

0.04

2017/3

0.48

0.37

0.20

0.26

2018/3

0.44

0.47

0.06

0.10

2018/3

0.49

0.34

0.23

0.31

2019/3

0.43

0.43

0.05

0.15

2019/3

0.53

0.33

0.24

0.32

2020/3

0.41

0.45

0.02

0.11

2020/3

0.58

0.38

0.24

0.28

2021/3

0.46

0.48

0.09

0.14

2021/3

0.57

0.38

0.25

0.34

2022/3

0.51

0.49

0.12

0.14

2022/3

0.59

0.44

0.27

0.37

2023/3

0.53

0.45

0.07

0.15

2023/3

0.63

0.35

0.26

0.42

Change in Correlation Coefficient

Change in Correlation Coefficient

Past One Year

+0.02

-0.04

-0.05

+0.02

Past One Year

+0.04

-0.10

-0.01

+0.05

Past Six Years

+0.16

-0.02

-0.05

+0.11

Past Six Years

+0.15

-0.03

+0.07

+0.17

(Note) Including stocks for which an ESG rating is available for FTSE and MSCI.
(Source) Prepared by GPIF based on data from FTSE and MSCI. FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2023.

GPIF ESG REPORT 2022

54

Chapter 2 Measuring the Effects of ESG Activities

Gender Diversity
in Japanese Companies
Proportion of
women on the board(Japanese companies)

Gender diversity is a central element of the S (Social) category in
ESG. This is a major issue for Japanese companies, but at the sametime, it is an area with tremendous potential for improvement. In thissection, we provide an overview of the current status of Japanesecompanies through a comparison with foreign companies.

14.3 ％

Gender Diversity in Japanese Companies
GPIF adopted the MSCI Japan Empowering Women Index

gender diversity has the potential to boost the economic(WIN) in 2017 and the Morningstar Developed Markets

performance of individual countries. Based on thisEx-Japan Gender Diversity Index (GenDi) for foreign equities

understanding, by investing in companies with greaterin 2020 as passive equity benchmarks. In 2022, GPIF went

gender diversity, GPIF aims to increase long-term investment

on to adopt the Morningstar Japan ex-REIT Gender Diversity

returns caused by the sustainable growth of our investees

Tilt Index (the GenDi J index). In December 2019, GPIF

and the market as a whole.

joined the 30% Club Japan Investor Group, a group that

Similar to last year, we reviewed data of the quantitative

aims to increase the ratio of female executives in Japanese

factors used in the WIN index to gauge progress in gendercompanies. A large body of evidence shows that companies

diversity at Japanese companies as shown below.

with greater gender diversity are able to access a wider pool

The percentage of women for each factor (median) is

of talent, which may potentially enhance corporate value.

steadily improving overall, although (4) % Women in Senior

From a macro-economic perspective as well, higher

Management remains at a low level (Figure 1).

Figure 1. Actual Values for WIN Index Quantitative Factors (Median)
2017

2018

2019

2020

2021

2023

(1) % Female New Hires

25.0%

27.9%

28.0%

28.9%

28.1%

27.0%

26.9%

(2) % Women in the Workforce

17.0%

18.6%

18.8%

20.2%

21.2%

22.0%

22.0%

(3) % Difference in years men and women are
employed by the company-16.6%-16.5%-16.5%-17.5%-18.2%-17.9%-18.0%

3.5%

4.5%

4.6%

5.1%

5.5%

6.0%

6.0%

(4) % Women in Senior Management(5) % Women on Board*

10.0%

10.0%

10.0%

11.1%

12.5%

12.5%

14.3%

Rate of Disclosure for (1) to (5)

73.6%

72.7%

77.3%

75.4%

74.0%

76.8%

76.1%

40%

42%

52%

61%

72%

83%

91%

Reference: % Companies with Female Directors(Note) Includes companies evaluated in the WIN index (500 major companies up to 2019, and 700 major companies from 2020).
*% Women on Board is calculated excluding the value of 0%.
(Source) Prepared by GPIF based on data from MSCI. Reproduced by permission of MSCI ESG Research LLC@2023.

55

2022

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Advancement of Women into Executive Positions Remains a Challenge
Continuing from last year, we examined the deviation scores forfrom 0 to 100 points in each of four categories.

Japanese companies (excluding small-caps) for each of the 19

While Japanese companies rank highly globally in terms ofcriteria included in Equileap’s scoring methodology (the “Score”)“parental leave” and “flexible work style options,” they still lag

used in the GenDi and GenDi J indexes to verify which areas

significantly behind the global standard in terms of the gender

had particular room for improvement (Figure 2).

balance of boards of directors, executives , senior management,

The Score is used to evaluate the companies in questionand equivalent positions.
Chapter 2 Measuring the Effects of ESG Activities | Gender Diversity in Japanese Companies

Figure 2. Individual Criteria of Average Gender Scorecard and Deviation Scores of Japanese Companies for Each Criterion
Area

A. GENDER BALANCE IN LEADERSHIP& WORKFORCE

B. EQUAL COMPENSATION & WORK
LIFE BALANCE

C. POLICIES PROMOTING GENDER
EQUALITY

D. COMMITMENT, TRANSPARENCY &ACCOUNTABILITY

Deviation Score

Change from previous year

1 Board of Directors

Criterion

35.8

5.3

2 Executives*

33.6

6.5

3 Senior Management**

31.6

2.0

4 Workforce

42.6

4.1

5 Promotion & Career Development Opportunities

35.6

2.6

6 Living Wage

48.2

0.6

7 Gender Pay Gap

42.9

-1.0

8 Parental Leave

61.0

-2.9

9 Flexible Work Options

62.1

0.6

10 Training and Career Development

51.0

0.3

11 Recruitment Strategy

20.7

-8.7

12 Freedom from Violence, Abuse and Sexual Harassment

47.2

-2.3

13 Safety at Work

45.2

2.6

14 Human Rights

53.1

-2.4

15 Social Supply Chain***

47.2

4.1

16 Supplier Diversity

46.6

16.2

17 Employee Protection****

36.0

-4.2

18 Commitment to Women’s Empowerment

49.6

-0.5

19 Audit

46.7

0.6

(Note 1) Deviation scores have been calculated based on the average score for each criterion among companies evaluated from 49 countries. Deviation scores of 40 or lower are shown in red.
(Note 2) The definition of each criterion marked with * is shown below.
2 Executives*: Gender balance among the company’s executives and executive board
3 Senior Management**: Gender balance of the company’s senior management
15 Social Supply Chain***: Commitment to reduce social risks in the company’s supply chain, such as forbidding business-related activities that condone, support, or otherwise participate in trafficking, force
and child labor or sexual exploitation
17 Employee Protection****: Systems and policies for the reporting of internal ethical compliance complaints without retaliation or retribution, such as access to confidential third-party ethics hotlines orsystems for confidential written complaints(Source) Prepared by GPIF based on data from Equileap.

Chapter 3
Evaluation and Analysis of Climate Change Risks and Opportunities

Efforts to Boost the Proportions of Female Managers and Executives in JapanThe results of the quantitative evaluation metrics used in theexecutives by 2030.

WIN index and Equileap’s gender equality scores indicate that

It is not only the Japanese government that is concerned

the proportions of female managers and executives atabout this issue: investors in Japan and elsewhere are also

Japanese companies are far below international levels.

adopting a firmer stance. United States voting advisory

At present, both governments and private companies arecompanies such as ISS and Glass Lewis have announced aworking to improve this situation. The Intensive Policy forpolicy of recommending shareholders of Japanese companies

Women’s Empowerment and Gender Equality 2023 (Basic

reject, in principle, any proposal for the election of directors

Policies Related to Women 2023) announced by thethat does not include women candidates, at general meetings

Japanese government in June 2023 included the goals forof shareholders held from February 2023 onward. There isPrime Market-listed companies of appointing at least one

also a movement among institutional investors in Japan andfemale executive by around 2025 and at least 30% female

abroad to consider voting against such proposals.
GPIF ESG REPORT 2022

56

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Chapter 3

Evaluation andAnalysis of Climate
Change Risks andOpportunities

Ever since GPIF declared its support for the recommendations of the Task Force on Climaterelated Financial Disclosures (TCFD) in 2018, we have engaged in annual evaluations andanalysis of climate change risks and opportunities. As part of these efforts, we examine a
range of different indicators and engage in new methods of analysis. This time, we analyzed
factors such as contribution to greenhouse gas reductions and the measurement of impact
from projects funded by the ESG bonds that GPIF invests in. The scope of this analysis is not
limited to climate change-related factors but also includes trial analysis concerning naturalrisks and biodiversity, which are progressively becoming topics of debate in recent years.
57

GPIF ESG REPORT 2022

P.59

Disclosure and Analysis of Climate-Related Financial Information:
Composition and Key Points

P.69

Implied Temperature Rise Analysis

P.71

Analysis of Government Bond Portfolio Using Sovereign Bond Climate Value-at-Risk

P.61

Analysis of Portfolio Greenhouse Gas Emissions— Characteristics of GPIF’s Portfolio —P.73

Analysis of Real Estate Portfolio Using Climate Value-at-Risk

P.75

Analysis of Avoided Emissions Based on the Bottom-up Approach

P.63

Analysis of Portfolio Greenhouse Gas Emissions— Carbon Footprint and Carbon Intensity —P.79

Measuring the Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio

P.67

Analysis of the Status of GHG Information Disclosure and Target Setting

P.83

Nature-Related Risks including Biodiversity and TNFD Trial Analysis

GPIF ESG REPORT 2022

58

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Disclosure and Analysis of Climate-Related
Financial Information: Composition and Key Points
As part of our climate-related financial disclosures compliant with the TCFD recommendations, in the “Analysis of
Implied Temperature Rise,” we evaluated the credibility of the GHG reduction targets set forth by companies,
analyzed contribution to GHG reductions, and measured the impact of projects funded by the ESG bonds that GPIF
invests in. Moreover, for the first time, we implemented a trial analysis concerning nature-related risks in line withthe recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD).

Composition of Chapter 3 and TNFD Trial Analysis
For this year’s report, we appointed the Intercontinental

Global. The TNFD, as a framework following TCFD, was

Exchange Group (ICE) and MSCI to provide analysis support

envisaged at the 2019 World Economic Forum in Davos and isfor our climate-related financial disclosures in line with TCFD

now an international organization established to build arecommendations, conducting a multifaceted analysis thatframework for organizational risk management and disclosure

drew on the characteristics of each of these companies. In our

related to nature. GPIF has not declared its endorsement ofanalysis of the carbon footprint and carbon intensity of our

the TNFD, but we believe that nature-related risks, just likeentire portfolio, GPIF conducts evaluations based on the

climate-related risks, can potentially affect assets undergreenhouse gas (GHG) emissions data provided by S&P Global

management through their impact on the corporate value of(formerly Trucost), which we have been using for some time.

investee companies. However, it is also true that, unlike

Moreover, for the first time, we implemented a trial

individual companies, pension funds that manage portfolios

analysis concerning the nature-related risks of GPIF’s portfolio

have a limited range of options for managing these risks, andin line with the recommendations of the Taskforce on Nature-

we have positioned our analysis in this report as a trial

related Financial Disclosures (TNFD), in cooperation with S&P

analysis mainly aimed at deepening understanding.

Figure 1. Major Analysis of Climate Change-Related Risks and Opportunities Conducted for This Report
Asset Class

Analysis Performed by /Data Provided by

Equities / corporate bonds

S&P Global

Equities

S&P Global/MSCI

Implied Temperature Rise Analysis

Equities / corporate bonds

MSCI

Climate Value-at-Risk (CVaR) analysis

Government bonds / real estate

MSCI

Contents of Analysis
Carbon footprint / Carbon intensity analysis
Analysis of the Status of GHG Information Disclosure and Target Setting

Equities
Analysis of Contribution to GHG Reduction Based on the Bottom-up Approach (Zero emissions vehicles and power generation business)

ICE

Measuring the Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio

ESG bonds

ICE

Biodiversity and Other Nature-Related Risks and TNFD Trial Analysis

Equities

S&P Global(Source) Prepared by GPIF based on various materials

59

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Key Points of the Analysis
bonds in terms of managing and disclosing information on the

improvements to our previous reports. Here, we present threeuse of proceeds. For example, under Green Bond Principles

key points.

(GBP)1 established by the International Capital Market
Association (ICMA), green bonds are defined as “any type ofevaluation of “avoided emissions,” indicating how much abond instrument where the proceeds or an equivalent amountcompany’s own products and services have contributed towill be exclusively applied to finance or re-finance, in part or in

reducing the GHG emissions of others. Companies that possess

full, new and/or existing eligible Green Projects (...) and which

products and services associated with high “avoided emissions”

are aligned with the four core components of the GBP.” (These

have a significant competitive advantage in the context of thefour core components are 1. Use of Proceeds, 2. Process for

global movement to reduce GHGs, and this may also be a key

Project Evaluation and Selection, 3. Management of Proceeds,

element that affects investment performance for investors as

and 4. Reporting.) Regarding reporting, the GBP state that thewell. At GPIF, we first analyzed the contribution to GHG reduction“annual report should include a list of the projects to which— “avoided emissions” — in our ESG Report 2020. In

Green Bond proceeds have been allocated, as well as a brief“Analysis of Inter-Industry Transfer of Transition Risks anddescription of the projects, the amounts allocated, and theirOpportunities” in our ESG Report 2020, we calculated the

expected impact.” At GPIF, we collect and analyze information

contribution to GHG reduction from each industrial technology

on expected impact, and the status of information disclosure

field and evaluated net opportunities of GHG reduction, equal tofrom the projects to be funded from the proceeds of ESG bonds

the difference between this contribution and the required GHG

based on these reports prepared by the bond issuers (impact

reductions in each industry. This analysis by industry took areports). Given the recent criticism of greenwashing andsemi-macro approach based on each technology field. This

SDGs-washing, it is becoming increasingly important for

time, in our “Analysis of Contribution to GHG Reduction Basedinvestors to understand the use of ESG bond proceeds andon the Bottom-up Approach (pages 75 to 78),” we have carried

information disclosure.

out a bottom-up analysis based on the avoided emissions from

Lastly, we present the improvements made in “Analysis of

the technologies used by individual companies, such as sales

Portfolio’s Implied Temperature Rise” (pages 69 to 70). Recently,

and production plans for zero emissions vehicles and powera steady increase can be seen in number of companies not only

generation plans using renewable energy sources. Unlike last

disclose their GHG emissions but also publish emissions

time, we narrowed down the subjects to the automotive

reduction targets. At the same time, however, there is growing

industry and the power generation industry, two industries

doubt over the credibility of the GHG emissions reduction

where the reduction of GHGs is considered to have a substantial

targets published by companies. In our “Analysis of Implied

effect on corporate value and other measures. For electric

Temperature Rise,” we evaluated the credibility of the GHG

vehicles, we considered factors such as the GHG emissions

emissions reduction targets published by companies using four

associated with generating the electricity used to run theperspectives: (1) short-term targets set for each emissions

vehicle, for which a deeper analysis can be achieved .

scope, (2) third-party verification by the Science Based Targets

Meanwhile, for the first time we conducted an analysis

initiative (SBTi), (3)the issuer’s track record for achieving past

concerning ESG bonds, in “Measuring the Impact of Projects

targets, and (4)progress towards current targets. By calculating

Funded Using ESG Bonds in GPIF’s Portfolio” (pages 79 to 82).

the implied temperature rise based on this evaluation, we aim to

ESG bonds entail different issuer responsibilities from regularimprove the accuracy of the calculation.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Disclosure and Analysis of Climate-Related Financial Information: Composition and Key Points

Recently, there is a trend towards the quantitative

Chapter 2
Measuring the Effectsof ESG Activities

In the FY2022 ESG Report, we introduce new analyses and1 ICMA’s 2021 Green Bond Principles Voluntary Process Guidelines for Issuing Green Bonds
https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Green-Bond-Principles-June-2022-060623.pdf

GPIF ESG REPORT 2022

60

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Portfolio Greenhouse Gas Emissions— Characteristics of GPIF’s Portfolio —Industry sectors withhigh GHG emissions per unit of net sales

In Chapter 3, we measure the greenhouse gas emissions from the assets
in GPIF’s portfolio and conduct an analysis of the portfolio’s physical(Domestic equities)
EnergyUtilities
Materials

risks. As a preliminary step, this section presents the characteristics of
GPIF’s portfolio and our measurements of greenhouse gas emissions per
million yen of sales for each industry sector.

Characteristics of GPIF’s Portfolio
In Chapter 3, we analyze the measurement of greenhouse gas

foreign equities for 24.32%. The majority of bond holdings, bothemission volumes (“GHG emissions”) and transition risks1, as

domestic and foreign, consist of government bonds andwell as analyzing the physical risks relating to the assets ingovernment-related bonds (Figure 1).

2

GPIF’s portfolio, using data as of March 31, 2023. The analysis

When examining GPIF’s equities portfolios by sector, there ismainly looks at four asset classes in GPIF’s portfolio: domestica difference in the composition of the domestic and foreign equity

bonds, foreign bonds, domestic equities, and foreign equities. In

portfolios (Figure 2). The domestic equities portfolio has a higher

this report, we also attempted an analysis of some alternative

proportion invested in the relatively high-emitting industrials andassets (GPIF’s domestic real estate portfolio). Because analysis

consumer discretionary sectors, while the foreign equities portfolio

results are heavily influenced by the investment amount andhas a high proportion in the low-emitting information technology,

sector weighting of each asset class, it is important tofinancials, and healthcare sectors.

3

understand the characteristics of our portfolio prior to

There is also a difference in the composition by industry

interpreting these results.

sector in GPIF’s corporate bond portfolio between domestic

The GPIF portfolio is composed of roughly half bonds andbonds and foreign bonds (Figure 3). Financials account for thehalf equities by overall market value. As of March 31, 2023,

largest proportion for both domestic and foreign bond portfolios,

domestic bonds accounted for 26.79% of the total portfolio,

but among domestic corporate bonds, the proportion invested inforeign bonds for 24.39%, domestic equities for 24.49%, andthe sectors such as utilities and industrials is higher than that

Figure 1. Breakdown by Category in GPIF Bond Portfolio
（%）
100
90

87.9

Domestic Bonds
Foreign Bonds
As of March 31, 2023

90.4

80

bonds, the proportion invested in the high-emitting energy
sector is higher than that of domestic corporate bonds, butthere is also a high proportion invested in the low-emitting

70
60
50

sectors of communications services, healthcare, and40
30

information technology.

20

6.6

10
0

for foreign corporate bonds. Moreover, among foreign corporate

Government Bonds,
Government-Related Bonds

4.8

Corporate Bonds(Note) “Others” includes securitized products.
(Source) GPIF

5.6

4.8

OthersThe next figure (Figure 4) looks at characteristics of GHG
emissions by asset class and industry sector. The data shown
here is for GHG emissions per million yen of sales. The

1 Transition risks are risks that arise from policy, technological innovation, demand change, etc. that accompany the transition to a low-carbon economy.
2 Physical risks are risks from direct damage to an asset, supply chain disruption, etc., caused by climate change.
3 Alternative assets account for around 1.38% of the pension reserve fund (up to 5% of the policy asset mix), and are generally allocated to the four main portfolio asset types according to their characteristics.

61

GPIF ESG REPORT 2022

sector includes electric power companies, and the materials

from the consumption and use of sold products and services

sector includes chemicals and iron and steel manufacturers,(Scope 3 downstream) in addition to direct emissions by thethese three sectors tend to emit higher GHG emissions thancompany itself (Scope 1), indirect emissions related toother sectors.
It is necessary to bear this sector characteristic in GHG

procured products and services other than purchased electricity

emissions in mind when understanding the results of the(Scope 3 upstream) (Figure 5). For domestic equities, emissions

analysis presented in the following sections. Around 90% of

are high in the energy, utilities, and materials sectors. The same

stock investments and 70% of bond investments by GPIF are

tendency can be observed in other asset classes as well. Sincepassive investments, which means our investment is largely

the energy sector includes oil and coal companies, the utilities

identical to the sector ratios of each benchmark.

Figure 2. Breakdown of GPIF Equities Portfolio by
Sector 4 Based on Total Market Value

Figure 3. Breakdown of GPIF Corporate Bond Portfolio by
Sector Based on Total Market Value

（%）
30

（%）
50

Domestic Bonds
Foreign Bonds
As of March 31, 2023

40

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Analysis of Portfolio Greenhouse Gas Emissions — Characteristics of GPIF’s Portfolio —Domestic Equities
Foreign Equities
As of March 31, 2023

Chapter 2
Measuring the Effectsof ESG Activities

purchased electricity (Scope 2), and indirect emissions from

Chapter 1
GPIF’s ESG Initiatives

calculation scope of GHG emissions includes indirect emissions

20
30

20
10
10

0

0

EnergyInformation
Technology

Healthcare

Consumer Staples

Materials

Real EstateCommunications
Services

Consumer
Discretionary

Industrials

Utilities

Financials

EnergyUtilities

Real Estate

Materials

Consumer Staples

Communications
Services

Healthcare

Financials

Information
Technology

Industrials

Consumer
Discretionary(Source) GPIF

(Note) Only corporate bonds are analyzed. Bonds by unlisted companies are classified according to thesector of their parent company or equivalent.
(Source) GPIF

Figure 4. Greenhouse Gas Emissions per Million Yen of Sales (CO2 Equivalent Tons)

Domestic Equities
Foreign Equities
Domestic
Corporate Bonds
Foreign
Corporate Bonds

EnergyUtilities

30.03
44.03

19.80
25.56

19.01
27.10

Consumer Consumer
Discretionary Staples
17.79
10.02
5.00
27.47
7.18
5.55

28.66

16.52

26.11

10.94

12.15

4.39

3.05

3.87

1.34

3.36

1.22

39.49

25.59

20.14

17.54

12.40

8.99

6.05

2.50

1.05

4.84

0.88

Materials Industrials

Real
Information Communications Financials Healthcare
Estate Technology Services
3.71
3.06
1.65
1.54
1.13
8.33
5.83
1.19
2.95
0.97

(Note) The calculation scope of greenhouse gas emissions includes Scopes 1, 2, and 3. The year-to-year percentage changes in GHG emissions of plus or minus 1% have been excluded from calculations as outliers.
Data is as of March 31, 2023 (GHG emissions data is calculated from available data as of March 31, 2023).
(Note) Carbon footprint is apportioned based on the percentage of the stocks/bonds holdings of the issuing companies. The apportion is calculated using the size of the holding in stocks/bonds in the issuing
companies at the time of analysis as the numerator and the enterprise value including cash (EVIC) as the denominator.
(Source) Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost 2023

Figure 5. Greenhouse Gas Emissions by Scope
Scope 3 Upstream

Scope 1

Scope 2

Direct emissions associatedwith the company’s activities

Indirect emissions associatedwith the use ofelectricity and steam(e.g., emissions associated with
fuel combustion, product manufacturing)Raw materials Employee commuting Transportation
and business travel

Leased assets

Use ofsold products

Waste generated
in operations

Upstream activities

Scope 3 Downstream

End-of-life
treatment

Transportation anddistribution

Reporting company

Processing

Investments

Downstream activities(Note) The above figure indicates the major sectors included in each scope.
(Source) Created by GPIF based on the Greenhouse Gas Protocol, etc.
4 Based on the 11 sectors of the Global Industry Classification Standard (GICS).

GPIF ESG REPORT 2022

62

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Portfolio Greenhouse Gas Emissions— Carbon Footprint and Carbon Intensity —Portfolio carbon footprint

This analysis measures the greenhouse gas emissions (carbon footprint) of
the companies held in GPIF’s portfolio, as part of our climate-related(Domestic equities)
YoY

in greenhouse gas emissions in each asset class are significantly affected+by the changes in stocks/bonds held and amounts held in GPIF’s portfolio.

financial disclosures in line with the TCFD recommendations. The changes

0.07%

Greenhouse Gas Emissions by Sector Significantly Affected by Scope 3
Figure 1 shows GHG emissions1 for the equity and corporatecompanies in these sectors, as analysis results changebond portfolios at the end of FY2022 by sector and by scope.

significantly depending on whether or not Scope 3 is included in

As in Figure 4 on the previous page, this includes Scope 1,

the calculation. In the analyses below, the top and bottom 1% of

Scope 2, and Scope 3 GHG emissions. For both the equity andequities and bonds in terms of year-to-year percentage change

corporate bond portfolios, total emissions were high in thein GHG emissions have been excluded from our calculations as

industrials, consumer discretionary, materials, and energy

outliers. Further, many companies do not disclose their Scope 3

sectors. Scope 3 Downstream emissions account for anemissions, leading to a dependence on estimates from models .

extremely high proportion of total emissions in these sectors.

For this reason, scope 3 emissions are excluded from

Caution is required for portfolios with a higher weight ofcalculations of emission trends (Figures 3 and 6).

Figure 1. Greenhouse Gas Emissions by Scope
Equities Portfolio

Corporate Bonds Portfolio(× 10,000 tCO2e)(× 10,000 tCO2e)
86%

Industrials

16%

Utilities
60%

Consumer Discretionary

75%

Materials

Materials

49%

Consumer Discretionary

Energy83%

Energy81%
76%

Consumer Staples

27%

Industrials

Information Technology

59%

Financials

80%

90%
16%

Utilities

41%

Consumer Staples

Financials

81%

Real Estate

61%

Healthcare

10%Communications Services

38%

Communications Services

44%■Scope 3 Upstream

Information Technology

44%■Scope 3 Upstream

Real Estate

70%■Scope 3 Downstream

Healthcare

5%■Scope 3 Downstream

0■Scope 1■Scope 2

5,000

10,00015,00020,0000■Scope 1■Scope 2

200

400

600

800

(Note) Available data as of March 31, 2023.
(Note) Numbers on graph are the percentage of Scope 3 Downstream emissions to total emissions.
(Source) Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost 2023
1 Carbon footprint is apportioned based on the percentage of the stocks/bonds holdings of the issuing companies. The apportion is calculated using the size of the holding in stocks/
bonds in the issuing companies at the time of analysis as the numerator and the enterprise value including cash (EVIC) as the denominator.

63

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Carbon Footprint (GHG Emissions) Analysis

the equity and corporate bond portfolios as of the end ofclass. For example, for domestic equities, GHG emissions rose

FY2022. Looking at the total GHG emissions by asset class,slightly by approximately 20,000t (+0.07%) YoY. We havedomestic equities were found to have the highest level ofanalyzed the causes for this rise in terms of “investee

emissions, followed by foreign equities, domestic corporate

emissions,” which represents the change due to GHG

bonds, and foreign corporate bonds. This reflects the relativeemissions by investee companies, “portfolio weighting,” which

size and sector of holdings of each asset class within GPIF’s

represents the change due to the proportional weights ofportfolio as shown in Figures 1 to 4 on the previous page. The

stocks and bonds in the portfolio, and “other,” which

breakdown of GHG emissions in each asset class shows that

represents other causes. For domestic asset classes, whereas

Scope 3 accounts for the major proportion of total emissions

investee emissions decreased, an increase was caused byfor all assets.

portfolio weighting. In other words, changes in the stocks held

Figure 3 shows the trend in GHG emissions (Scope 1+2),

and the amount of the holdings in the portfolio were mainly

using 100 for fiscal 2016 emissions as a base. The five years

responsible for the rise in GHG emissions. On the other hand,from fiscal 2016 saw a general decline in all asset classes, butinvestee emissions were the main cause of the increase in

the trend has levelled-off for domestic equities, foreign equities,

emissions for foreign asset classes. (Please refer to Figure 8

and foreign bonds, and has begun rising for domestic bonds.

on page 66 for the carbon footprint and an analysis of the

Figure 4 shows the main causes of the change in GHG

main causes by sector for each asset class.)

Figure 2. Carbon Footprint by Scope
35
30

29.5

25
20

■Scope 3 Downstream

140■Scope 3 Upstream

120
100

■Scope 1

80

10

60

5
0

(FY2016 = 100)160

15.5 ■Scope 2

15.1

15

Figure 3. Carbon Footprint Trends(× 10 million tCO2e)

30.4

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Analysis of Portfolio Greenhouse Gas Emissions — Carbon Footprint and Carbon Intensity —emissions (Scope 1+2) from FY2021 to FY2022 by asset

Chapter 2
Measuring the Effectsof ESG Activities

Figure 2 shows the calculation of Scope 1–3 emissions1 for

1.7
GPIF
Portfolio

TOPIX

Domestic Equities

GPIF
Portfolio

MSCI ACWI Domestic
ex Japan Corporate
Bonds

Foreign Equities

40

0.7

20
2016

Foreign
Corporate
Bonds

Bonds

2017

2018

2019

2020

2021

Domestic Equities

TOPIX

2022
(Fiscal year)
Foreign Equities

MSCI ACWI
ex JapanDomestic
Corporate Bonds

Foreign
Corporate Bonds(Note) Figure 2: Available data as of March 31, 2023.
(Note) Figure 3. Carbon footprint is calculated based on Scope 1+2(Source) Figures 2 & 3: Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost2023

Figure 4. Analysis of Main Causes of Change in Carbon Footprint (By Asset Class)Equities
Corporate Bonds(× 10,000 tCO2e)

Domestic asset classes

Foreign asset classes

Emissions Change in emissions due toFY2022
Investee
Portfolio
emissions weighting

Emissions Change in emissions due toFY2022
Investee
Portfolio
emissions weighting

Other

Other

3,248

+2

-282

+317

-33

1,965

+91

+80

+3

+7

605

+205

-23

+221

+7

110

+4

+9

-2

-3

(Source) Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost2023

GPIF ESG REPORT 2022

64

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Carbon Intensity Analysis
Figure 5 measures Scope 1–3 carbon intensity for the equity

significantly for domestic corporate bonds.

and corporate bond portfolios at the end of FY2022. For thisFigure 7 shows the main causes of the change in WACI

analysis, weighted average carbon intensity (WACI), the(Scope 1+2) from FY2021 to FY2022 by asset class. We havedisclosure of which is recommended by the TCFD, was used as

analyzed the causes of this change in terms of “investee carbon

the basis for the calculation of carbon intensity. WACI isintensity,” which represents the change due to the carbon

calculated by multiplying each company’s GHG emissions per

intensity (GHG emissions divided by net sales) of investee

million yen of sales by the company’s weighting in the portfolio,

companies, “portfolio weighting,” which represents the changethen taking the sum of those products to obtain the weighted

due to the proportional weights of stocks and bonds in the

average of carbon intensity. By asset class, WACI was highest in

portfolio, and “other,” which represents other causes. For all

the domestic corporate bond portfolio, with domestic equities

asset classes, whereas investee carbon intensity decreased, an

having the lowest WACI. Scope 3 accounts for the majority ofincrease was caused by portfolio weighting. In other words,

WACI for all asset classes.

changes in the stocks held and the amount of the holdings in

Figure 6 shows the trend of WACI (Scope 1+2), using 100

the portfolio were mainly responsible for the rise in WACI.

for fiscal 2016 as a base. The five years from fiscal 2016 saw a(Please refer to Figure 9 on page 66 for WACI and an analysis

general decline in all asset classes, but recently, WACI has risenof the main causes by sector for each asset class.)

Figure 5. Weighted Average Carbon Intensity (WACI) by Scope

Figure 6. Trends in Weighted Average Carbon Intensity (WACI)18
16(WACI, tCO2e)■Scope 1 ■Scope 2 ■Scope 3 Upstream ■Scope 3 Downstream

14
12
10

10.4

10.4

11.2

11.7

12.8

120
11.1

100

8

80

6

60

4

40

2
0

(FY2016 = 100)

140

GPIF
Portfolio

TOPIX

Domestic Equities

GPIF
Portfolio

MSCI
ACWI
ex JapanDomestic
Corporate
Bonds

Foreign Equities

20
2016

Foreign
Corporate
Bonds

Bonds

2017

2018

2019

2020

2021

Domestic Equities

TOPIX

2022
(Fiscal year)
Foreign Equities

MSCI ACWI
ex JapanDomestic
Corporate Bonds

Foreign
Corporate Bonds(Note) Figure 5: Available data as of March 31, 2023.
(Note) Figure 6. WACI is calculated based on Scope 1+2.
(Source) Figures 5 & 6: Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost2023

Figure 7. Analysis of Main Causes of Change in Carbon Intensity (By Asset Class)
Domestic asset classes

Foreign asset classes

Change in WACI due to
WACI
FY2022

Change in WACI due toInvesteecarbonintensity

Portfolio
weighting

Other

WACI
FY2022

Investeecarbonintensity

Portfolio
weighting

Other

Equities

1.02

+0.02

-0.03

+0.04

+0.01

1.46

-0.19

-0.23

+0.06

-0.03

Corporate Bonds

3.94

+1.67

-0.00

+1.68

-0.01

1.87

+0.06

-0.25

+0.30

+0.00

(Source) Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost2023

65(WACI, tCO2e)

GPIF ESG REPORT 2022

Other
+0
+1
-0
+1
+0
-0
-25
-0
-12
+0
+3

Emissions Change in emissions due toFY2022
Investee Portfolio
emissions weighting
Foreign Equities
19
+0
+1
-1
49
-0
-2
+0
74
-6
-4
-1
388
+66
+23
+42
30
+4
+3
+1
23
+0
+1
-1
134
+8
+11
-3
62
+8
+6
+1
689
+2
+8
-8
9
-1
-1
-0
489
+9
+34
-27
Foreign Bonds
1
-0
+0
-0
4
+0
+0
-0
3
+0
+0
+0
19
-3
+3
-4
1
+0
+0
+0
2
-0
+0
-0
8
-1
+1
-2
1
-0
-0
-0
24
-2
+3
-4
1
-0
-0
-0
47
+10
+1
+9

Figure 9. Analysis of Main Causes of Change in WACI (By Sector)
Change in WACI due toInvestee
Portfolio
carbonweightingintensity
Domestic Equities
Communications Services
20
-0
-1
+0
Consumer Discretionary
65
-1
-2
+1
Consumer Staples
49
+3
-3
+6
Energy
32
-14
-13
-2
Financials
7
-2
-1
-1
Healthcare
27
+2
+0
+2
Industrials
229
-3
-11
+10
Information Technology
56
-10
-4
-6
Materials
424
+44
+11
+25
Real Estate
12
-2
-2
-1
Utilities
102
+5
-0
+5
Domestic Bonds
Communications Services
18
-5
-2
-3
Consumer Discretionary
29
+1
+6
-3
Consumer Staples
18
+2
-1
+2
Energy
60
-25
-11
-12
Financials
32
-6
-6
-1
Healthcare
7
-2
+0
-2
Industrials
215
-16
+57
-59
Information Technology
15
-0
+0
-0
Materials
291
+65
+21
+44
Real Estate
23
-3
-2
-1
Utilities
3,232 +1,656-65 +1,711
WACI
FY2022

Other
+0
+2
-1
+2
+0
-0
+0
+0
+2
-0
+2
-0
-0
-0
-2
-0
-0
-0
+0
-1
+0
+0

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Analysis of Portfolio Greenhouse Gas Emissions — Carbon Footprint and Carbon Intensity —

+0
-0
+0
+1
+0
-0
+5
-0
-0
+0
+2

(× 10,000 tCO2e)

Chapter 2
Measuring the Effectsof ESG Activities

Emissions Change in emissions due toFY2022
Investee Portfolio
emissions weighting
Domestic Equities
Communications Services
38
-0
+0
-0
Consumer Discretionary
229
-8
-9
+0
Consumer Staples
160
-11
-6
-4
Energy
136
-28
-14
-14
Financials
9
-1
-1
-0
Healthcare
41
-0
-1
+0
Industrials
606
-193
-191
+23
Information Technology
115
-15
-4
-11
Materials
1,659
+268
-60
+340
Real Estate
15
-3
-2
-1
Utilities
239
-7
+7
-16
Domestic Bonds
Communications Services
2
-1
-0
-1
Consumer Discretionary
7
-1
-0
-1
Consumer Staples
4
-0
-0
-0
Energy15-7-1-7Financials
2
-0
-0
+0
Healthcare
1
-0
+0
-0
Industrials
24
-20
-14
-11
Information Technology
2
+0
+0
+0
Materials
78
+12
+1
+11
Real Estate
2
+0
-0
+0
Utilities
469
+221
-9
+229

Chapter 1
GPIF’s ESG Initiatives

Figure 8. Analysis of Main Causes of Change in Carbon Footprint (By Sector)

(WACI, kgCO2e)

Other

-0
-0
-0
+1
+0
-0
-1
+0
+8
+1
+0
+0
-2
+0
-1
+1
-0
-13
-0
-1
+0
+10

Change in WACI due toInvestee
Portfolio
carbonweightingintensity
Foreign Equities
18
-4
-2
-2
61
-9
-11
+2
42
-3
-7
+5
219
-45
-76
+55
30
-2
-4
+0
24
-7
-5
-2
118
-17
-16
+0
66
-9
-8
-2
363
-78
-69
-5
20
-5
-4
-2
496
-16
-26
+15
Foreign Bonds
22
-3
+1
-4
104
+28
+7
+18
25
+1
-3
+4
302
-123
-105
-17
26
-2
-5
+2
21
-8
-3
-6
114
-27
-14
-17
9
-1
-1
-1
227
-59
-43
-11
44
-25
-12
-16
973
+275
-70
+347
WACI
FY2022

Other

+0
-0
-0
-24
+1
+1
-1
+1
-4
+1
-6
+0
+3
+0
-0
+1
+1
+4
-0
-5
+3
-1

(Source) Figures 8 & 9: Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost2023

GPIF ESG REPORT 2022

66

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of the Status of GHG Information
Disclosure and Target Setting
Scope 1 Disclosure by companies

We examined the status of information disclosure and target-setting on
greenhouse gas emissions by individual companies in GPIF’s portfolio. While(Domestic equities)

companies’ disclosure is improving, we found that, from the perspective of78

setting GHG emissions reduction targets, companies in many sectors have%

not yet been able to establish targets in line with actual emissions.

Percentage of Disclosure by Scope
Figure 1 shows the trend in corporate disclosure on GHG

across all asset classes. However, the disclosure rate foremissions in GPIF’s equity and corporate bond portfolios

domestic asset classes still lags behind the level forsince FY2018 and the status of disclosures as of March 31,

foreign asset classes. The most recent disclosure rate for2023 by scope. For Scope 3 emissions, the Scope 3

Scope 3 Downstream is still around 50% across all asset

Upstream GHG emissions data provided by S&P Global forclasses, but is rising for all asset classes except for foreign

all categories (except for air freight, rail transportation, andcorporate bonds. Unlike in the case of Scope 1 and Scope

trucking) are estimates based on models, and we have2, the Scope 3 Downstream disclosure rate for domestic

therefore only included Scope 3 Downstream. We haveequities is at roughly the same level as for foreign equities.

weighted the rate of disclosure based on the amount of

A breakdown of the status of disclosures (Figure 1 (4))

each asset held in our portfolio.

shows a large proportion of Scope 1 disclosures in

The trend since FY2018, presented in Figure 1 (1) to(3), shows that the disclosure rate (including partial

domestic asset classes, indicating progress in thedisclosure on direct emissions.

disclosure) has been rising for both Scope 1 and Scope 2
Figure 1. Trend in Disclosure Rates ((1), (2) and (3)) and Status of Disclosure as of March 31, 2023 ((4)) Weighted by Portfolio Holdings(%)
90(1) Scope 1

(%)
90

89

85

84

85

80

81

80

75

Domestic Equities
Foreign Equities
Domestic Corporate Bonds
Foreign Corporate Bonds

65
60

2018

2019

2020

2021

(3) Scope 3 Downstream

(%)
60

2022
(Fiscal year)
57
52
50

Domestic Equities
Foreign Equities
Domestic Corporate Bonds
Foreign Corporate Bonds

70
65
60

2018

2019

2021

2022
(Fiscal year)

80%
60%

Scope 3

Scope 2

GPIF ESG REPORT 2022

Scope 1

(Note) Disclosure includes partial disclosure, except in panel (4).
(Source) Prepared by GPIF based on data from S&P. S&P Global Sustainable1, S&P Trucost Limited ©Trucost2023

Scope 3

Domestic Equities

Scope 2

2022
(Fiscal year)

Scope 1

2021

Scope 32020

Scope 2

2019

Scope 1

2018

0%

Scope 325

20%
Scope 230

Scope 1

Domestic Equities
Foreign Equities
Domestic Corporate Bonds
Foreign Corporate Bonds

35

67

2020

40%

40

20

79
79

100%
56

45

81

(4) Breakdown of the Status of Disclosure as of March 31, 2023

55
50

89

75

78

70

(2) Scope 2

Foreign Equities
Domestic Corporate Bonds Foreign Corporate Bonds■Disclosed ■Partially Disclosed ■EstimatedChapter 1
GPIF’s ESG Initiatives

Status of GHG Emissions Reduction Targets
emissions. Meanwhile, panel (2) shows that companies tend to

examine the GHG emissions reduction targets set among

set targets for Scope 1+2,regardless of the proportion of Scope

Japanese companies1 and foreign companies (in developed

1+2 emissions . Panel (3) shows that, as a result, sectors such ascountries).2 In compiling data for Figure 2, we examined the“Utilities,” which have a large proportion of Scope 1+2 emissions,degree to which each company had (1) measured its GHG

tend to have a high coverage rate, while sectors such as

emissions by scope, then (2) assessed targets set for GHG“Financials,” which have a large proportion of Scope 3 emissions,emissions by scope. We calculated the emissions targets

tend to have a low coverage rate. Some areas of Scope 3

coverage rate (3) based on (1) and (2).

emissions are difficult for companies to reduce directly throughPanel (1) in Figure 2 shows different tendencies among

their own efforts, and we conjecture that this results in many
companies not setting Scope 3 targets. However, in some sectors,

companies, a large proportion of emissions for “Utilities” arethe reduction of Scope 3 emissions may significantly affect

Scope 1+2, “Financials” have a larger proportion of Scope 3

companies’ future competitive strength.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Analysis of the Status of GHG Information Disclosure and Target Setting

industry sectors. Whereas, for both Japanese and foreign

Chapter 2
Measuring the Effectsof ESG Activities

In this section, we use target-level data provided by MSCI to

Figure 2. Status of GHG Emissions Reduction Targets (Japanese and Foreign Companies)
Japanese Companies(1) Sector Average of GHG Emissions by Scope
Utilities

n=19

48

Materials

n=84

26

Real Estate

n=63

21

Industrials n=183

11

Consumer Staples

n=70

10

Information Technology

n=74

9

Healthcare

n=36

9

Consumer Discretionary n=104

8Communications Services

n=19

7

Energyn=8

7Financials

n=52

2

MSCI Japan IMI n=712

16
0

54

46

0 0 12

30

70

27

36

64

19

21

79

1 0

29

26

74

14

27

28

72

0 0

19

18

82

74

44

18

19

81

11

74

5 0

21

14

86

79

63

38

19

81

58

81

13

8

92

31

76

20

24

32

88

3

68

36

78

10

70

64

27

68

64

27

81

45

76
53
80

47
82
14
40
52
40

60

80

(3) GHG Emissions Targets Coverage Rate

16

79

42

20

(2) Percentage of Companies with Targets by Scope

30

22

100 0
（％）

5 0

32
22

0 0
24
22
20

40

60

80

100 0
（％）

76
20

40

60

80

100
（％）

Foreign Companies(1) Sector Average of GHG Emissions by Scope
Utilities n=126

40

Materials n=248

26Real Estate n=248

18

Industrials n=499

14

Consumer Staples n=171

10

Information Technology n=200

9Healthcare n=149

8Consumer Discretionary n=285

8Communications Services n=101

10Energy n=159

17

Financials n=268

6

MSCI Kokusai IMI n=2454

160(2) Percentage of Companies with Targets by Scope(3) GHG Emissions Targets Coverage Rate

37

51

49

22

29

38

62

66

21

31

33

67

34

62

4 3

31

35

65

13

51

45

37

63

22

61

33

31

69

30

66

24

26

74

42

58

53

34

31

69

10

60

40

36

32

68

16

67

76

21

32

68

45

49

54

42

35

65

31

62

33

34

28
40
75
53
77
70
62
51
80

52
20

40

60

80

32

56

34

67

7

100 0
（％）

■Scope 1+2■Scope 3 Upstream■Scope 3 Downstream

52

41
53
6 3

12
23
32
20

40

60

80

■Scope 1+2■Scope 1+2+3 Upstream■Scope 1+2+3 Upstream+Downstream■Scope 1+2+3 Category undefined

100 0
（％）

66
20

40

60

80

100
（％）

■Covered by targets■Not covered by targets(Source) Reproduced by permission of MSCI ESG Research LLC ©2023
1 Includes only companies in the MSCI Japan IMI that have set GHG emissions reduction targets
2 Includes only companies in the MSCI Kokusai IMI that have set GHG emissions reduction targets

GPIF ESG REPORT 2022

68

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Implied Temperature Rise Analysis
Implied temperature rise of GPIF’s portfolio

Based on projected GHG emissions from the companies in GPIF’s portfolio
until 2050, we have evaluated their possible impact on global warming in

2.5℃
Foreignasset classes: 2.6℃

Domestic
asset classes:

terms of the rise in temperature. By asset class, we found an implied
temperature rise of 2.5°C for domestic asset classes and 2.6°C for foreign
asset classes, indicating an overall rise exceeding 2°C.

Implied Temperature Rise Analysis of GPIF’s Portfolio
In this section, we will examine the results of our analysis

to what extent emissions overshoot or undershoot budget,using MSCI’s Implied Temperature Rise (ITR). ITR evaluates(3) is multiplied by the global-level carbon budget required

the extent of potential to cause global warming from a target

for the world to achieve the 1.5°C target. Then, bycompany’s projected greenhouse gas (GHG) emissions,multiplying the Transient Climate Response to Cumulative

shown as an increase in temperature.

Emissions (TCRE) factor3 based on scientific findings, theWe calculate implied temperature rise as follows. (1) The
Net Zero 2050 scenario provided by NGFS1 is used toestimated corporate GHG emissions are converted into ameasurement of temperature increase (Figure 1).

calculate the carbon budget available to individual

The results of the analysis showed that the implied2

companies based on elements such as the company’s

temperature rise across GPIF’s portfolio was 2.5°C forpresent revenue, carbon intensity, and the emissions

domestic equities, 2.5°C for domestic bonds, 2.6°C for

reduction pathways for each emitting sector indicated in theforeign equities, and 2.6°C for foreign bonds (Figure 1). In

NGFS scenario. (2) The company’s future GHG emissions are

all asset classes, the forecast temperature rise exceeds 2°C,

projected from its current GHG emissions and a target

with a slightly lower rise for domestic asset classes. This iscredibility assessment of its declared GHG emissions

thought to be due mainly to the lower proportion of

reduction targets (described below), and the difference fromJapanese companies for which ITR is 10°C or above,(1) is calculated on an emissions basis. After dividing thatcompared to foreign companies (Figure 2).

difference by the allocated carbon budget to determine (3)Figure 1. Temperature Rise Potential in GPIF Portfolio
Domestic Equities
Domestic Bonds(2) Annual forecast GHG emissions2
1.5(3) Carbon budget overshoot(undershoot if below line for (1))

1
0.5
0

Foreign Equities
Foreign Bonds(1) Carbon budget in line with
the Net Zero 2050 scenario
2020

2025

2030

2035

2040

2045

2050

(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023. All rights reserved.

69

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Figure 2. Company Distribution of ITR Evaluation Across Four Asset Classes
Temperature Range

Domestic Equities (1,268)

Foreign Equities (3,201)

Domestic Bonds (327)Foreign Bonds (1,481)

Aligned with 1.5°C target

1.5°C or below

15.0%

20.2%

13.1%

21.3%

Aligned with 2°C target

Over 1.5°C and up to 2°C

28.8%

27.8%

23.5%

25.4%

Misaligned with 2°C target

Over 2°C and up to 3.2°C

39.9%

31.5%

39.1%

32.1%

Over 3.2°C and up to 9.9°C

14.1%

17.6%

22.6%

17.8%

10°C or above

2.2%

2.8%

1.5%

3.4%

Strongly misalignedwith 2°C target(Note 1) Only companies for which ITR evaluations exist have been included.
(Note 2) The numbers of companies for which ITR evaluations exist have been shown in parentheses.
(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023. All rights reserved.

Chapter 2
Measuring the Effectsof ESG Activities

ResultTarget Credibility Assessment of GHG Emissions Reduction Targets
Evaluating the credibility of GHG emissions reduction targets set

emissions reduction target setting on page 68. Here, we present

by companies from these perspectives, we found that 88.6% of

an assessment of the credibility of the emissions reduction

Japanese companies that had set targets of 1.5°C or below hadtargets reflected in the analysis of implied temperature riseemissions aligned with a 1.5°C target. This was slightly higher

provided by MSCI.

than the 84.5% proportion of foreign companies. The proportion

We evaluate the credibility of GHG emissions reductionof foreign companies pursuing a 1.5°C target was 23.4%5 —targets using four perspectives: (1) short-term targets set forhigher than the 17.1% of Japanese companies pursuing thateach emissions scope, (2) third-party verification by the Sciencelevel. This suggests that many foreign companies set more

Based Targets initiative (SBTi), (3) the issuer’s track record for

ambitious targets, while the credibility of these targets is slightly

achieving past targets, and (4) progress towards current targets .
4

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Implied Temperature Rise Analysis

We have already examined the status of companies’ GHG

inferior to those set by Japanese companies (Figure 3).

Figure 3. Credibility Assessment of GHG Emissions Reduction Targets (Japanese and Foreign Companies)
Credibility assessed
Aligned with 1.5°C target(1.5°C or below)

Aligned with 2°C target Misaligned with 2°C target(over 1.5°C and up to 2°C) (over 2°C and up to 3.2°C)

Strongly misaligned with
2°C target (over 3.2°C)

Japanese Companies

88.6%

9.1%

2.3%

0.0%

Aligned with 2°C target, if statedtarget is taken at face value* (374)

0.0%

93.0%

6.4%

0.5%

Foreign Companies

Credibility not assessed

Aligned with 1.5°C target, if statedtarget is taken at face value* (220)

Aligned with 1.5°C target, if statedtarget is taken at face value* (863)

84.5%

12.2%

3.2%

0.1%

Aligned with 2°C target, if statedtarget is taken at face value* (978)

0.0%

91.9%

7.7%

0.4%

(Note 1) *Future emissions were projected, taking the company’s decarbonization target at face value, to measure the degree of overshoot or undershoot from the company’s
allocated carbon budget, and this was used to evaluate the company’s ITR.
(Note 2) The analysis included GHG emissions reduction targets set by companies in GPIF’s portfolio as of March 31, 2023, among issuers included in the analysis for MSCI’s
Target Summary Model . The number of companies analyzed for each item have been shown in parentheses.
(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023. All rights reserved.
1 The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) is an international network of the central banks and financial supervisory authorities of major countries.
2 Carbon budget is the upper limit of how much GHG emissions would be possible until the temperature increase reaches a certain value due to global warming.
3 This factor indicates the contribution to temperature rise of the release of 1Gt of GHG emissions.
4 For details, please refer to “Modeling target-based emissions projections using a Target Summary Model” in the “2023 Analysis of Climate Change Related Risks in the GPIF's Portfolios,” a report on MSCI’s analysis for the
preparation of this report.
5 The calculation method is as follows. Foreign companies: 863/3,693 = 23.4%; Japanese companies: 220/1,284 = 17.1%.

GPIF ESG REPORT 2022

70

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Government Bond Portfolio Using
Sovereign Bond Climate Value-at-Risk
Impact of climate change risks on Japanese
government bonds in GPIF’s portfolio

If we consider the fiscal burden and other impacts from the response to
climate change risks, these risks have the potential to affect GPIF’s-6.6%~-1.0%

government bond portfolio through interest rate rises. Our analysis indicatesthat the overall value of Japanese government bonds in the portfolio may
fall by between 6.6% and 1.0% due to climate change risks.

Analysis of Government Bond Portfolio Using Sovereign Bond Climate Value-at-Risk
This section uses Sovereign Bond CVaR1 to analyze climate

climate change. Next, we adopted five of NGFS’s six climatechange risk to government bonds. For Sovereign Bond CVaR, wescenarios,2 namely “Net Zero 2050,” “Below 2°C,” “Divergent Net

analyze the impact of climate change on the price of government

Zero,” “Delayed Transition,” and “Nationally Determinedbonds based on interest rate forecasts under the various climate

Contributions (NDCs)” as the scenarios to be compared with thechange scenarios provided by the Network of Central Banks andbase scenario. We then produced (2) 30-year yield curves forSupervisors for Greening the Financial System (NGFS), an

each scenario for the countries being analyzed.
After that, comparing (1) and (2), we estimated (3) yield curveinternational network of the central banks and financial

shock, which indicates how much the interest rate forecasts

supervisory authorities of major countries.

would change. Next, using (3), we calculated (4) the price of the

The specific analysis process is shown in Figure 1. Firstly, we
produced (1) a 30-year yield curve to serve as the baselinetarget countries’ government bonds. Finally, a comparison of (4)scenario for the countries being analyzed, using the interest ratewith the current prices of the same bonds indicates to what

forecasts for the scenario that does not factor in the impact ofextent returns will increase or decrease (Figure 1).

Figure 1. Conceptual Diagram of Calculation of Sovereign Bond CVaR
4.00％
3.50％
3.00％

Net Zero 2050
Interest Rate Forecast(2) Net Zero 2050 Yield Curve
3.00％
2.50％

Long-term Interest Rate

Conversion

1.50％

2.00％
1.50％

Short-term Interest Rate

1.00％

1.00％

0

5

10

15

20

Tenor/Year

25

30

0.00％

0

Base Scenario Interest Rate Forecast
3.50％

2.50％

5

10

15

20

Tenor/Year

25

2.50％

1.00％

2.00％

0.80％

1.50％

0.60％

1.00％

0.40％

0.50％

0.20％

Estimation

30(1) Base Scenario Yield Curve

0.00％

2.50％

Long-term Interest Rate

0

5

Conversion

15

20

25

0.00％

30

0

5

10

15

20

25

30

Tenor/Year

Yield curve shock is used to
calculate impact on market prices.

1.50％

1.50％

10

Portfolio

Tenor/Year

2.00％

2.00％

1.00％

1.00％

Short-term Interest Rate

0.50％
0.00％

1.20％

3.00％

4.00％

3.00％

(3) Yield Curve Shock

3.00％

0.50％

0.50％
0.00％

Process of Yield Curve Shock Estimation

2.00％

2.50％

0

5

10

15

20

Tenor/Year

25

0.50％
30

0.00％

(4) Climate Value-at-Risk (%): Government Bonds
0

5

10

15

20

Tenor/Year

25

30

-4

-3

-2

-1

0

(Note) While the chronic impact of changes in climate patterns has been factored into physical risks in each scenario to a certain extent, acute impacts, such as disasters caused byextreme weather events, have not been taken into account.
(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023.
1 Climate Value-at-Risk (CVaR) is an analytical method of measuring how climate policy changes and disasters caused by climate change impact corporate value.
2 We have used the Phase III climate scenarios published by the NGFS in September 2022. Please refer to NGFS Scenarios for Central Banks and Supervisors (September 2022) for thelevels of physical and transition risks anticipated under each scenario.

71

GPIF ESG REPORT 2022

CVaR by country for the government bond portfolio as ofin the short term in some countries). In other words, if the

March 31, 2023. This analysis shows that the Divergent Net

size of the yield curve shock is the same, it is possible to say

Zero scenario resulted in the greatest negative CVaR for thethat the longer the duration of a government bond, the larger

seven major countries (Figure 2). This scenario assumes

the negative CVaR impact will be. From this perspective, wethat, while the world will achieve net zero emissions byconducted a comparison of yield curve shocks under the Net

2050, the carbon price and other costs will rise due to theZero 2050 scenario (Figure 3). A roughly similar size of yield

introduction of different policies in each industry and fossil

curve shock is estimated for France, Germany, and Italy, but

fuels will be phased out earlier than in other scenarios,a larger negative CVaR is calculated for France and Germany

resulting in rising interest rates due to inflationary pressuresthan for Italy. This is thought to be due to the relatively longer(larger yield curve shocks). It is thought that the results ofduration of French and German government bonds in GPIF’s

the analysis have been impacted by this rise in interest

portfolio, compared to Italian government bonds.

rates. CVaR by country is affected by (1) the size of yield

Chapter 2
Measuring the Effectsof ESG Activities

the Net Zero 2050 scenario, the yield curve shock is greater

Chapter 1
GPIF’s ESG Initiatives

In this section, we will examine the results of an analysis of

curve shocks and (2) the duration (the average time taken to

government bond prices using a simplified method, assum-

recoup bond investments)3 of bonds in GPIF’s portfolio.

ing zero-coupon bonds (Figure 4). Because the estimatedHowever, it should be noted that the price risk is generated

yield curve shock for Canada is the largest out of the sevenby two factors, namely the duration of the government bondmajor countries, Canadian government bonds suffer theand the size of the yield shock at maturity (for example, inlargest proportional fall in price across all maturities.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Analysis of Government Bond Portfolio Using Sovereign Bond Climate Value-at-Risk

Next, we estimated the impact of yield curve shock on

Figure 2. CVaR of Government Bonds in GPIF Portfolio by Scenario (%)
Net Zero 2050

Below 2°C

Divergent Net Zero

Delayed Transition

-3.9
-3.3
-4.1
-5.0
-3.3
-2.9
-5.0

-1.5
-1.1
-1.9
-2.1
-1.1
-1.0
-2.1

-6.6
-5.1
-6.4
-7.6
-5.1
-4.6
-7.7

-1.0
-0.5
-0.8
-1.2
-0.4
-0.3
-0.9

Japan
FranceU.S.
U.K.
Germany
Italy
CanadaNationally Determined
Contributions
-1.4
-0.9
-1.2
-1.4
-1.0
-0.9
-1.6

(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023.

Figure 3. Country-to-country Comparison of Yield Curve Shock(1-Year, 10-Year, and 25-Year Maturity)

（%）
1.2

Figure 4. Country-to-country Comparison of Rate of Decline inGovernment Bond Prices (1-Year, 10-Year, and 25-Year Maturity)（%） Japan
0

1.0

-0.6

0.8

-5

0.6

France
-0.3

-5.5

0.2

-15

0.0

-20

Japan

FranceU.S.
1 YearU.K.

Germany Italy

10 Years

Canada Average

25 Years(Note) The average is a simple average of 53 countries, including the above seven countries.
(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023.

-25

U.K. Germany Italy
-0.3

-0.8
-4.7

-4.9

-0.3

-4.9

-8.1

-10

0.4

U.S.

-0.9

-13.6

-13.7

-15.1

Canada Average
-0.4

-0.9

-4.9

-6.0
-10.2

-13.4

-13.7

-13.7

-15.1

-21.8

1 Year10 Years

25 Years(Note) The average is a simple average of 53 countries, including the above seven countries.
(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023.

3 Durations used in this analysis are approximations. The CVaR of government bonds is calculated using the full revaluation approach.

GPIF ESG REPORT 2022

72

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Real Estate Portfolio
Using Climate Value-at-Risk
Impact of physical risks on real estate values(real estate CVaR)

In this report, we used CVaR to analyze the physical and transition
risks of domestic real estate, included in alternative assets. Our real

-1.4%~-2.7%

estate CVaR results indicate that physical risks may potentially lower
the asset values of domestic real estate in GPIF’s portfolio by between 1.4% and 2.7%.

Risk Analysis of the Real Estate Portfolio Using CVaR
In addition to so-called traditional asset classes such as

climate change (physical risks and transition risks) on real

equities and bonds, GPIF’s portfolio contains alternative

estate asset values in GPIF’s Japanese domestic real estate

assets, such as infrastructure, private equity, and real estate.

portfolio, included in the alternative assets .

In this report, we used CVaR to measure the effect ofPhysical and Transition Risks from the CVaR Perspective
CVaR is used to analyze physical risks by identifying the asset

but this time we have added (6) wildfire as a new category.

types and locations of real estate holdings, estimating the impact

Aggregated physical risk is calculated by summing each of theseof future climate change using climate data related to natural

physical risks. The magnitude of the impact of physical risks fromdisasters, and evaluating the magnitude of the impact on realnatural disasters is classified using a seven-tier scale: “severe

estate asset values under each climate scenario (the NGFS

risk,” “significant risk” “moderate risk,” “negligible risk,” “noscenarios were used in this analysis) (Figure 1). We evaluate

identifiable risk,” “negligible risk reduction” and “risk reduction.”

physical risks across six categories of natural disasters for ourOur evaluation of the magnitude of the impact generally focuses on

CVaR analysis: (1) coastal flooding, (2) extreme cold, (3) fluvial

information on the property location and topography, althoughflooding, (4) extreme heat, (5) tropical cyclones, and (6) wildfire. We

some consideration is given to local physical risk countermeasures.

also presented a real estate CVaR analysis in the ESG Report 2020,

We carry out a separate evaluation for each climate scenario.

Figure 1. Illustration of the CVaR Analysis of Physical Risks and Transition Risks

Physical Risks

AssetsLocation

HazardCosts

ClimateValue-atRisk

Transition Risks

AssetsEnergy/emissions(Source) Reproduced by permission of MSCI ESG Research LLC ©2023.

73

GPIF ESG REPORT 2022

Reductionrequirements

Costs

ClimateValue-atRisk

evaluate the impact on asset values of potential costs broughtof physical risks (the impact on asset values) under scenario

about by the transition to a low-carbon economy, for each(1), Net Zero 2050, is -1.4%, while the impact underclimate scenario (Figure 1). For details of the analysis process,scenario (4), Nationally Determined Contributions (NDCs),

please refer to the climate-related risks for the real estate

which assumes a greater rise in temperatures, is -2.7%

portfolio in the “2023 Analysis of Climate Change-Related Risks(Figure 3). These results indicate that physical risks may

in the GPIF’s Portfolios,” a report on MSCI’s analysis for the

potentially lower the asset values of domestic real estate inpreparation of this ESG Report.

GPIF’s portfolio by between 1.4% and 2.7%.
The results of an analysis of transition risks for eachdomestic real estate portfolio by physical risk indicate that,

NGFS scenario reveal values of -3.3% under (1) Net Zerofor aggregated physical risk, the impact on asset value is2050, -0.8% under (2) Below 2°C, -2.7% under (3) Delayed“negligible risk ” for a majority of properties. However,Transition, and -0.6% under (4) Nationally Determined

there are some properties where the risk is “severe risk,”

Contributions (NDCs). A comparison of (1) and (4) shows“significant risk ,” or “moderate risk ” (Figure 2). Turning tothat transition risks tend to be higher in scenarios with more

specific natural disaster risks, the results show that, for (3)aggressive reduction targets. It should be noted that,fluvial flooding, (4) extreme heat, (5) tropical cyclones, andwhereas the costs of transition risks are estimated for the(6) wildfire, the impact on asset values is “negligible risk ,”period up to 2050, the costs of physical risks are estimatedor “no identifiable risk” for most properties. There are a

up to 2100, and the two cannot be compared directly.

large number of properties for which (2) extreme cold is

In this way, we were able to use CVaR to estimate physical“negligible risk reduction.” This is due to our assessment

risks due to natural disasters and transition risks. However, wethat this risk will be mitigated as the frequency of extreme

have been unable to reflect the status of natural disastercold weather events declines due to rising temperatures.

countermeasures at each real estate property in our current

Next, Figure 3 shows the magnitude of the impact ofanalysis model for physical risks. Moreover, our analysis has not

physical risks on asset values (the percentage decline intaken into account the likelihood that some of the costs ofasset values) for each of four NGFS scenarios ((1) Net

transition risks will be passed on to property lessors. We think

Zero 2050, (2) Below 2°C, (3) Delayed Transition, andthat further improvements are necessary in these areas.

Figure 2. Distribution of Domestic Real
Estate Portfolio by Physical Risk

Figure 3. Physical Risks (Percentage Decline in Asset Values)of Domestic Real Estate Portfolio by Scenario

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Analysis of Real Estate Portfolio Using Climate Value-at-Risk

The results of the analysis of the distribution of our

Chapter 2
Measuring the Effectsof ESG Activities(4) Nationally Determined Contributions (NDCs)). The impact

Chapter 1
GPIF’s ESG Initiatives

In our analysis of transition risks, we used a model to

0.0%

Physical Risk
Aggregated(1) Coastal Flooding-1.0%(2) Extreme Cold
(3) Fluvial Flooding-1.4%(4) Extreme Heat

-2.0%

-2.0%

(5) Tropical Cyclones-2.3%(6) Wildfire0%
Severe risk

20%

Significant risk

No identifiable risk

40%

60%

80%

Moderate risk

Negligible risk

Negligible risk reduction

Risk reduction

100%(Note) Calculated for asset values based on the Net Zero 2050 scenario (average).
(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023.

-3.0%(1) Net Zero 2050

(2) Below 2°C-2.7%(4) Nationally
Determined
Contributions(3) Delayed
Transition(1) Coastal Flooding(2) Extreme Cold

(3) Fluvial Flooding(5) Tropical Cyclones(6) Wildfire

Aggregated physical risk

(4) Extreme Heat

(Source) GPIF, Reproduced by permission of MSCI ESG Research LLC ©2023.

GPIF ESG REPORT 2022

74

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Avoided Emissions Based on
the Bottom-up Approach
Avoided Emissions(zero emissions vehicles1)

We analyzed the zero emissions vehicles produced by the world’s major

Equivalent to thecarbon absorbed in
one year by a forest

1.2 times
the area of Japan

automotive manufacturers for Avoided Emissions which arise from theuse of products and services that contribute to reducing GHG emissions.
We estimate that the total Avoided Emissions are equivalent to theamount of carbon absorbed in one year by a forest with an area of 45
million ha (1.2 times the area of Japan).

What are Avoided Emissions?
With companies aiming for decarbonization through the

reductions that occur outside of a product’s life cycle orprogressive reduction of GHG emissions, there is a trend

value chain, but as a result of the use of that product.” It is

towards GHG reduction, not only for individual companies

thought that, in the future, Avoided Emissions will have a

but throughout the value chain. At the same time, there is asignificant impact on companies’ competitive strength andtrend towards quantifying the contribution made by products

influence the corporate value of investee companies.

and services that help to reduce GHG emissions, and to

In this analysis, we used the analytical methodology

seize the opportunity presented by their positive impact ofdeveloped by the Intercontinental Exchange Group (ICE) toemission reduction across society. This contribution to

calculate Avoided Emissions, delving deeper into companies

emissions reduction is referred to as “Avoided Emissions.”in GPIF’s portfolio across two industries (automotive andAvoided Emissions are defined by the WRI , a body thatpower generation) using a bottom-up approach.

2

researches climate change and other issues, as “emission

The Avoided Emissions ApproachTo estimate Avoided Emissions, it is necessary to identify

GHG emissions avoided through the use of zero emissions

which industries have products and services that contribute tovehicles replacing ICEV . We calculated Avoided Emissions as

reducing GHG emissions. Although there are no doubt many

the difference between the estimated emissions throughout

products and services that contribute to reducing emissions,the lifecycle of zero emissions vehicles, from production

but for this analysis, we focused on two products and services

through use to disposal, and the emissions throughout thewhere the methodology is easily understandable andlifecycle of ICEV, which we used as a baseline.

companies disclose the information necessary to calculate

For details of the analysis process, please refer to

Avoided Emissions: “zero emissions vehicles3” vs. “Internal“Approach and Methodology” in the “Avoided Emissions

Combustion Engine Vehicles(ICEV) ,” and “renewable energy”~Analysis of GPIF Portfolio~,” a report on ICE’s analysis forvs. “energy mix including fossil fuels and renewable energy at

the preparation of this ESG Report. The analysis in the ICE

the time of evaluation.” In the case of zero emissions vehicles,

report includes the mined minerals sector as well as zero

Avoided Emissions are equal to the result of quantifying theemissions vehicles and power generation.

1 Zero emissions vehicles are battery electric vehicles (BEV) that emit no exhaust gasses such as CO2 during operation, and do not include hybrid electric vehicles (HEV) etc.
2 World Resources Institute3 Hybrid electric vehicles (HEV) were included ICEV etc. for this analysis.

75

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Avoided Emissions from Zero Emission Vehicles
calculate emissions over the lifecycle of ICEV.

zero emissions vehicles. For this analysis, we classify the

manufactured in the same region (baseline emissions). The

lifecycle of the vehicle into five phases from manufacturing

difference between baseline emissions and the emissions

through usage to disposal and calculate the Avoided

from zero emissions vehicles, multiplied by the total

Emissions in each phase (Figure 1). This time, however, we

number of zero emissions vehicles, gives the Avoided

did not analyze phase 3. Distribution and phase 5.

Emissions for that region.

Recycling/Disposal due to several reasons including a lack

When estimating future Avoided Emissions, theestimated future number of vehicles sold (in 2030) by eachanalysis considered the 16 main automobile companies

company is aggregated by sales region using data andincluded in GPIF’s portfolio in terms of market capitalization

estimates disclosed by each company. Figure 2 shows theand other factors (four companies each from Japan, Europe,

Avoided Emissions (tCO2e) by region based on the current

the United States, and China). We calculated Avoided

and future number of vehicles sold. It should be noted that

Emissions using a bottom-up approach based mainly on

this data is aggregated based on the headquarters of eachdata disclosed by these companies. The 16 companies

company analyzed. Therefore, for example, Avoided

selected account for approximately 90% of the total

Emissions arising when a Japanese automotive

investment amount for the automotive sector in GPIF’s

manufacturer sells vehicles in Europe are counted as

equities portfolio.

Avoided Emissions for Japan.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities |Analysis of Avoided Emissions Based on the Bottom-up Approachof data and the absence of an established methodology. Our

Chapter 2
Measuring the Effectsof ESG Activities

First, we will examine the Avoided Emissions attributable to

The results of the analysis4 shown in Figure 2 (page 77)
Figure 1. Illustration of the Scope of Avoided Emissions from Zero Emissions Vehicles

indicate that, while Avoided Emissions from Japanese
automotive manufacturers are extremely small at present,

2. Manufacturing

total Avoided Emissions from Japanese companies will exceed
1. Battery Mining
and Refining

3. Distribution

those of their Chinese counterparts and reach closer to thoseof European automotive manufacturers by 2030. This is due
to Japanese automotive manufacturers’ plans to substantially
increase the production of zero emissions vehicles by 2030.

5. Recycling/
Disposal

4. Zero Emissions
Vehicles Transportation(Source) Reproduced by permission of ICE.

Figure 3 (page 77) shows the Avoided Emissions per vehicle,
rather than in total. While the Avoided Emissions from each ofJapan’s zero emissions vehicles are still low compared to

For the analysis, we calculate emissions over theEurope and the United States, it is anticipated that this will rise

lifecycle of zero emissions vehicles for specific models

to a similar level by 2030. We estimate that the current level(sizes) and sales regions. We calculate the total emissionsof total Avoided Emissions from the 16 automotive

attributable to zero emissions vehicles by multiplying the

manufacturers we considered is equivalent to the amount of

GHG emissions of individual vehicles by the total number

carbon absorbed in one year by a forest with an area of 45

of zero emissions vehicles sold in the region. Next, wemillion ha (1.2 times the area of Japan).

4 Avoided Emissions are calculated without considering the relative weight of each holding in GPIF’s portfolio.

GPIF ESG REPORT 2022

76

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Figure 2. Comparison of Avoided Emissions from Zero Emissions Vehicles by Region (Based on Headquarters Location)(× 10,000 tCO2e)
20,00015,00010,000

5,000

0

Japan

EuropeU.S.

■Avoided Emissions (Current)）

China■Avoided Emissions (2030)(Note) Current: Estimates for 2022
(Source) Reproduced by permission of ICE.

Figure 3. Comparison of Avoided Emissions per Zero Emissions Vehicle by Region (Based on Headquarters Location)(tCO2e)
30
25
20
15
10
5
0

Japan

EuropeU.S.

■Avoided Emissions (Current)

China■Avoided Emissions (2030)(Note) Current: Estimates for 2022
(Source) Reproduced by permission of ICE.

Avoided Emissions from the Power Generation Business in the Utilities Sector
Next, we engaged in an analysis of the power generation

amount for the utilities sector in GPIF’s equities portfolio.

business in the utilities sector. We considered 12 companies

For this analysis, we classify the emissions into fivein four regions (three companies each from Japan, Europe,phases from manufacturing through to disposal (Figure 4).

the United States, and China). The 12 companies selected

Within this scope, we calculate the emissions across theaccount for approximately 30% of the total investment

entire lifecycle of renewable energy power generation for

Figure 4. Illustration of the Scope of Avoided Emissions
from Utilities
1. Fuel Extraction /Equipment Manufacturing

each company and compare these with baseline emissions.
Baseline emissions are calculated based on the NGFS
Current Policies scenario, which assumes that each

2. Transportation

country’s energy mix is only affected by policies already

3. Plant Construction

implemented today. We calculate Avoided Emissions as thedifference between the emissions estimated under eachcompany’s electric power plan for decarbonization and

5. End of Life Management(Source) Reproduced by permission of ICE.

77

GPIF ESG REPORT 2022

4. Plant Operations

baseline emissions.

Emissions due to nuclear power especially high in 2050. The

generation business, aggregated by region. In Figure 5, weabsolute amount of Avoided Emissions is highest in Europe, buthave summed the total Avoided Emissions (tCO2e) relating to

it is necessary to consider differences in economic scale andrenewable energy power generation today, in 2030, and in

population when making comparisons between countries and2050. Renewable energy includes wind, solar, geothermal,

regions. Figure 6 presents the total Avoided Emissions perbiomass, and hydro power generation. Meanwhile, althoughkilowatt hour of renewable energy (tCO2e/kWh) for each region.

nuclear power generation contributes to reducing emissions,Because Japan currently uses more fossil fuels for powerwith extremely low emissions during the operating phase,

generation (that is, the baseline value is higher) than Europe or

we have aggregated it separately due to various concerns of

the United States, Japan’s Avoided Emissions per kilowatt hour

issues such as nuclear waste. Moreover, none of thefrom the introduction of renewable energy are also higher thanChinese companies analyzed are engaged in a business

in Europe or the United States. The intensity of Avoided

related to nuclear power generation, nor have they madeEmissions is expected to gradually decline as renewable energy

any disclosures concerning future business plans involving

occupies an increasingly large proportion of the baseline value.

nuclear power generation. We have therefore removed

Currently, the estimated total Avoided Emissions from the 12

nuclear power generation from the analysis for China.

power generation companies considered are equivalent to the

As shown in Figure 5, overall, Avoided Emissions arecarbon absorbed in one year by a forest with an area of 150

5

expected to increase towards 2050. In the case of Japan,

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities |Analysis of Avoided Emissions Based on the Bottom-up Approach

Emissions from each company engaged in the power

Chapter 2
Measuring the Effectsof ESG Activities

Avoided Emissions are trending higher until 2050, with Avoided

Chapter 1
GPIF’s ESG Initiatives

Figure 5 shows the results of the analysis of Avoided

million ha (4.0 times the area of Japan).

Figure 5. Regional Comparison of Avoided Emissions from the Power Generation Business(× 10,000 tCO2e)
20,00015,00010,0005,000

0Current

2030
Japan

2050

Current

2030
Europe2050■Renewable energy

Current

2030
U.S.

2050

Current

2030
China

2050

■Nuclear power(Note) Current: Estimates for 2022
(Source) Reproduced by permission of ICE.

Figure 6. Avoided Emissions per Kilowatt Hour from the Power Generation Business (tCO2e/kWh)(tCO2e)
700
600
500
400
300
200
100
0

Japan
■Avoided Emissions Intensity (Current)

EuropeU.S.

■Avoided Emissions Intensity (2030)■Avoided Emissions Intensity (2050)

China(Note 1) Avoided Emissions per kilowatt hour = Avoided Emissions intensity(Note 2) Current: Estimates for 2022
(Source) Reproduced by permission of ICE.
5 Some of the state-owned parent companies of the power generation companies considered in this analysis are engaged in the nuclear power generation business, which was excluded
from this analysis.

GPIF ESG REPORT 2022

78

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Measuring the Impact of Projects Funded
Using ESG Bonds in GPIF’s Portfolio
Contribution of ESG bond-funded projects to
reducing GHG emissions over the latest year1

GPIF invests in ESG bonds issued by international organizations andprivate sector companies. This year, we collected information on theenvironmental and social impact and effects generated by the projects

8.29million

funded using the proceeds of ESG bonds, mainly from the disclosures oftCO2e

the issuers of ESG bonds in GPIF’s portfolio.

Status of Disclosure by Issuers
The Green Bond Principles (GBP), the Social Bond Principles

There are, however, very few examples of the actual(SBP) , and the Sustainability Bond Guidelines (SBG)

aggregation and analysis of impact-related disclosure andpublished by the International Capital Market Association

impact results from ESG bonds. In this report, with the(ICMA), as well as standards such as the EU Green Bond

cooperation of ICE, we have analyzed the ESG bonds held byStandard (GBS) provide global guidelines to promote

GPIF in terms of (1) the status of disclosure by issuers and (2)transparency and disclosure for the issuance of bonds that

impact results. Figure 1 shows the status of disclosure forcontribute to achieving social and/or environmental goals,

1,324 ESG bonds2 held by GPIF as of March 31, 2023. Of

thus supporting the integrity of the ESG bond market.

these 1,324 bonds, 691 bonds — approximately half —Specifically, guidelines such as the Green Bond Principles

disclosed in post issuance reports at least one impact result of

encourage issuers to engage in accurate and transparent

the project(s) funded from the proceeds of bond issuance. Of

disclosure to investors and other stakeholders. Even after

the remaining 633 bonds, approximately half had only recently

the bonds are issued, they require that issuers provide

been issued3 (within the last 18 months), thus we canannual disclosure of the environmental and social impact

categorize these as bonds where we would expect disclosureand effects (impact results) of the project(s) in areas such as

in the future. Meanwhile, there were a certain number of

avoided emissions, as well as the amount of bond proceeds

bonds for which no disclosure had been made regarding

already allocated to the designated project(s). This

impact results, despite being issued based on guidelines suchdisclosure is required until all the proceeds from the bonds

as the Green Bond Principles and the lapse of a sufficient

have been allocated.

period of time (at least 18 months) since issuance.

Figure 1. Disclosure of Impact Results and Details Thereof(Number of Bonds)

At least one disclosure regarding
impact results against stated goals691

Can be estimated 269

Cannot be estimated 364

No disclosure regarding impact results 633
At least 18 months since issuance
Consistent with Green Bond
Principles (ICMA), etc.
165

Less than 18 months
since issuance
339
0%

10%

20%

30%

40%

50%

60%

70%

Not consistent with any Others
standards or guidelines 21
108
80%

90%

100%

(Note) “Others” includes bonds consistent with the Climate Bonds Taxonomy, the EU Green Bond Standard, the LMA Green Loan Principles , or equivalent standards.
(Source) Prepared by GPIF based on data from ICE.

1 Compiled from the latest impact report or equivalent issuer disclosure. Of the 691 bonds for which information was disclosed, 2022 results were used for 41.7%, 2021 results were used
for 45.3%, and results disclosed through reports and other information published up to 2020 were used for the remainder.

79

GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Approach to Measuring the Impact of ESG Bonds

ESG bonds held in GPIF’s portfolio. We begin by considering theimpact funded,” “Type of issuer (international development

impact results from investing US $1,000 in each ESG bond . As

bank, private sector company, etc.),” and “Region where

described above, in approximately half of these bonds, there isissuer is located.” We then allocated the average impact

at least one post-issuance disclosure regarding impact results

results of ESG bonds in each class to any bonds in thatagainst the stated goals of bond issuance in the impact reports

class for which no disclosure had been made (Figure 2).

or equivalent . Although the numbers are disclosed, it isHowever, we excluded from our data any class containing

necessary to make certain assumptions4 concerning theless than 10 bonds with disclosures. Moreover, this time, we

disclosed data due to the differing scopes of impact results

narrowed down l our analysis to green bonds due to the(disclosure for a single bond or multiple bonds) and the fact that

number of samples required. Of the 633 bonds for which no

impact results span several different fields, resulting in a lack ofdisclosure of impact results had been made, there were 269

clarity concerning the amounts of investment contributing toissues for which we were able to apply the average impact

each area of impact.

results using the method described above. This method

We undertook a more detailed analysis of bonds for

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Measuring the Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio

classified these bonds based on three criteria: “Type ofChapter 2
Measuring the Effectsof ESG Activities

Here, we present the approach used to measure the impact ofenabled us to measure approximately 72.5% of bonds inwhich no disclosure of impact results has been made. We

terms of the number of bonds (Figure 1).

Figure 2. Criteria Used to Distinguish Similar Bonds for Estimation PurposesType of Impact funded(1) Energy efficiency(2) Renewable energy

Type of Issuer

×(1) Corporate(2) Financial

Region×(1) EU(2) U.K.

(3) Sovereign(3) North America(4) Supranational(4) Japan(5) Agency (SSA)(5) APAC (excluding Japan)*(6) Asia*(7) Global (other)(Note) *Countries such as India and Iran are included in “Asia,” while countries such as Australia and South Korea are included in “APAC (excluding Japan).”(Source) Reproduced by permission of ICE.

Impact of ESG Bonds in GPIF’s Portfolio
An examination of the goals of projects funded using thefollowed by “Annual renewable energy generation.” It can beproceeds of ESG bonds held as of March 31, 2023 (1,324

said that one of the reasons why the most common impact

bonds) reveals that these can be summarized in terms of

metrics being environmental related is due to the fact thatseven impact metrics (Figure 3, page 81). “Annual GHG

61.5% of the ESG bonds held by GPIF are green bonds.

emissions reduced/avoided” is the most common goal,

2 This is equal to the 1,456 bond issues that meet the criteria for ESG bonds established by ICE’s Impact Bond Classification Service, minus 132 bonds that are sustainability-linked bonds.
It is not the same as the number of bonds that are consistent with ICMA’s principles, etc. shown on pages 29 to 30.
3 The principles and guidelines published by the ICMA and the EU Green Bond Standard require annual disclosure. In this report, we have conservatively categorized the period fromissuance to disclosure into “less than 18 months” and “18 months and over.”4 For details, please refer to “4. Impact Bond Data” in “Impact Bond Indicator ~Analysis of GPIF Portfolio~.”

GPIF ESG REPORT 2022

80

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Figure 4 shows the impact results against seven statedresults can be converted to monetary values under certain

impact metrics, weighted by the value of GPIF’s investment.

assumptions. For example, it is estimated that the equivalentHere, we present separate figures for the impact resultsof ¥100 billion would be needed for the avoided emissions

generated in the latest year and the projected (cumulative)

over the past year (results + estimates) of 8,291,327 tCO2e

impact results if the bond is held to maturity. These impact

when using carbon credits7 (Figure 5).

56

Figure 3. Impact Metrics of ESG Bonds Target Projects
64

Annual GHG Emissions Reduced/Avoided

36

Annual Renewable Energy Generation

30

Annual Energy Savings

27

Capacity of Renewable Energy Plants Constructed or Rehabilitated

9

Number of Students Reached
Jobs Created and/or Retained

6

Number of People Benefited

6

33

Others

0

10

20

30

40

50

60

70
（%）

(Note) The dark green bars represent environment-related goals and the yellow bars represent social -related goals.
(Source) Reproduced by permission of ICE.

Figure 4. Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio (Latest/ Cumulative)
Impact Metric
Annual GHG Emissions Reduced/Avoided
Annual Renewable Energy Generation
Annual Energy Savings
Capacity of Renewable Energy Plants Constructed or Rehabilitated
Number of Students Reached
Jobs Created and/or Retained
Number of People Benefited

Unit
tCO2e
MWh
MWh
MWh
Students
Jobs
PeopleLatest Year
Results
Results + Estimates
5,238,192
8,291,327
4,209,676
6,746,261
870,179
964,066
38,989,228
53,198,394
1,581,079
1,581,079
195,227
195,227
17,481,390
17,481,390

Cumulative
Results
29,287,757
15,330,172
3,418,613
335,220,952
8,567,689
904,525
76,944,833(Note) Because estimates only include green bonds, there is no difference between “Results” and “Results + Estimates” for the latest year in “Number of Students Reached ,”“Jobs Created and/or Retained,” and “Number of People Benefited.”(Source) Prepared by GPIF based on data from ICE.

Figure 5. Formula for Calculating Monetary Value for ‘Annual GHG Emissions Reduced/Avoided’Annual GHG Emissions Reduced/Avoided × Price of carbon credits under the EU Emissions Trading System (EU-ETS)
8,291,327 tCO2e × €87.5* (=¥13,783.26**) / tCO2e(Notes) *The price of carbon credits is as of June 30, 2023. **The EUR/JPY exchange rate is as of June 23, 2023.
(Source) Reproduced by permission of ICE.

5 For the methodology used to aggregate impact results, please refer to “6. Methodologies” in “Impact Bond Indicator ~Analysis of GPIF Portfolio~.”
6 Maturity is taken to be the number of years to maturity for bonds maturing prior to 2044. For bonds maturing in 2044 or later (including perpetual bonds), maturity has been
capped at 2043, and the impact has been forecast based on a 20-year holding period.
7 Please refer to “9. Conclusions” in “Impact Bond Indicator ~Analysis of GPIF Portfolio~” for other conversions of impact results into monetary values.

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Scale of Impact
the creation of enough employment to enable approximately

scale of the impact shown on the previous page, we have

86% of all completely unemployed persons in Tokyo inattempted to convert this impact into more familiar units and

FY2022 (226,000 persons) to return to work.

figures (Figure 6).

Recently, investors are becoming increasingly strict in

For example, the quantity of GHG Emissions Reduced/

their attitude to “sham” ESG investing, as evident in the

Avoided (8,291,327 tCO2e) is equivalent to the amount of

spread of terms such as greenwashing and SDGs-washing.

carbon sequestered by a forest 18 times the size of Tokyo,

Going forward, ESG bond issuers will be required toindicating just how large the contribution is in terms ofappropriately disclose information including impact results,

reducing GHG emissions. In terms of social impact, theand it is possible that investors may also be required to

195,227 cases of Jobs Created and/or Retained translate todisclose information based on this.

Chapter 2
Measuring the Effectsof ESG Activities

To enable readers to gain a more direct understanding of the

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Measuring the Impact of Projects Funded Using ESG Bonds in GPIF’s Portfolio

Figure 6. Scale of Impact

The total Annual GHG Emissions Reduced/Avoided (8,291,327 tCO2e) is equivalent to the amount ofcarbon sequestered by a forest 18 times the size of Tokyo per year.*

The total Annual Energy Saved (964,066MWh) is equivalent to the (annual) energy consumption** ofapproximately 230,000 Japanese households.

The total Renewable Energy Generated (6,746,261MWh) is equivalent to the (annual) energy
consumption** of approximately 1,600,000 Japanese households.

The total Capacity of Renewable Energy Plants Constructed or Rehabilitated (53,198,394MWh) is
equivalent to the (annual) energy consumption** of approximately 12,700,000 Japanese households.

The total impact of People Benefited(17,481,390 persons) is equivalent to approximately 1.2 times
the population of Tokyo.***The total impact of Students Reached (1,581,079 persons) is equivalent to approximately 9% of thetotal number of students in Japan.****The total Impact of Jobs Created and/or Retained (195,227 Jobs) is equivalent to approximately 86%
of the total unemployment rate in Tokyo in FY2022.
(Note 1) A latest year (results + estimates) is used for impact results.
(Note 2) *The area of Tokyo is equivalent to approximately 0.0058 times the area of Japan.
**The (annual) energy consumption per Japanese household is based on the Results of Survey on the Actual Conditions of Carbon Dioxide Emissions from Residential Sector in
FY2021 (Preliminary Figures) published by the Ministry of Environment.
***The population of Tokyo as of April 1, 2023.
****The number of students in Japan represents the number of students attending educational institutions under the jurisdiction of the Ministry of Education, Culture, Sports, Scienceand Technology from kindergarten to university graduate school as of May 1, 2021.
*****The number of unemployed persons in Tokyo in FY2022.
(Source) Reproduced by permission of ICE.

GPIF ESG REPORT 2022

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Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Nature-Related Risks including
Biodiversity and TNFD Trial Analysis
Proportion of companies that arehighly dependent on nature1

65%

We analyzed nature-related risks including biodiversity in GPIF’s
portfolio, with reference to the TNFD framework. In our analysis thistime, we not only considered how dependent our investee companies
are on nature but also their impact on nature.

Nature-Related Risks including Biodiversity
Nature-related risks including biodiversity are recognized as

nature-related risk management and disclosure by

global issues for companies.2 At the 15th Conference oforganizations, are attracting interest from companies,

Parties (COP15) of the UN Convention on Biological Diversity

investors, and others. The TNFD has included disclosure(CBD) held in Montreal, Canada, in 2022, the participants

guidance that is in line with the TCFD recommendations,agreed to protect 30% of the world’s land, marine andand aims for close coordination with the TCFD. GPIF has notcoastal areas, and inland waters by 2030. In view of thisdeclared its endorsement of the TNFD, but we are closely

trend, there is an increasing consciousness of the need forwatching the approaches, guidelines, and associatedcompanies to consider the impact of nature-related risks

analysis methods recommended by the TNFD.

when making financial and business decisions. GPIF, with its

Under these circumstances, S&P Global is working withextensive investments in domestic and foreign companies, isthe United Nations Environment Programme – World

aware of the importance of deepening understanding ofConservation Monitoring Centre (UNEP-WCMC) to support

nature-related risks in the same way as for the climate-

disclosure and analysis in line with the TNFD framework by

related risks with which it is already engaged.

combining information including geographically and spatially

However, nature-related risks entail a diverse range oflinked biodiversity, nature risk data and detailed information

natural capital, including biodiversity, and factors such as

on business activities. In this section, we present an outline

the different natural environments in the locations whereof the TNFD framework and, utilizing the analytical support

each company conducts its business activities often make itof S&P Global, we disclose the results of a trial analysis ofdifficult to accurately ascertain the associated risks and

GPIF’s equities portfolio based on the methods

opportunities. At present, the activities of the Taskforce onrecommended by the TNFD. This analysis is based on the

Nature-related Financial Disclosure (TNFD), which is working

information published up to the TNFD beta framework Beta

towards the development and provision of a framework for

v0.4, as of the time of writing.

1 Calculated by dividing the number of companies with a dependency score of 0.6 or greater by the total number of investee companies for domestic equities and foreign equities.
S&P Global classifies a dependency score of 0.6 or above as a high dependence on nature, with reference to the materiality evaluation framework in the ENCORE (Exploring
Natural Capital Opportunities, Risks, and Exposure) knowledge base (Natural Capital Finance Alliance 2022), under which a score of 0.6 or above indicates high or very highdependence. For details, please refer to pages 11 and 18 of “Nature & Biodiversity Risk Portfolio Assessment,” a report on S&P Global’s analysis for the preparation of this report.
2 Cited as a global risk for the next decade in the World Economic Forum Global Risks Perception Survey (WEF, 2023).

83

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Overview of the TNFD Framework
The composition of the TNFD framework features “Corethese two concepts is vital for the evaluation of anConcepts and Definitions,” the “Risk & Opportunity

organization’s (3) risks and (4) opportunities.

Disclosures” (Figure 1).

We will now present an overview of the LEAP approach.
The LEAP approach is composed of four stages: “Locate

Figure 1. Main Components of the TNFD Framework

your interface with nature; Evaluate your dependencies andimpacts; Assess your risks and opportunities; and Prepare to

al GuidanceditionAd

respond to nature-related risks and opportunities andMetrics & Targ
ets
ta,
a
D
Recommended
Disclosures

report.” Several guiding questions are indicated at eachstage.4 The TNFD also recommends the consideration of thescope of assessment before commencing the LEAP

Risk & Opportunity
Assessment Approach(LEAP)

approach, as well as engagement with stakeholders. The
approach is designed as an iterative process (Figure 2).

ena

ri o G ui d a n

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Nature-Related Risks including Biodiversity and TNFD Trial Analysis

Core Concepts
and Definitions

Sc

Chapter 2
Measuring the Effectsof ESG Activities

Assessment Approach (LEAP),” and “Recommended

At GPIF, as a first attempt, we examined our portfolio’s

cecurrent degree of connection with the ecosystem and theextent to which it depends on, and affects, nature and(Source) Prepared by GPIF with reference to the TNFD Nature-related Risk and Opportunity
Management and Disclosure Framework Beta v0.4 overview ©TNFD 2022-2023.

biodiversity. In terms of the LEAP approach, the task ofascertaining where our investees’ assets and businessOf these components, here, we will present an overview

activities are and what ecosystems they have connectionsof “Core Concepts and Definitions” and the “Risk &with corresponds to the guiding questions for “Locate.”

Opportunity Assessment Approach (LEAP).” First of all, Core

Likewise, the guiding questions for “Evaluate” apply in terms

Concepts and Definitions include an explanation of fourof ascertaining our investees’ degree of dependence andconcepts: (1) nature-related dependencies, (2) nature-related

impact on nature in their region. In this analysis, we

impacts, (3) risks, and (4) opportunities. Of these, (1) nature-

therefore quantified the “dependencies” and “impacts”

related dependencies are defined as “aspects of ecosystemdescribed above based on the two stages of “Locate” andservices that an organisation or other actor relies on to“Evaluate” in the LEAP approach. In the following pages, wefunction,” while (2) nature-related impacts are “changes in thefurther examine the characteristics of these dependencies

state of nature, which may result in changes to the capacity ofand impacts before disclosing the results of our analysis ofnature to provide social and economic functions.” Assessing

GPIF’s equities portfolio by ecosystem service and sector.

3

Figure 2. Overview of the LEAP Approach
Locate your interface with nature
L1

Business footprint

L2

Nature interface

L3

Prioritization

L4

Sector identification

Evaluate your dependencies and impacts

Assess your risks and opportunities

Prepare to respond to nature-related risks
and opportunities and reportof environmental assets A1 Risk and opportunity identification P1
E1 Identificationand ecosystem services
of dependencies and A2 Existing risks mitigation and risk and P2
E2 Identification impacts
opportunity management
Additionalrisk mitigation and risk and P3
E3
Dependency analysis
A3
opportunity management
Risk and opportunity materiality
E4
Impact analysis
A4
P4
assessment: Items referred to in our trial analysis

Strategy and resource allocation
Performance management
ReportingPresentation
Review and repeat(Source) Prepared by GPIF with reference to the TNFD Nature-related Risk and Opportunity Management and Disclosure Framework Beta v0.4 overview ©TNFD 2022-2023.
3 From the TNFD Nature-Related Risk and Opportunity Management and Disclosure Framework Beta v0.2 Annex 1.
4 These include guiding questions recommended at each stage, for example, L2 “Which biomes and ecosystems do these activities interface with?” and E3 “What is the size andscale of our dependencies on nature in each priority location?”

GPIF ESG REPORT 2022

84

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Nature-Related Dependencies in GPIF’s Portfolio
As described above, TNFD refers to the reliance of anmateriality of reliance on ecosystem services and theorganization or other actor on ecosystem services as

relevance of the ecosystem services at the business location.

“dependencies.” Dependencies are said to include

The (2) resilience score evaluates the level of disturbance anecosystems' ability to regulate hazards, provide a suitableecosystem can undergo while continuing to maintain its flow

habitat for pollinators, and sequester carbon. We consider thatof ecosystem services. For example, if the relevant ecosysteman understanding of nature-related dependencies and theirservices are important to a business’ production processes

extent is useful from the perspective of evaluating risks to athen the degree of reliance will be high, but if the resilience ofcompany’s business activities from changes in the state of

the ecosystem — its ability to continuously provide ecosystembiodiversity and the natural environment. Under the LEAP

services — is high, then this dependency risk is considered toapproach, it is recommended that analysts first “Locate” andbe reduced. A dependency score of 0 indicates no“Evaluate” dependencies and impacts before proceeding todependency risk, while a score of 1 indicates very high“Assess” risks and opportunities.

dependency risk. For details of the calculation method andThis time, we used the dependency scores provided byother information concerning dependency scores, please refer

S&P Global to analyze the degree of nature-related

to pages 17 and 18 of “Nature & Biodiversity Risk Portfolio

dependency of GPIF’s equities portfolio. Dependency scores

Assessment,” a report on S&P Global’s analysis for theare composed of two scores — a (1) reliance score and a (2)preparation of this report.

resilience score — to evaluate the dependency of each asset
or business activity on 21 different ecosystem services (Figure3). The (1) reliance score is calculated from the degree of
Figure 3. The 21 Ecosystem Services
Provisioning services
1
Animal-based energy
2
Fibres and other materials
3
Genetic materials
4
Ground water
5
Surface water
Regulatory & maintenance services
6

Bio-remediation

7
8
9
10
11
12

Buffering and attenuation of mass flows
Climate regulation
Dilution by atmosphere and ecosystems
Disease control
Filtration
Flood and storm protection

13

Maintain nursery habitats

14

Mass stabilisation and erosion control

15

Mediation of sensory impacts

16

Pest control

17
18
19
20
21

Pollination
Soil quality
Ventilation
Water flow maintenance
Water quality

Employment of domestic and commercial animals such as oxen, horses, etc.
Fibres and other materials from plants, etc., directly used or processed
Deoxyribonucleic acid (DNA) and all biota including plants, etc.
Water stored underground in aquifers and originating from rainfall, natural freshwater resources, etc.
Freshwater resources from collected precipitation and water flow from natural sources
A natural process whereby living organisms such as micro-organisms, plants, etc. degrade, reduce,
and/or detoxify contaminants
Buffering and attenuation of mass flows allows the transport and storage of sediment by rivers, seas, etc.
Global and regional climate regulation provided through soils, oceans, vegetation, etc.
Dilution of gases, fluids, etc. produced by human activity through water and atmosphere
Important roles in the regulation of diseases for animals, plants, and humans
Filtering, sequestering, etc. of pollutants by animals, plants, etc.
Flood and storm buffering, attenuating, and similar effects of vegetation
Maintain habitats that make a significantly high contribution to the reproduction of individuals from aparticular species
Mass stabilisation and protection from erosion in terrestrial, coastal, and other ecosystems provided
by vegetation cover
Vegetation limiting the impact of noise and light pollution on human health and the environment
Pest control and invasive alien species management provided through the manufacture of natural
biocides, predators, etc.
Pollination services provided mainly by animals, water and wind
Weathering processes and decomposition and fixing processes that contribute to soil quality
Ventilation, vital for good indoor air quality, provided by natural or planted vegetation
The system that enables circulation of water through the Earth’s atmosphere, land, and oceans
Favourable living conditions etc . for biota that contribute to the water quality of freshwaters and salt waters(Source) Summarized by GPIF from S&P Global Sustainable1; S&P Global Market Intelligence. Natural Capital Finance Alliance (Global Canopy, UNEP FI, and UNEP-WCMC) (2022)
ENCORE: Exploring Natural Capital Opportunities, Risks and Exposure. [On-line], Cambridge, UK: the Natural Capital Finance Alliance. Available at: https://encore.naturalcapital.
finance. DOI: https://doi.org/10.34892/dz3x-y059.

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Figure 4 shows the dependency score results for each

topographical erosion by vegetation, “Flood and storm
protection” refers to the attenuating effect of vegetation,

indicate relatively high dependency scores for “Mass“Bio-remediation” refers to the degrading or detoxification ofstabilisation and erosion control,” “Flood and storm

contaminants by micro-organisms, plants, etc., “Filtration”

protection,” “Bio-remediation,” “Filtration,” and “Mediation ofrefers to the filtration of contaminants by various plants andsensory impacts” for both domestic and foreign equities.

animals, and “Mediation of sensory impacts” refers to the“Mass stabilisation and erosion control” refers to the control ofcontrol of noise and light pollution by vegetation.

Figure 4. Nature-Related Dependency Scores of GPIF’s Equities Portfolios by Ecosystem Service(Score)
0.6
0.5
0.4

Chapter 2
Measuring the Effectsof ESG Activities

ecosystem service in GPIF’s equities portfolios. The results

0.3
0.2

Maintain nursery habitats

Foreign Equities

Buffering andattenuation of mass flows

Pollination

Animal-based energy

Disease control

Pest control

Soil quality

Fibres andother materials

Domestic Equities

Ventilation

Genetic materials

Dilution by atmosphereand ecosystems

Water quality

Surface water

Ground water

Water flow maintenance

Climate regulation

Mediation of
sensory impacts

Filtration

Bio-remediation

Flood and storm protection

Mass stabilisation anderosion control

0

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Nature-Related Risks including Biodiversity and TNFD Trial Analysis

0.1(Source) GPIF, S&P Global Sustainable1 (2023). Data as of 31st March 2023.

Next, in Figure 5, we present the distribution of

Natural Capital Opportunities, Risks, and Exposure), under

dependency scores in GPIF’s equities portfolios. We have split

which a score of 0.6 or above indicates high or very highthe dependency scores, from 0 to 1, into five levels, anddependence. Approximately 65% of the companies in GPIF’s

aggregated the number of companies at each level as aequities portfolios have scores in this range (Figure 5).

proportion of the total number of investee companies in our

Scores closer to 1 indicate greater nature-related

domestic and foreign equities portfolios. The results indicate

dependencies. Therefore, these results show that many

that, for both domestic and foreign equities, the largest

companies, both domestic and foreign, are highly dependent

number of companies had scores in the range from 0.6 toon nature and biodiversity. Perhaps we might perceive from

0.8. S&P Global classifies a dependency score of 0.6 or above

this that our daily business activities around the world, andas a high dependence on nature, with reference to thebeyond them, our very lives, are only made possible thanks tomateriality evaluation framework in the ENCORE (Exploring

the many benefits we receive from nature and biodiversity.

Figure 5. Distribution of Dependency Scores in GPIF’s Equities Portfolios
All
Equities

6%

4%

17%

64%

9%
1%

Foreign
Equities 3% 3%

16%

67%

11%
0%

Domestic
Equities
0%

10%

4%

20%
20%
■0-0.259%
40%■0.2-0.4 ■0.4-0.6■0.6-0.8

60%■0.8-1

5%
80%

1%

100%

■Others(Note) “Others” contains stocks for which no score was available at the time of the analysis, etc.
(Source) GPIF, S&P Global Sustainable1 (2023). Data as of 31st March 2023

GPIF ESG REPORT 2022

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Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Nature-Related Impacts of GPIF’s Portfolio
Nature-related impacts are defined as changes in theregion is important in terms of the continued provision ofstate of nature, which may result in changes to the capacity

ecosystem services. The largest score is used to calculateof nature to provide social and economic functions. Thesethe “ecosystem footprint.” A score closer to 1 indicateschanges may be positive or negative, and their impact may

greater materiality. For details of the calculation method and

be direct, indirect or cumulative. In this context, it isother information concerning the ecosystem footprint, please

important to begin by understanding the characteristics ofrefer to pages 7, 8, 15, and 16 of “Nature & Biodiversity

the area of the company’s business activities in terms of

Risk Portfolio Assessment,” a report on S&P Global’snature and ecosystems. Here, we attempt a trial analysis ofanalysis for the preparation of this report.

companies’ ecosystem footprint to ascertain the degree to

The ecosystem footprint of the equities held by GPIF is

which it is necessary to consider their nature-related impact

estimated to be equivalent to 21,836ha (approximately

in their areas of business activities.

218km2), or just under 10% of the land use footprint. We

The ecosystem footprint measures the direct impact of

expect to see an expansion of the scope of this methodology

corporate activity on nature and biodiversity, converted into

and a refinement of the evaluation method in the future.5

the equivalent area. It is calculated as follows, as shown

However, even in our analysis at present, it is possible thatgraphically in Figure 6. First, we measure the “land use

the areas of corporate activities for both domestic andfootprint” in hectares. This is the total area of land aforeign equities may contain important regions in terms ofcompany uses, apportioned based on the percentage

natural and biodiversity integrity.

investment. Next, we calculate the “ecosystem integrity

In GPIF’s equities portfolios, the land use footprint,

footprint” by adjusting the “land use footprint” using scores

ecosystem integrity footprint, and ecosystem footprint of

based on the state of the natural environment anddomestic equities all exceed those of foreign equities. Next,

ecosystems on that land. Three scores are used for thiswe examined the land use footprint and other aspects of theadjustment: “Structure,” which indicates the degree of

equities portfolios for each sector. The results show that, forphysical change in the natural environment, “Composition,”domestic equities, the values were relatively large in thewhich indicates the degree of change in biodiversity, andindustrials, consumer discretionary, utilities, and materials“Function,” which mainly indicates the degree of qualitative

sectors (Figure 7). For foreign equities, all the values werechange in the natural environment. These three scores are

relatively large in the utilities, real estate, materials, andeach evaluated on a scale of 0 to 1, and the largest score isfinancials sectors (Figure 8). The ratio of the ecosystemused to calculate the “ecosystem integrity footprint.” A scorefootprint to the land use footprint was relatively high in thecloser to 1 indicates that greater degradation has occurred

utilities sector for domestic equities and the real estatecompared to the pristine state.

sector for foreign equities. These results show that, despite

Lastly, we calculate the “ecosystem footprint” bytempering the “ecosystem integrity footprint” using scoressome common sectors between the two asset groups, they
display quite different tendencies.

based on materiality. There are two scores used here,
evaluated on a scale of 0 to 1: “species materiality,” basedon the impact on endangered species in specific areas and“ecosystem contribution,” which evaluates whether the
5 For example, at present, the ecosystems considered do not include freshwater ecosystems or marine ecosystems, and no assessment is made of the capacity of individual
ecosystems to provide different ecosystem services. There has been an explanation regarding this situation and future developments. For details, please refer to page 19 of“Nature & Biodiversity Risk Portfolio Assessment,” a report on S&P Global’s analysis for the preparation of this report.

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Figure 6. Nature-Related Impact of Domestic Equities and Foreign Equities(Hectares or hectares equivalent)
160,000

Domestic Equities
Foreign Equities

142,921
Adjustment for condition

120,000
100,000

Ecosystem SignificanceSpecies Significance Ecosystem Contribution
Domestic Equities
0.02
0.13
Foreign Equities
0.03
0.22
Asset Class

95,16988,72880,00060,000Adjustment for significance41,57840,00012,53020,0009,306

Chapter 2
Measuring the Effectsof ESG Activities

140,000

Ecosystem Integrity
Structure
Composition
Function
0.64
0.31
0.18
0.44
0.20
0.10

Asset Class

0Land Use Footprint

Ecosystem Integrity Footprint

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Nature-Related Risks including Biodiversity and TNFD Trial Analysis

Domestic Equities

Ecosystem Footprint

Foreign Equities(Note) The scores for the ecosystem integrity and ecosystem significance are evaluated on a scale between 0 and 1, based on the weighted average for each asset.
(Source) S&P Global Sustainable1 (2023). Data as of 31st March 2023.

Figure 7. Nature-Related Impact of Domestic Equities by Sector（％）(Hectares or hectares equivalent)
70,00016

60,00014

50,00012
1040,000830,000

6

20,0004

Healthcare

Communications
Services

Real Estate

Information
Technology

Financials

Ecosystem Footprint

Consumer
Staples

EnergyEcosystem Integrity Footprint

Materials

Land Use Footprint

Utilities

0

Consumer
Discretionary

20Industrials

10,000

Ratio of Ecosystem Footprint to Land Use Footprint (Right Axis)(Source) GPIF, S&P Global Sustainable1 (2023). Data as of 31st March 2023.

Figure 8. Nature-Related Impact of Foreign Equities by Sector（％）(Hectares or hectares equivalent)

Ecosystem Integrity Footprint

Ecosystem Footprint

Healthcare

Land Use Footprint

Communications
Services

0

Information
Technology

20Consumer
Staples

45,000
Consumer
Discretionary

6

10,000Industrials

8

15,000

Energy10

20,000Financials

12

25,000Materials

14

30,000Real Estate

16

35,000Utilities

40,000

Ratio of Ecosystem Footprint to Land Use Footprint (Right Axis)(Source) GPIF, S&P Global Sustainable1 (2023). Data as of 31st March 2023.

GPIF ESG REPORT 2022

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Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Key Biodiversity Areas and Protected Areas
Some areas are designated Key Biodiversity Areas or

For this analysis, we present the results of ourProtected Areas from the perspective of sustaining andestimation of the degree to which the activity areas ofprotecting biodiversity. A Key Biodiversity Area is an area

companies in GPIF’s equities portfolios overlap with Key

that contributes “significantly to the global persistence ofBiodiversity Areas or Protected Areas (Figures 9 and 10). We

biodiversity in terrestrial, inland water and marine

estimate that the overlap with Key Biodiversity Areas isenvironments.”6 A Protected Area is a “clearly defined

approximately 12,500ha and the overlap with Protected

geographical space, recognised, dedicated and managed,

Areas is approximately 21,200ha. For both types of areas,through legal or other effective means, to achieve thethe overlaps were relatively large with the utilities andlong-term conservation of nature with associated ecosystem

industrials sectors.

services and cultural values.”7 Companies located in theseIn this way, we are becoming able to gain a quantitative

areas may be required to shoulder additional costs orunderstanding of the possibility that corporate activities

explanations, in some cases, from the perspective of

involve areas that are important to ecosystems.

sustaining and protecting biodiversity.
Figure 9. Business Locations that Overlap with Key Biodiversity Areas(Hectares)
14,00012,00010,000
8,000
6,000
4,000
2,000
Information
Technology

Consumer Staples

Communications
Services

Healthcare

Real EstateCommunications
Services

Healthcare

Consumer Staples

Consumer
Discretionary

Domestic Equities

Financials

EnergyReal Estate

Materials

Industrials

Utilities

Total

0

Foreign Equities(Source) GPIF, S&P Global Sustainable1 (2023). Data as of 31st March 2023.

Figure 10. Business Locations that Overlap with Protected Areas(Hectares)
25,00020,00015,00010,0005,000

Information
Technology

Domestic Equities

Consumer
Discretionary

Financials

EnergyMaterials

Industrials

Utilities

Total

0

Foreign Equities(Source) GPIF, S&P Global Sustainable1 (2023). Data as of 31st March 2023.
6 International Union for Conservation of Nature (IUCN) “A Global Standard for the Identification of Key Biodiversity Areas.”
7 IUCN “Dudley, N. (2008) Guidelines for Applying Protected Area Management Categories.”

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GPIF ESG REPORT 2022

Chapter 1
GPIF’s ESG Initiatives

Editor’s Note
Issues Identified by This Year’s Report and Initiatives for Next Fiscal Yearsignificant questions concerning how investors managing

to compile the “Analysis of Climate Change-Related Risks

portfolios should measure and monitor these risks.

and Opportunities in the GPIF Portfolio” a supplementary

Meanwhile, when measuring the impact of projects
funded using the proceeds of the ESG bonds in GPIF

regards to the detailed analysis previously presented in theportfolio, we implemented relatively sound and reliable

Supplementary Guide, we have incorporated it into the bodymethods of analysis, collecting information on the status ofof this report, as detailed as possible, and, also haveprojects funded using ESG bonds and their environmental

disclosed the final reports of the companies to which we

impact primarily from impact reports published by the bondcommissioned the TCFD related analysis simultaneously

issuers, and estimating in cases where information was notwith the publication of this report. In the past years, we had

disclosed. We hope to further deepen our analysis withpublished the Supplementary Guide approximately one

regard to issues such as the monetary value of impact, as

month after publishing the ESG Report, so that readers may

well as the relationship of ESG bond disclosures and impact

have found it difficult to seek information such as the details

with the greenium.1 Our analysis in this report revealed that,of the analyses presented in the ESG Report or our analyticaleven among ESG bonds that are consistent with the ICMA

methodology. We suppose this change in approach should

Green Bond Principles and similar standards, there is a

help the situation. We will continue to endeavor to provide

substantial number for which no disclosure has been madeclear, accessible and user-friendly disclosures.

regarding impact. We hope to focus on this as one theme of

We have three main purposes in preparing the ESG
Report: (1) to report our ESG-related initiatives to pension

engagement by our external asset managers.
Regarding purpose (3), to implement the PDCA cycle, we

beneficiaries and our other stakeholders, (2) to provide awill proceed to undertake “Measuring the Effects ofreference regarding ESG-related initiatives for our asset

Stewardship Activities and ESG Investment Project” in earnest

managers and investee companies, and (3) to implement thethrough FY2024. Under this project, we intend to do more

PDCA cycle. While purpose (1) is similar to the aim ofthan simply verify the effectiveness of stewardship activities

disclosures by corporations and asset managers, purposesand ESG investment in general. We will analyze whether the(2) and (3) may be unique to GPIF.

stewardship activities and ESG investment carried out by GPIF

We have consistently striven at the frontiers of purpose

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities | Editor's Noteguide to the ESG Report (the “Supplementary Guide”). With

Chapter 2
Measuring the Effectsof ESG Activities

From this sixth issuance of ESG Report, we have decided notso far have actually produced the intended effects. Our(2), aiming to provide a reference regarding ESG-related

stewardship activities and ESG investment so far have been

initiatives for our asset managers and investee companies,

aimed at improving the sustainability of markets, in particular,

perhaps at the risk of overreaching ourselves. For this year’s

and we will focus on measuring the effects from thisESG Report, we engaged in a trial analysis of the risks

perspective. We hope to report on the progress of this project

associated with biodiversity and natural capital in anticipationin next year’s ESG Report.

of the TNFD’s final recommendations, which are scheduled forrelease in September 2023. These risks entail a high degreeof regionality and individuality, and we feel that there remain

SHIOMURA Kenji
Editor-in-Chief of ESG Report(Managing Director of ESG & Stewardship Department)

1 A portmanteau of “green” and “premium,” the “greenium” refers to the phenomenon in which green bonds are valued more highly (with lower yields) than other bonds issued with the same terms.

GPIF ESG REPORT 2022

90

GPIF’s Disclaimer
This report is intended to provide information regarding GPIF’s ESG-related initiatives and ESG-related evaluation and analysis. The content of the report is
up-to-date at the time of writing, and GPIF provides no guarantee of its accuracy and completeness. It may be amended or changed at any time without
prior notice. GPIF and third parties reserve all rights concerning the content of the report. Please consult with the Planning and Communication
Department (TEL: +81-3-3502-2486) before reproducing or copying (not including quotations) this ESG Report for commercial purposes.

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The information provided by ICE and included in this report is for informational purposes only and does not constitute any representation or warranty; it isbased on data provided by third parties, compiled from public sources, or is estimated. All forecasts or values included in the report are estimates and areprovided as is. Nothing in the information provided herein constitutes investment, legal, or any advice, or that a strategy is suitable for any particular
circumstances. ICE expressly disclaim any and all express or implied warranties or any liability in relation to this report, does not guarantee that it is accurate orcomplete, and shall have no liability for any errors or omissions in connection with any data or information in this report, or any liability for any direct, indirect,
consequential or any other damages arising from use of this report. Information about ICE group's trademarks and intellectual property rights is located athttps://www.theice.com/terms-of-use.

MSCI
Although GPIF’s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG Parties”), obtain information fromsources they consider reliable, none of the ESG Parties warrants or guarantees the originality, accuracy and/or completeness, of any data herein and expressly
disclaim all express or implied warranties, including those of merchantability and fitness for a particular purpose. None of the Information is intended toconstitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such, norshould it be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. None of the ESG Parties shall have any liability forany errors or omissions in connection with any data or Information herein, or any liability for any direct, indirect, special, punitive, consequential or any otherdamages (including lost profits) even if notified of the possibility of such damages.

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This content (including any information, data, analyses, opinions, ratings, scores, and other statements) (“Content”) has been prepared solely for information
purposes and is owned by or licensed to S&P Global and/or its affiliates (collectively, “S&P Global”). This content may not be modified, reverse engineered,
reproduced or distributed in any form by any means without the prior written permission of S&P Global. You acquire absolutely no rights or licenses in or to thisContent and any related text, graphics, photographs, trademarks, logos, sounds, music, audio, video, artwork, computer code, information, data and material
therein, other than the limited right to utilize this Content for your own personal, internal, non-commercial purposes or as further provided herein. See fullDisclaimers at https://www.spglobal.com/en/terms-of-use. Copyright© 2023 S&P Global Inc. All rights reserved.

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GPIF ESG REPORT 2022

Investment Principles

1
2

Our overarching goal is to contribute to the stability of the national pension system by
securing the investment returns that it requires with minimal risk and from a long-term
perspective, to the sole benefit of pension recipients.

Our primary investment strategy is diversification by asset class, region, and timeframe.
While market prices may fluctuate in the short term, GPIF will take full advantage of ourlong-term investment horizon to achieve investment returns in a more stable and efficientmanner, while simultaneously ensuring sufficient liquidity to pay pension benefits.

We formulate our overall policy asset mix and manage risks at the portfolio, asset class,3

and investment manager level. We utilize both passive and active management in orderto achieve benchmark returns (i.e., average market returns) and seek untapped profitable
investment opportunities.

We believe that sustainable growth of investee companies and the capital market as a whole4

are vital in enhancing long-term investment returns. In order to secure such returns forpension beneficiaries, therefore, we promote the incorporation of non-financial
environmental, social, and governance (ESG) factors into the investment process in addition
to financial factors.

5

In order to enhance long-term investment returns and fulfill our stewardship
responsibilities, we shall advance various initiatives (including the consideration of
ESG factors) that promote long-termism and the sustainable growth of investee
companies and the capital market as a whole.

GPIF Homepage

GPIF YouTube channel

Contact:
Planning and Communication Department,
Government Pension Investment Fund
Toranomon Hills Mori Tower 7th Floor, 1-23-1 Toranomon,
Minato-ku, Tokyo, Japan, 105-6377
TEL : +81-3-3502-2486 (direct dial)
FAX : +81-3-3503-7398
URL : https://www.gpif.go.jp/en/

G P I F Tw i t t e r