ESG REPORT
2020

Government Pension Investment FundFor All Generations

Contents
P.

01

3 Introduction

P.

1
11 Chapter
GPIF’s ESG Initiatives

P.3

About GPIF

P.11

Activity Highlights

P.5

Ensuring Pension Stability

P.13

ESG-Related Governance and Organizational Frameworks

P.7

What is ESG?

P.15

ESG Initiatives Within GPIF

P.9

Message from Our President

P.17

Support for TCFD and Climate-Related Financial Disclosures

P.19

ESG Index Selection and ESG Index-Based Asset Management

P.21

ESG in External Equity and Fixed Income Management

P.23

Stewardship Activities and ESG Promotion

P.27

Column: Empirical Analysis of Engagement Effectiveness

P.29

Engagement with Index Providers and ESG ratings agencies

P.35

ESG in Alternative Asset Management

P.37

Collaboration with Overseas Public Pension Funds and Other Institutions

P.39

Review of ESG Activities and Future Outlook

P.40

Column: Global Approaches to Climate Change and Actions Taken by Japanese Companies

GPIF ESG REPORT 2020

For All Generations
GPIF is committed to fulfilling our fiduciary duty to secure adequate
retirement funds for both current and future beneficiaries.
We believe that improving the governance of the companies that
we invest in while minimizing negative environmental and social
externalities – that is, ESG (environmental, social and governance)
integration – is vital in ensuring the profitability of the portfolio overthe long term.

P.

2
41 Chapter
Measuring the Impacts of ESG Activities

P.41

ESG Index Performance

P.43

Portfolio ESG Rating

P.45

ESG Rating Ranking by Country

P.46

Column: Corporate Governance andCorporate Behavior of Japanese Companies

P.47

Gender Diversity in Japanese Companies

P.

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

P.49

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

P.51

Analysis of Portfolio Greenhouse Gas Emissions

P.55

Analysis of Equity and Corporate Bond Portfolio Using
Climate Value-at-Risk, etc.

P.61

Greenhouse Gas Emission andClimate Value-at-Risk Analysis of Government Bond Portfolio

P.63

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

P.65

Analysis of Inter-Industry Transfer of Transition Risks and Opportunities

P.69

Analysis of Revenue Opportunities through Contributions to SDGs

P.71

Editor’s Note

GPIF ESG REPORT 202002

Introduction: Government Pension Investment Fund

About

GPIF

Government Pension Investment Fund (GPIF) manages and invests Japan’s pension reserve fund, which is used
to pay Employee Pension Insurance and National Pensions. We contribute to the stability of the pension systemby earning returns on our investments and distributing these to the government.

1

Pension System in Japan

Japan adopts a “pay-as-you-go” pension system in which

the future.

contributions from the current working generation are used to pay the

GPIF invests this reserve in Japanese and overseas capital

pensions of elder generations. As such, with the birth rate declining

markets. Both returns on the reserve and the reserve itself will be

and the population aging at a rapid pace, in order to avoid an unduly

used to supplement pension payments to future generations as part

heavy burden being placed on future generations, pensionof a 100-year fiscal plan. For this reason, even if a valuation gain orcontributions not immediately applied to the payment of benefits areloss occurs in a particular year, pension payments for the following

accumulated as pension reserves and placed under fiscal

year will not be affected.

management so that these payments can continue to be made into

Pay-as-you-go system
Japan adopts a system where the current working

Role of the reserve(conceptual diagram)

Secure funds
through investment
returns

generation supports the livelihoods of the elderly.
PensionReserve

Pension benefits
Current
recipient
generation

Covers deficit

100％

Decline incurrent
working
generation

Pension premiums

Decline incurrent
working
generation

Pension premiums

Pension benefits

Pension premiums

Pensionpremiums

Pension payment sources

Payment

Current
working
generation

Covers deficit

Surplus

Payment

Futureworking
generation

Pensionpremiums

0％

Government
contribution

Government
contribution

Government
contribution

Present

50 years later

100 years laterLong-term plan
(Note) The above diagram is for illustrative purposes; please refer to the Ministry of Health, Labour and Welfare website for details on the public pension system.
03

GPIF ESG REPORT 2020

2

Diversified, International Investment Over the Long-Term

GPIF manages the pension reserve through a combination of long-term

factors. For this reason, with assets under management ofand diversified investments with the aim of stable returns. Investment

approximately ¥186 trillion as of March 31, 2021, we invest not in a

returns fluctuate on a daily basis due to a variety of factors, but insingle asset class but in a broad, diverse range of assets, including

general, short-term oscillations even out as the investment period

equities, bonds, and alternative investments both in Japan andgrows, resulting in more stable returns on an annualized basis. In

overseas. We expect such diversified investment to generate profits

addition, the market value of the assets under management fluctuatesfrom economic activities all around the world and reduce the possibility

depending on economic conditions, foreign exchange rates, and otherof major losses.

3

Integrating ESG (Environmental, Social and Governance) into the Investment Process

GPIF promotes ESG integration throughout all of our investment processes

under management tracking ESG indexes, which can be described as ESG

in line with our Investment Principles, which state that “sustainable growthinvestments in a narrow sense, total approximately ¥10.6 trillion, andof investee companies and the capital market as a whole are vital ininvestment in green, social and sustainability bonds issued by multilateralenhancing long-term investment returns.” Of these investments, the assets

development banks is currently at approximately ¥1.1 trillion.

GPIF in numbers
Universal owner￥

Asset size

Cross-generational investor¥186

trillion
Investment
time horizon

World’s largest pension fund

5,702
14,829100

stocksNumber of
GPIF-owned
issuesyears

Playing a role in pension finance with aninvestment time horizon of over 100 years

bonds

GPIF’s ESG activities (investments)
ESG integration(all assets)¥186

trillion￥

Assets under management
tracking ESG indexes¥10.6

trillion￥

Investments ingreen bonds, etc.

¥1.1

trillion

Rating by PRI(strategy and governance)

A+
GPIF ESG REPORT 202004

Introduction: GPIF’s Mission

Ensuring
Pension Stability
Our mission at GPIF is to contribute to the stability of the national pension system bymanaging and investing the pension reserves entrusted to us by all beneficiaries.
To fulfill its role of contributing to stable pension finance, GPIF has been given an
investment return target of 1.7% above wage growth by the Minister of Health, Labour

Our Mission

and Welfare. We began managing assets as we are today in fiscal 2001, and since then,we have recorded a cumulative return rate of +3.61% (annualized) and total returns of¥95.3 trillion as of the end of fiscal 2020.
Pension reserves managed by GPIF are used to prevent the burden on future
generations from becoming too excessive.

We firmly believe that enhancing the sustainability of financial markets as a wholethrough ESG activities will help stabilize the pension system to the ultimate advantage
of all beneficiaries.

Our Conviction

We are committed to continue promoting ESG in order to reduce the negative
impact of environmental and social problems on financial markets, and thus
encourage sustainable economic growth and improve long-term returns from all theassets we manage.

05

GPIF ESG REPORT 2020

Pension reserves are managed based on legislation that includes the Employees'
Pension Insurance Act, National Pension Act, and the Act on the Government
Pension Investment Fund, Independent Administrative Agency. These laws require
GPIF to invest these reserves safely and efficiently from a long-term perspective
and for the sole benefit of pension recipients.
In addition, GPIF conducts its business operations in accordance with mediumterm targets set by the Minister of Health, Labour and Welfare. GPIF’s 4th Mediumterm Plan (FY2020–FY2024), which it established in response to those mediumterm targets, states that GPIF will promote investments that are conscious ofPension reserves

non-financial factors, namely ESG, while being mindful of the Pension Reserve
Basic Policy.
In 2020, the Basic Policy of Pension Reserves that GPIF follows was revised torequire that the fund, from the perspective of securing long-term returns for the
benefit of pension recipients, consider different activities to promote investments
integrating non-financial factors, namely ESG (environmental, social andgovernance) in addition to financial factors, and take the necessary actions to
implement these. GPIF is committed to promoting ESG investment based on the
Basic Policy and the Medium-term Plan.

Cumulative returns since fiscal 2001
Cumulative returns

Assetsunder management¥ trillion

Returns

100
90
80
70

¥95.3

＋

trillion(cumulative)¥186.2

trillion

60
50
40
30
20
10
0
(10)
(20)
(fiscal year)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
As of the end of March 2021

GPIF ESG REPORT 202006

Introduction: Why Does GPIF Focus on ESG?

What isESG?

ESG is the acronym for Environmental, Social, and Governance. While investors have traditionally used cash flows,
profit margins and other quantitative financial data to value a company’s equity or other securities, “ESG investment”
also takes non-financial ESG factors into consideration. GPIF is committed to promoting ESG investment.

1

What is ESG?

The term “ESG” was first popularized in 2006, when the United

such as climate change, supply chain labor problems, and corporate

Nations proposed the Principles for Responsible Investment (PRI) – a

misconduct, have surfaced. Based on this recognition, ESG

new framework for incorporating ESG into the investment process –investment is expected to improve risk-adjusted returns over the long

to institutional investors around the globe. As the world economy has

term by incorporating environmental, social, and corporate

grown, environmental, social and corporate governance issues thatgovernance perspectives into investment decisions.

have the potential to negatively impact socio-economic sustainability,

Environmental
Environmental

Climate change
Water resources
Biodiversity etc.

SocialDiversity
Supply chain etc.

SocialGovernance

Governance
Composition of the board of directors
Protection of minority shareholders etc.

207

Why Does GPIF Focus on ESG?

GPIF can be accurately described as a “universal owner”; that is, ainvestee company and the sustainable, stable growth of the entire

long-term investor with a substantial level of assets undercapital market is critical for GPIF – a universal owner and cross-management that invests in securities spanning the entire world

generational investor – to achieve stable income over the long run.

capital market. Furthermore, the pension reserves managed by GPIF

Since environmental and social issues will inevitably impact capitalare used to mitigate the burden of pension contributions made bymarkets over the long term, it is essential that we reduce the negative

future generations. Long-term corporate value creation by each

impact of these problems in our pursuit of sustainable returns.

GPIF ESG REPORT 2020

3

About the SDGs

The SDGs (Sustainable Development Goals) are international goals set

Development” adopted at the UN Summit in September 2015. The

forth by the United Nations in the “2030 Agenda for Sustainable

SDGs evolved from the Millennium Development Goals formulated by
the UN in 2001 and are targeted for achievement by 2030. The SDGs
advocate “leaving no one on the planet behind.” And consist of 17
goals and 169 targets, including “Gender Equality,” “Industry, Innovation, and Infrastructure”, and “Climate Action.”As the goals and targets of ESG investment and the SDGs arelargely the same, the former can go a long way in accomplishing thelatter. Achieving the SDGs and realizing a sustainable economy andsociety would lead to a better return on all assets managed by GPIF
over the long term.

ColumnGPIF and Impact Investment

GPIF’s Investment Principles clearly state that we will promote

long-term perspective by reducing the negative impact ofinvestments that consider ESG, and we thus integrate ESG

environmental and social issues on capital markets. For thisfactors into all aspects of our pension reserve management. On

reason, it was decided that, under existing legislation and thethe other hand, GPIF does not conduct investment where theobjective of investment behavior to be taken by the fund, GPIF

explicit purpose is to create some type of social impact, such

would not make investments whose sole purpose was to

as achieving the SDGs. While this may seem like a"contribute to the solution of social problems."

contradiction, it is related to the legislation governing GPIF andthe objective of our investment behavior.

In general, there are many similarities between ESG investment
and impact investment, and few investors may be clearly aware of

As mentioned above, GPIF is required by law to manage

the differences. We believe that GPIF’s ESG investment will have anpension reserves solely for the benefit of pension recipients

impact by enhancing companies’ ESG activities and improving theirfrom a long-term perspective, thereby helping to fund future

ESG ratings, which will ultimately lead to the mitigation of risks andpension benefits. In this context, benefit is construed as

improvement of portfolio returns. Having said that, GPIF’s ESG

economic benefit. The goal of GPIF’s ESG investment is toinvestment does not directly target social impact itself, which is theensure the economic benefit of pension recipients from amajor difference with impact investment.

GPIF ESG REPORT 202008

Me ssa g e f ro m O ur President

The year 2020, which marked the commencement ofIn this tumultuous year, both domestic andthe 4th Medium-term Plan, was a turbulent year foroverseas stock markets rose significantly due to

GPIF. The COVID-19 pandemic, which began in theeconomic stimulus packages implemented in major

previous fiscal year and exploded around the entire

economies, including major fiscal spending andworld, continued to severely impact the global

continued accommodative monetary policies. Our

economy and society in fiscal 2020. While progress istactical allocation of funds to risk assets such as

being made with the vaccination roll-out in developed

domestic and foreign stocks whose prices hadcountries in Europe and America, many otherdropped substantially due to the COVID-19 shockcountries, including Japan, are caught in a repeatedcontributed greatly to performance in fiscal 2020,

cycle of harsh restrictions to reduce transmission ofwith our portfolio generating a record-high returnthe virus and the easing of those restrictions.

of around 25.2%, or approximately ¥37.8 trillion.

Amid this unprecedented crisis, socioeconomic
systems and industrial structures are undergoing

to secure adequate retirement funds for bothmajor transformations. ESG also continued tocurrent and future beneficiaries by managing

attract attention on many fronts, with the pandemic

pension reserves from a long-term perspective,

driving an even greater awareness of thebased on our Investment Principles and Code ofimportance of social (S) issues, including employee

Conduct, without being swayed by short-term

health and safety, supply chain management, andinvestment results.

human rights. 2020 also saw the beginning of a

GPIF’s Investment Principles state that “wegreater global alignment on climate change.

promote investments that take into account the

Several countries announced their intention to

non-financial elements of ESG, in addition to

reduce greenhouse gas emissions to net zero,financial elements, with a view to ensuring long-

beginning with China in September 2020 followed

term returns for the benefit of pension recipients.”

by Japan and South Korea the following month.

We also firmly believe that enhancing the

And on the inaugural day of the new Bidensustainability of financial markets as a wholeadministration in January 2021, the United States

through ESG activities will help stabilize theannounced its return to the Paris Agreement – anpension system, to the ultimate advantage of allinternational framework to combat climate change.

beneficiaries.

While the pandemic continues to rage on, the world

09

GPIF is committed to fulfilling our fiduciary duty

Based on this conviction, GPIF has been

has already begun to look forward toward a post-promoting various ESG-related initiatives ever since

COVID future.

becoming a PRI signatory in 2015. In fiscal 2020,

GPIF ESG REPORT 2020

we adopted new ESG indexes for foreign equities
and collaborated with various internationalorganizations to promote green, social, andsustainability bonds and investment in COVID-19
bonds. We also actively continued our engagementwith index providers and ESG ratings agencies
The benefits of ESG-related initiatives take along time to materialize. We have examined theimpact of our activities every year in our ESG
Report to confirm that we are headed in the right
direction and ensure that we ultimately achieve theresults we are aiming for. This is the fourth suchreport since it was first published in fiscal 2017.
For the disclosure of climate change risks andopportunities, the importance of which isincreasing year by year, we attempted to conduct a
more forward-looking analysis, as well as delve
more deeply into the analyses we have conductedto date.
Although many challenges remain, such as
constraints on information availability, we arecommitted to continuously improving our yearly
analysis and disclosures. We hope that our efforts
provide an impetus for other asset owners andasset managers to disclose similar information.

Government Pension Investment Fund
President

MIYAZONO Masataka
10Chapter 1

GPIF’s ESG Initiatives

Fiscal 2020

Activity Highlights

In fiscal 2020, GPIF continued to promote ESG in new areas. Here we present the highlights of our
ESG activities during the year.

Adoption of ESG-Themed Foreign Equity Indexes
After examining the indexes submitted to the Index Posting System
based on the Practical Guidelines for ESG Index Selection, GPIF
adopted the MSCI ACWI ESG Universal Index – a general ESG index– and the Morningstar Gender Diversity Index, and began passive
investment based on these two indexes.
Please refer to pages 19 and 20 for details.

Collaboration with International Organizations on ESG Bonds and Investment in COVID-19 Bonds
GPIF is working to expand investment opportunities in green, socialand sustainability bonds as part of its efforts to integrate ESG into
fixed income investment. In fiscal 2020, we formed new partnerships
with three banks while continuing our existing partnerships with othermajor multilateral development institutions. Also, GPIF has invested in
COVID-19 bonds issued by our partner institutions in response to theincreased demand for funding to address the pandemic,.

Please refer to pages 21 and 22 for details.

Stewardship Activities and ESG Promotion
With a view to increasing long-term investment returns, GPIF fulfills
its stewardship responsibility by pursuing activities that promote
long-termism and the sustainable growth of investee companies andthe market as a whole. Our FY2020 survey of listed companies
found that an increasing number of firms gave a favorable
assessment of institutional investors’ usage of integrated reports. In
addition, we saw examples of stewardship focused passive
managers successfully encouraging investee companies to takeconcrete action to create corporate value.
Please refer to pages 23 to 26 for details.
11

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives
Activity Highlights

Engagement with Index Providers and ESG Ratings Agencies
GPIF has been actively engaging in dialogue with index providers and
ESG ratings agencies since first selecting ESG indexes for Japaneseequities in 2017. As GPIF’s investments are predominantly passive,index providers and ESG ratings agencies play a pivotal role in the
success or failure of our fund management. GPIF engages in dialogue
with these providers in an effort to improve ESG rating coverage andrating methodologies.
Please refer to pages 29 to 34 for details.

Chapter 2 Measuring the Impacts of ESG Activities

ESG in Alternative Asset Management
GPIF also takes ESG factors into consideration when investing inalternative assets. We examine ESG initiatives in the process of
selecting asset management companies, and monitor thesemanagers after a mandate is awarded. In this report, we conduct aquantitative analysis of climate change risk for domestic real estate
which GPIF invests in through private funds.

Please refer to pages 35 and 36 for details.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Publication of the Analysis of Climate Change-Related Risks and Opportunities in the GPIF Portfolio
In the “Analysis of Climate Change-Related Risks and Opportunities in
the GPIF Portfolio” report published in October 2020, GPIF further

Analysis of Climate Change-Related Risks andOpportunities in the GPIF Portfolio

enhanced its disclosures in line with the recommendations of the Task

Supplementary Guide to GPIF ESG Report 2019

Force on Climate-related Financial Disclosures (TCFD) by broadening
the scope of analysis and conducting a comprehensive assessment ofclimate change-related risks and opportunities across asset classes. As
GPIF is a “universal owner,” we are confident that this report not only
serves as an evaluation of our portfolio companies, but also provides a
wealth of implications about the different climate-related challenges
2020/09/17

14:14:22https://www.gpif.go.jp/en/investment/
GPIF_CLIMATE_REPORT_FY2019_2.pdf

and risks countries around the world are facing, as well as the inherent
value of problem-solving technologies and business opportunities that
could emerge in the future.

GPIF ESG REPORT 202012

Chapter 1

GPIF’s ESG Initiatives

ESG-Related Governance andOrganizational Frameworks
The Board of Governors discusses and oversees the promotion of ESG and approaches to ESG investment at GPIF. The
Executive Office promotes ESG initiatives through coordination between the Public Market Investment Department,
Investment Strategy Department, Private Market Investment Department, and other departments related to asset
management, and reports to the Board of Governors on important matters.

Deliberations by the Board of Governors
The Board of Governors discusses and oversees the promotion

The Board of Governors discusses and oversees the promotionof ESG and approaches to ESG investment at GPIF. The Board,of ESG and approaches to ESG investment at GPIF. Details of

established in October 2017, makes decisions concerning

the discussions of the Board of Governors are posted on theimportant matters such as the formulation of the policy asset

GPIF website in the form of a summary of the proceedings aftermix and medium-term plans by mutual consent, and overseesa certain period of time has passed.

the execution of operations by the Executive Office.
In fiscal 2020, the Board of Governors met 13 times, and
ESG-related issues were discussed at six of those meetings.

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

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

42nd

May 2020

44th

June 2020

45th

13

Agenda item
Reported matter

ESG Report (Outline)

Matter for resolution

Change of policy for fulfillment of stewardship responsibilities

Reported matter

Selection of ESG-themed foreign equity indexes

Matter for resolution

ESG index selection

Reported matter

ESG Report 2019 (final version)

July 2020

46th

September 2020

Matter for resolution

ESG index selection (2)47thOctober 2020

Reported matter

Analysis of Climate Change-Related Risks and Opportunities in the GPIF Portfolio(a supplementary guide to the ESG Report)

53rd

March 2021

Reported matter

Report on stewardship activities in 2020/2021

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

ESG-related executive structure
ESG-related initiatives and other asset management-related

coordination between the Public Market Investment

issues, and particularly important matters are reported to the

Department, Investment Strategy Department, Private Market

Board of Governors. Preparation of the ESG Report is also

Investment Department, and other departments related to asset

deliberated on by the Investment Committee before being

management. The Investment Committee, chaired by the Chiefreported to the Board of Governors.

ESG-Related Governance and Organizational Frameworks

The Executive Office implements ESG initiatives throughInvestment Officer (CIO), deliberates and makes decisions on

Key departments responsible for ESG

Public Market Investment Department

Main
Responsibilities

Public Market Investment

This section examines ESG integration as part ofthe external asset manager evaluation process.

Stewardship & ESG

This section evaluates ESG and otherstewardship activities by external asset
managers, researches ESG investment andother new investment methods, and coordinatesvarious activities across asset classes, including
the production of the ESG Report.

Selection andevaluation of external
asset managers forequity and fixedincome, etc.

Chapter 2 Measuring the Impacts of ESG Activities

Investment Strategy Department
Main
Responsibilities

This department develops GPIF’s ESG
investment strategies, such as theselection of ESG indexes.

Develop investment strategy, including rebalancing
strategy and investment methods, etc.

Private Market Investment Department
Selection and evaluation of external asset managers foralternative assets, etc.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Main
Responsibilities

This department integrates ESG into its
selection and evaluation of external asset
managers for alternative assets.

Practical guidelines for the selection of ESG indexes
At the 46th meeting of GPIF’s Board of Governors held insecuring of long-term returns) from a long-term perspective. Based

September 2020, the Board deliberated and voted on the Practicalon these fundamental rules, the guidelines stipulate that, “whenGuidelines for the Selection of ESG Indexes, which set forth basic

selecting an index that includes negative screening methods, ...

policies for the selection of ESG indexes. These guidelines clarified

such selection must be based exclusively on an economic

several matters relating to the selection of ESG indexes, including

rationale, avoid generating unnecessary speculation, include a1) to avoid directly influencing financial markets and corporate

rational and transparent selection process, and be dealt with in a

management, GPIF must not select individual stocks, nor give

cautious and conservative manner.”

directions for such selection, and 2) selection of indexes should be
conducted exclusively for the benefit of pension recipients (i.e.,

Practical Guidelines for the Selection of
ESG Indexes

GPIF ESG REPORT 202014

Chapter 1

GPIF’s ESG Initiatives

ESG Initiatives Within GPIF
In 2020, GPIF established the SDGs Promotion Group—a committee reporting directly to the President created to develop
initiatives designed to bolster the fund’s ESG and SDG-conscious internal values. GPIF went on to establish the Diversity
and Inclusion Promotion Group under the SDGs Promotion Group. Through these organizations, GPIF promotes ESG and
the SDGs within the fund itself.

SDGs and Diversity-Related Initiatives
GPIF’s Code of Conduct states, “We are committed to GPIF’s

In 2020, the D&I Group proposed a plan of action based

mission by promoting communication and teamwork andon the concept that understanding and accepting people withnurturing a diversity of talents and capabilities,” and further,different values and cultures and encouraging the“We shall respect each person’s personality, talents anddevelopment of team members who generate new ideas iscapabilities, perspectives, well-being, and privacy to maintaincrucial in enhancing fund management and investment. The

a good working environment.” Building on this, in January

proposal sets out two approaches for its implementation. In

2020 GPIF launched the SDGs Promotion Group, whichterms of conduct, it aims to create a workplace environment

reports directly to the President of GPIF and conducts regularwhere everyone can work with a sense of purpose. In terms

training sessions for fund employees on the SDGs. Further,of raising awareness, it aims to foster a mindset and

GPIF launched the Diversity and Inclusion Promotion Groupawareness of diversity and inclusion in employees.

(“D&I Group”) as a sub-group to the SDGs Promotion Group,

The advancement of women in the workplace is a crucial

which consists mainly of fund employees who have applied topart of diversity promotion. The table on the opposite page

the group and been selected by the President. Both the SDGs

includes GPIF’s numbers for the five metrics that companies are

Promotion Group and the D&I Group are tasked withrequired to disclose under the Act on Promotion of Women’sdeveloping initiatives designed to bolster the fund’s ESG-

Participation and Advancement in the Workplace, which are also

conscious internal values, and members discuss specificquantitative evaluation metrics used in the MSCI Japanmeasures for creating a work environment in which everyone

Empowering Women Index (WIN). GPIF will continue to implement

can work with a sense of purpose.

initiatives for enhancing diversity and inclusion in the future.

FY2020 SDGs training

Session 1

October 2020

Part 1: SDGs Basics and Global Trends
Lecturer: KANIE Norichika, Professor, Keio University Graduate School of Media and GovernancePart 2: Report on Joint Research on Society 5.0 for SDGs

Session 2

November 2020

Part 1: The Fight against COVID-19
Lecturer: HANAKI Hideaki, Director of the Research Center for Infection Control, Kitasato
University Omura Satoshi Memorial InstitutePart 2: Ministry of Health, Labour and Welfare’s COVID-19 Countermeasures

Session 3

March 2021

Part 1: The Significance of Womenomics
Lecturer: Kathy Matsui, General Partner, MPower Partners
Part 2: Introduction of Diversity & Inclusion Promotion Group(Note) A fund employee in charge of D&I served as lecturer for Part 2.

15

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Women in the workplace at GPIF(i) % female new hires

0.0%(iv) % women in senior management

11.9%(ii) % women in the workforce

30.3%(v) % women on board

16.7%(iii) Difference in years men andwomen are employed by the company*(47.8)%ESG Initiatives Within GPIF

(Note) Data for (i) is for fiscal 2020; the other data is as of March 31 2021 or April 1, 2021.
* Difference in years men and women are employed by the company = (average years women employed – average years men employed) / average years men employed.
This ratio is highly sensitive to changes in hiring and retirement due to GPIF’s small workforce (174 employees) and thus fluctuates significantly from year to year.
** Percentage of women on the Board of Governors. Governors (including the President) are appointed by the Minister of Health, Labour and Welfare.

Environmental Initiatives
As part of our environmentally-conscious initiatives within the fund,pandemic, resulted in about 40% less copier paper being

GPIF established a “Basic Policy on Promoting Green Procurement”

purchased and approximately 43% less paper used per employee

for fiscal 2020 based on the Act on Promotion of Procurement ofcompared with the previous year.

Eco-Friendly Goods and Services by the State and Other Entities.
Based on this policy, GPIF works to ensure that the paper andstationery, office furniture, office equipment, appliances, and otherAmount of Copier Paper Purchased at GPIF
(FY2018＝100)
100

To reduce paper consumption, in principle, all meetings,

5,000

80

including Board of Governors and Investment Committee meetings,

4,000

are paperless. We ask asset managers and ESG ratings agencies
to provide meeting materials in advance in electronic form, anduse tablets, laptops, and other devices to view these presentations.
In fiscal 2020, these initiatives, in addition to enhancements to ourremote work frameworks made in response to the COVID-19

60

3,000

40

2,000

20

1,000
0

FY2018FY2019■ Amount purchased (left axis)
Amount used per person (right axis)

Chapter 2 Measuring the Impacts of ESG Activities

office products we use have a minimal impact on the environment.

(kg)
6,000

FY2020

0

GPIF’s Response to COVID-19
also began holding important meetings, such as meetings of the

had a massive impact on society. GPIF was no exception.

Board of Governors and Investment Committee, remotely over the

In response to the pandemic, GPIF implemented remote

Internet, while strictly managing information security. As a result,work beginning in March 2020, and set up a COVID-19 response

every day an average of around 70% of officers and employees

headquarters when a state of emergency was declared in theworked from home during the states of emergency declared inTokyo metropolitan area in April. The response headquarters,

April 2020 and again in January and April 2021. In addition tochaired by the President and including the Executive Managing

the promotion of remote work, we are also implementing other

Directors and departmental general managers, was establishedinitiatives in the workplace such as the introduction of staggered

to address issues such as how to secure the safety of fundworking hours to avoid the “three Cs” (closed spaces, crowded

employees and ensure business continuity. The response

places, and close-contact settings) during the commuting rush.

headquarters shared information on various issues within the

GPIF will continue developing its business continuity framework

fund, coordinated different departmental efforts, and monitored

for continuing pension reserve management operations even in

the status of those efforts. From April onward, we proactively

times of emergency.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

From 2020 and into 2021, the global COVID-19 pandemic has

recommended all officers and employees to work from home. We

GPIF ESG REPORT 202016

Chapter 1

GPIF’s ESG Initiatives

Support for TCFD and
Climate-Related Financial Disclosures
Although the potential impact may vary in size, climate change risks occur simultaneously across all companies and asset
classes, and it is difficult to completely eliminate these risks simply through diversification. In addition, as climate-changerisks are highly likely to manifest over the long term, we believe that, as an asset owner, GPIF should take the lead in
addressing them.

Climate-Related Financial Disclosure Consistent with TCFD Recommendations
The Financial Stability Board (FSB) established the Task Forceclimate change risks are evolving year by year, and we’veon Climate-related Financial Disclosures (TCFD) in December

worked to further enhance our disclosures in this year’s report.

2015, and in June 2017, the TCFD released their

For example, in addition to analyzing transition and physicalrecommendations on how companies and others can betterrisks and opportunities for individual asset classes, thedisclose information related to climate change risks andanalyses in this year’s report include Scope 3 greenhouse gas

opportunities. The recommendations published by the TCFD

emissions data, in addition to Scope 1 and Scope 2 data.

outline a series of information disclosure practices forcompanies and other organizations in (1) governance, (2)and activities from ESG activities as a whole, and GPIF regards

strategy, (3) risk management, and (4) metrics and targets, inclimate change as one of the most important themes in ESG

relation to climate change.

activities in general. Accordingly, as shown in “Disclosures

Although the potential impact may vary in size, for17

It is difficult to separate climate change-focused investment

recommended by the TCFD and GPIF’s response” (on theinvestors, climate change risks occur simultaneously across all

opposite page), our disclosures are not confined to initiatives only

companies and asset classes and cannot be completely

relating to climate change but include all ESG activities. To makeeliminated simply through diversification. Moreover, these risks

it easy to understand what kind of information GPIF discloses forare highly likely to manifest over the long term, and we

the four TCFD disclosures, from this fiscal year, the ESG Report

therefore believe that GPIF, as an asset owner, should take thewill provide an illustration of the four core disclosure elements as

lead in addressing them. We therefore declared support for theshown on the opposite page.

TCFD in December 2018 and began disclosing information in

GPIF will work to enhance the sustainability of the entire

accordance with the TCFD recommendations in that fiscal

market by further improving its disclosure of information on ESG

year’s ESG Report. The analytical methods used to measure

in general, including climate change-related financial information.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Disclosures recommended by the TCFD and GPIF’s response

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

Strategy
Risk management
Metrics
and targets• 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 (page 74).

Support for TCFD and Climate-Related Financial Disclosures

Governance• The Board of Governors, which oversees the Executive Office, receives reports on ESG from the Executive
Office as necessary (page 13).
• The Executive Office, which consists of officers and employees under the President, convenes Investment
Committee meetings to make decisions on climate change and other ESG-related initiatives. The Office also
develops organizational frameworks for implementing these initiatives (page 14).

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.

Governance
Strategy
Risk management• 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 21). In fixed income investment, we propose investment opportunities in ESG bonds to our external asset
managers (pages 21–22). We also promote ESG integration in our alternative investments (pages 35–36).

Chapter 2 Measuring the Impacts of ESG Activities

Metrics
and targets• As a universal owner, GPIF stresses sustainable enhancement of the corporate value of each investee company,
which is realized through minimizing the impact of environmental and social issues and fostering the long-termsustainability of society as a whole (page 74).

• In relation to the environment (E) in particular, we use indexes for equity investment that focus on each company’s
carbon efficiency (pages 19–20) and invest in green bonds through fixed-income investment (pages 21–22).
• In addition to measuring the carbon footprint of GPIF’s portfolio, we also assess the physical and transition risks
and opportunities that materialize in temperature rise scenarios of 1.5°C, 2°C, and 3°C and above, andestimate their impact on investment returns (pages 51–64).

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

Governance
Strategy

Metrics
and targets• As well as requiring asset managers to actively engage with companies on key ESG themes (pages 23–26),
GPIF engages with index providers to encourage improvement in the evaluation techniques used within themethodologies of the carbon efficient indexes and ESG indexes for domestic and foreign equities that GPIF
adopts (page 29–33).

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Risk management• GPIF is developing an organizational framework for monitoring the greenhouse gas (GHG) emissions (carbon
footprint and carbon intensity) of its entire portfolio as well as for each fund for which management has
been outsourced.

Disclose the metrics and targets used to assess and manage relevant climate- related risks andopportunities where such information is material.
Governance
Strategy
Risk management
Metrics
and targets• GPIF aims to control portfolio risk and gain opportunities for investment return by contributing to the effort tocurb greenhouse gas (GHG) emissions across the entire economy, through engagement with external asset
managers and measures such as the adoption of ESG indexes (pages 19–20 and 23–26).
• GPIF calculates the Scope 1 to Scope 3 carbon footprint for each asset class and compares these with eachportfolio benchmark. We also calculate each portfolio’s carbon intensity using weighted average carbon
intensity (pages 51–54).
• GPIF estimates climate change-related transition and physical risks and opportunities using Climate Value-atRisk (CVaR) (Pages 55–64).

Source of image: TCFD Knowledge Hub

GPIF ESG REPORT 202018

Chapter 1

GPIF’s ESG Initiatives

ESG Index Selection and
ESG Index-Based Asset Management
In order to improve the long-term risk/return profile of the portfolio by reducing ESG risks, GPIF adopts several ESGintegrated indexes as benchmarks for passive investment. In fiscal 2020, GPIF newly adopted a comprehensive ESG index
and a diversity-focused index for foreign stocks.

Selection of Two ESG Indexes for Foreign Equities
GPIF has used ESG indexes as passive investment benchmarks

provider/ESG ratings agency actively engages in dialogue

since fiscal 2017. We believe passive investment based onwith issuers.

indexes that focus on corporate sustainability will not only

4) The scope of issuers rated is sufficiently broad.

improve the risk/return profile of the portfolio over the long run,5) The governance and conflict of interest management structures

but also enhance the Japanese equity market through secondaryof the ESG ratings agency and index provider are adequate.

effects such as the improvement of ESG ratings.
GPIF selected three ESG benchmark indexes for JapaneseOf the ESG indexes newly adopted in fiscal 2020, the MSCI ACWI

equities in fiscal 2017, followed by two domestic and foreign

ESG Universal Index, a comprehensive ESG index, increases theequity indexes that focus on corporate greenhouse gas

investment weight of companies with high ESG scores andemissions in fiscal 2018. In fiscal 2019, GPIF announced thecompanies whose score has improved as evaluated by MSCI. The

introduction of and began gathering information through theindex aims to curb the ESG risk of the portfolio while limiting“Index Posting System” (IPS), a new framework for collecting

tracking error versus the parent index.

index information on a continuous basis.

The Morningstar Gender Diversity Index, on the other hand,In fiscal 2020, the Board of Governors established theuses data from Amsterdam-based data provider Equileap toPractical Guidelines for the Selection of ESG Indexes. Based on

assess companies’ gender equality initiatives. The index

these Guidelines, GPIF examined the posted indexes andincreases the investment weight of companies that have a track

selected two ESG indexes for foreign equities.

record for establishing policies and frameworks for the active

Emphasis was placed on the following points in the selectionof these indexes:

promotion of women. There is a large body of evidence thatshows that companies with greater gender diversity are able toaccess a wider pool of talent, which gives them the potential toPrimary evaluation criteria

elevate management performance. From a macro-economic

1) ESG ratings play a central role in the constituent selection/

perspective, the improvement of gender diversity may boost theweighting process.
2) The index encourages ESG disclosure (i.e., ratings are basedon public information).
3) The ratings methodology is clearly disclosed and the index

19

GPIF ESG REPORT 2020

economic growth of individual countries. By investing incompanies with greater gender diversity, the fund aims toenhance long-term investment returns through the sustainablegrowth of our investments and the market as a whole.

Chapter 1 GPIF’s ESG Initiatives

GPIF’s Expanding ESG Investment
passive investments have grown to approximately ¥10.6 trillion.

beginning passive investment in three domestic equity ESG

Please refer to “ESG Index Performance” on pages 41 and 42 forindexes in fiscal 2017. In fiscal 2020, we started managing

information on the performance of each index. By investing ininvestments on the scale of ¥1 trillion based on the MSCI ACWI

these indexes, GPIF aims to enhance long-term investment

ESG Universal Index and ¥300 billion based on the Morningstar

returns through the sustainable growth of our investments andGender Diversity Index. As of March 2021, total ESG index-based

the market as a whole.

ESG Index Selection and ESG Index-Based Asset Management

GPIF has expanded its ESG index-based investment since

Main characteristics of ESG indexes adopted by GPIF
ESG Indexes for Domestic Equities
FTSE Blossom
Japan Index

MSCI Japan Empowering Women Index(“WIN”)

・ The MSCI Japan ESG SelectLeaders Index is a broad ESG
index that integrates various ESG
risks into today’s portfolio. The
index is based on MSCI ESG
Research used globally by morethan 1,000 clients.
・ The index is comprised of stocks
with relatively high ESG scores ineach industry.

・ MSCI calculates the genderdiversity scores based on
information disclosed under “theAct on Promotion of Women’sParticipation and Advancement in
the Workplace” and selects
companies with higher gender
diversity scores from each sector.
・ The first index designed to covera broad range of factors related
to gender diversity.

・ Constructed by S&P Dow Jones
Indices based on carbon data
provided by Trucost, a pioneer inenvironmental assessment.
・ This index is designed to
overweight companies that havelower carbon footprints (annual
greenhouse gas emissions divided
by annual revenues) and that
actively disclose their carbon
emission information.

S&P/JPX Carbon
Efficient Index

Index construction

Best-in-Class

Best-in-Class

Best-in-Class

TiltedConstituent
universe(Parent index)

FTSE Japan All Cap Index(1,391 stocks)

MSCI Japan IMI Top 700(694 stocks)

MSCI Japan IMI Top 700(694 stocks)

TOPIX(2,187 stocks)

Number of index
constituents

200

231

298

1,844

Assets undermanagement(¥billion)

1,490.6

2,026.8

1,236.2

1,536.5

Chapter 2 Measuring the Impacts of ESG Activities

・ The index uses the ESG
assessment scheme used in the
FTSE4Good Japan Index Series,
which has one of the longest
track records globally for ESG
Concept andindexes.
characteristics ofindex
・It is a broad ESG index that
selects stocks with high absolute
ESG scores and adjusts industry
weights to neutral.

MSCI JapanESG Select Leaders Index

ESG Indexes for Foreign Equities
Morningstar® Developed Markets
Ex-Japan
Gender Diversity IndexSM (GenDi)

S&P Global
LargeMidCap
Carbon Efficient
Index・ One of MSCI’s flagship ESG
indexes, this index adjusts theweight of constituents based oneach issuer’s current ESG rating
and rating trend to elevate theESG metrics of the index overall.
Concept andcharacteristics of ・ The index was developed forlarge investors seeking toindex
enhance ESG integration whileachieving the same level ofinvestment opportunity and risk
exposure as the parent index.

・ Determines investment weighting
based on assessment ofcompanies’ commitment togender equality, using theEquileap Gender Equality
Scorecard.
・ Ratings are conducted in four
categories: (1) Gender balance inleadership and workforce; (2)equal compensation andwork-life balance; (3) policies
promoting gender equality; and(4) commitment, transparency,
and accountability.

・ Constructed by S&P Dow Jones
Indices based on carbon data
provided by Trucost, a pioneer inenvironmental assessment.
・ This index is designed to
overweight companies that havelower carbon footprints (annual
greenhouse gas emissions divided
by annual revenues) and that
actively disclose their carbon
emission information.

Index construction

TiltedACWI ex Japan ex China A ESG
Constituent universe MSCI
Universal with Special Taxes Index(Parent index)(2,207 stocks)

TiltedTiltedMorningstar® Developed Markets
Ex-Japan Large-Mid(1,937 stocks)

S&P Global Ex-Japan LargeMidCap(3,003 stocks)

Number of index
constituents

2,106

1,909

2,303

Assets undermanagement(¥billion)

1,178.4343.8

2,823.9

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

MSCI ACWI ESG Universal Index(Note) Data is current as of March 31, 2021
(Source) Prepared by GPIF based on data from FactSet and individual index providers.

GPIF ESG REPORT 202020

Chapter 1

GPIF’s ESG Initiatives

ESG in External Equity and
Fixed Income Management
GPIF examines ESG initiatives when evaluating the external asset managers through which we manage our equity and
fixed income assets. We have also formed partnerships with several multilateral development banks and governmental
financial institutions to expand investment opportunities in green, social, and other ESG-related bonds.

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

integration based on this definition and began comprehensive asset

management companies in Japan and overseas. The Public Market

manager evaluations according to these new criteria. In addition to

Investment Department and Investment Strategy Department work

evaluating existing external asset managers, the new ESG integration

together to select and evaluate these companies. Managers are

criteria are also used when selecting new external asset managers.
Although an increasing number of asset managers

evaluated on their investment policies, asset management
processes, organizational structure and human resources. ESG

emphasize ESG and are explicitly and systematically including it

integration is a key part of the asset management process review.

in their investment analysis, there are no established methods for

As a PRI signatory, in 2018 we defined ESG integration asassessing how and to what degree ESG factors have an impact“the explicit and systematic inclusion of ESG factors intoon corporate value, and individual asset managers have adopted

investment analysis and investment decisions,” based on thetheir own various initiatives in this regard. We hope to see further

definition provided by PRI.

progress in this and other areas of ESG integration among asset

In fiscal 2019, we established evaluation criteria for ESG

managers in the future.

ESG Integration in Fixed Income Investments
GPIF and the World Bank Group have been working together topromote ESG integration in fixed income investment through efforts

The initiative, launched in collaboration with IBRD and IFC, hassuch as publishing a joint research paper entitled “Incorporating

since expanded to more of the world’s major multilateral development

Environment, Social and Governance (ESG) Factors into Fixed Incomebanks. In fiscal 2020, while maintaining these existing partnerships,

Investment” in 2018.

we have entered into new partnerships with three governmental

Following up on this research, the International Bank forfinancial institutions : Nederlandse Waterschapsbank (NWB Bank) in

Reconstruction and Development (IBRD) and the International Financethe Netherlands, Kommunalbanken Norway (KBN) in Norway, andCorporation (IFC)—both members of the World Bank Group—drew up

Export Development Canada (EDC) in Canada. As of March 31, 2021,

a new proposal in 2019 to provide GPIF’s external asset managers

we have built investment platforms with ten multilateral developmentwith an opportunity to invest in green, social and sustainability bonds.

banks and six governmental financial institutions as issuers.

GPIF provides its external asset managers with opportunities to21development banks and governmental financial institutions.

GPIF is committed to promoting ESG-based investment, not only

both integrate ESG into their fixed income investments and gain excess

in equities but also in fixed income and other assets, in order to limit

return over government bonds by building platforms in which they cannegative environmental and social externalities and enhance theinvest in green, social and sustainability bonds issued by multilaterallong-term return of the portfolio across all asset classes.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

International organizations with investment platforms in green bonds, etc.

ESG in External Equity and Fixed Income Management

ColumnChapter 2 Measuring the Impacts of ESG Activities

Investment in COVID-19 bonds
The global response to COVID-19 triggered a dramatic

COVID-19” Social Bond issued by the African Development Banktransformation of the ESG bonds market. There was a sharp increase(AfDB). The objectives of this COVID-19 bond are to support

in issues of social and sustainability bonds to provide funds forresponses to the COVID-19 pandemic in African nations and toactivities aimed at mitigating the effects of COVID-19, such as

mitigate the pandemic’s impact on their economies andassistance to medical institutions. In 2020, the size of that market

societies. The funds raised by the bond issue are allocated toincreased by 32% year on year to approximately ¥85 trillion.1

projects with aims such as disseminating COVID-19 antigen tests

The issue of COVID-19 bonds is also progressing among
multilateral development banks that have built investment

and supporting small businesses.
GPIF has also invested in COVID-19 bonds issued by theInternational Finance Corporation (IFC), the European Investment

other channels, GPIF invests in green, social, and sustainability

Bank (EIB), and the Islamic Development Bank (IsDB).

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

platforms in conjunction with GPIF. Through these platforms andbonds via the investment decisions of its external asset
managers. The size of those investments, which also include
COVID-19 bonds, grew to around ¥1.1 trillion2 as of March 31,
2021. The largest of those investments is in the “Fight

1 As calculated by GPIF based on Bloomberg data.
2 Track record in investment in bonds, calculated by GPIF, based on Bloomberg
data, in compliance with International Capital Market Association (ICMA)
principles, etc.

© African Development Bank (AfDB)GPIF ESG REPORT 202022

Chapter 1

GPIF’s ESG Initiatives

Stewardship Activities and
ESG Promotion
When GPIF first engaged in activities related to stewardship responsibilities (“stewardship activities”), equity asset managers
were the initial focus. We enhanced our ESG and other stewardship activities after revising our Investment Principles in
October 2017 and our Stewardship Principles in February 2020, including expanding the scope of activities to all assets.

Survey of Listed Companies
GPIF conducts an annual survey of companies listed on the FirstTCFD rose to 208 (31%), 139 of which were already disclosing

Section of the Tokyo Stock Exchange in order to get their feedback

information consistent with TCFD. More than 90% of thoseon the stewardship activities of our external asset managers and tocompanies responded that they had partly or fully implemented

monitor the nature and progress of their engagement. We also use

disclosures recommended by TCFD in all four categories, namely

the survey to understand these companies’ ESG disclosure(i) governance, (ii) strategy, (iii) risk management, and (iv) metrics

initiatives and to gather their opinions on the ESG indexes weand targets.

invest in. In our sixth survey conducted in fiscal 2020, we received

Companies appear to believe that investors are making good

responses from 681 companies, representing 69.8% of total

use of these kinds of disclosures; compared with the previous

market capitalization.

survey, more companies gave a favorable assessment of

The survey results for fiscal 2020 indicate that the percentage

institutional investors’ utilization of both integrated reports andof companies voluntarily disclosing ESG and other non-financial

corporate governance reports. For integrated reports in particular,

information (e.g., CSR reports, sustainability reports, and integrated

around half of the companies in the previous survey noted

reports) rose from 74.8% in the previous year to 78.5%. The

progress in institutional investors’ usage of these reports, while insurvey also indicated that the number of companies endorsing

the latest survey that number exceeded 60%.

Figure 1. Responses to the Question, “Has There Been Progress in the Use of Integrated Reports by Institutional Investors?”(1) Have seen progress

FY2020FY2019FY20180％(2) No major change

61.7％

35.8％

50.0％

46.3％

39.4％

20％

40％

GPIF ESG REPORT 2020

60％

2.5％

3.7％

52.9％

(Note) Total number of responses was 397 in FY2020, 404 in FY2019, and 363 in FY201823(3) Do not appear to be using

7.7％

80％

100％

Chapter 1 GPIF’s ESG Initiatives

more discussion about topics related to society (S), such as

The most recent survey showed that the COVID-19

employee health and safety initiatives and work styles. More thancompanies have with institutional investors as well as in theirhalf of the responding companies also indicated that the

ESG initiatives. Of the companies surveyed, 78.1% responded

pandemic had prompted changes in their ESG efforts. In addition

that the pandemic affected the content and topics of their

to a large number of responses indicating a change in initiatives

dialogue with institutional investors. Specifically, in addition torelated to employee safety and work styles, some companies

pandemic-induced changes in the market and the impact on

also launched initiatives to develop new products tobusiness results, many companies responded that there wasaccommodate social needs post-COVID-19.

Stewardship Activities and ESG Promotion

pandemic elicited a change in the nature of the dialogues

Key ESG Issues Cited by External Managers
GPIF’s Stewardship Principles require external asset managers to

restrictions resulting from the COVID-19 pandemic.
Meanwhile, active asset managers, who primarily invest forexternal equity managers on what ESG issues they consider toshorter periods ranging from several months to several years,

be key, all passive managers, who are required to hold investee

differed in what they consider to be key ESG issues depending

companies’ shares for extended periods of time, cited climate

on if they managed Japanese or foreign equities. For foreignchange, diversity, and supply chain as key issues. They viewed

equities, all asset managers considered climate change to be along-term challenges, including environmental (E) and social (S)key issue, followed by multiple social (S) issues, whereas for

issues, as being of particular importance.

Japanese equities, all asset managers cited “composition andChapter 2 Measuring the Impacts of ESG Activities

engage proactively on key ESG issues. When we surveyed ourevaluation of the board of directors” and “protection of minority

There was a notable change in the response regarding
supply chain from the previous year; all passive managers

shareholders (cross-shareholdings, etc.)” as key issues,mentioned this as a key issue, with a greater percentage of bothindicating that they saw G (governance) themes as more

Japanese and foreign equity passive managers citing this as

important. This year, fixed income investment managers were

important. This suggests that supply chains are now being

also asked what they considered to be key ESG issues asrecognized as a serious issue due to the lockdowns and othercorporate bond investors. The results are shown below.

Figure 2: Key ESG Issues Recognized by External Asset Managers
Japanese Equities – Passive

Japanese Equities – Active

Foreign Equities – Passive

Foreign Equities – Active

Japanese Bonds

Foreign Bonds

100%

Composition and evaluation of 100%
the board of directors

Climate change

100%

Climate change

100%

Information disclosure

100%

Climate change

95%

Misconduct and scandals

100%

Protection of minority
shareholders (crossshareholdings, etc.)

Information disclosure

100%

Other (society)86%

Climate change

89%

Health and safety

67%

100%

Information disclosure

100%

Capital efficiency

89%

Supply chain

100%

Health and safety86%

Corporate governance

67%

Composition and evaluation of
the board of directors

57%

Supply chain

100%

Misconduct and scandals

89%

Diversity100%

Human rights and local
communities

86%

Composition and evaluation of
the board of directors

56%

Human rights and local
communities

57%

Health and safety

56%

Diversity

100%

Information disclosure

89%

Corporate governance75%

Corporate governance86%

Corporate governance

52%

Composition and evaluation of
the board of directors

83%

Supply chain

89%

Other (society)75%

Information disclosure86%

Supply chain

52%

Protection of minority
shareholders (crossshareholdings, etc.)

83%

Diversity

78%

Health and safety

75%

Diversity

71%

Diversity

52%

Capital efficiency

83%

Environmental market
opportunities

78%

Composition and evaluation of
the board of directors

75%

Social market opportunities

71%

Pollution and resources

52%

Corporate governance83%

Climate change

67%

Other (governance)

75%

Labor standards

71%

Information disclosure

52%

Environmental market
opportunities

67%

Corporate governance

67%

Water resources andwater use

75%

Composition and evaluationof the board of directors

71%

Product and service safety

52%

Health and safety

67%

Health and safety

67%

Risk management

75%

Protection of minority
shareholders(cross-shareholdings, etc.)

71%

Waste management

52%

Human rights and local
communities

67%

Human rights and local
communities

67%

Deforestation75%

Supply chain

71%

Labor standards

52%

Other (society)67%

Pollution and resources

67%

Environmental market
opportunities

71%

Water resources and water
use

67%

Product and service safety67%

Product and service safety

57%

Biodiversity

67%

Waste management

67%

Other (governance)

57%

Anti-corruption

67%

Labor standards

67%

Capital efficiency

57%

Deforestation

67%

Other (society)56%

Anti-corruption

57%▆ E (environment)

Other (governance)

56%

Other (ESG)57%▆ S (society)

Other (environment)

56%

Water resources and water
use

57%

▆ G (governance)

Social market opportunities

56%

Pollution and resources

57%▆ Multiple ESG themes

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Climate change(Source) Survey of GPIF’s external equity and fixed investment asset managers as of December 2020
(Note) The above list is of issues cited as “key ESG issues” by more than 50% of external asset managers in each investment method. The figures in the above list indicate the percentage of asset managers that chose thecorresponding issues, with the number of external asset managers in each asset management method as the denominator. For Japanese equities, if an external asset manager adopts both active and passive
investment methods, it is counted in the method for which the investment amount mandated by GPIF is largest.

GPIF ESG REPORT 202024

Chapter 1

GPIF’s ESG Initiatives

Stewardship-Focused Passive Investment
In order to diversify and enhance our approach to stewardshipcompanies on ESG themes with the purpose of improving theand improve the quality of the entire market through these

TOPIX as a whole. For each company they engage in dialogue

activities, in 2018 we selected two external managers – Assetwith, the firm selects specific ESG themes to engage on fromManagement One Co., Ltd. and FIL Investments (Japan) Limited

among 20 predetermined ESG issues – including digital– as “stewardship-focused passive investment managers.” Intransformation from FY2020. Progress on each theme is closely

selecting these managers, we focused on (i) the establishment ofmonitored according to eight milestones, from the identification

appropriate KPIs and (ii) systems and methods of engagement.

of issues to their resolution. When Asset Management One first

Since the compensation level differs from that of normal passive

began engaging with companies, many themes were not yet atinvestment, we conduct an annual review of each manager andthe “issues recognized” stage, but by 2020, around two-thirds ofrenew these mandates based on each company’s progress onthese themes had progressed to one of the final four milestones

the KPIs specified in their engagement plans and the next fiscal

where companies were taking concrete action towards resolving

year's milestones.

the issue. Half of the themes that reached the “completing

At Asset Management One, experienced analysts and fundengagement” stage in 2020 spanned the entire spectrum ofmanagers from the responsible investment group engage with

ESG, such as CSR/ESG management and CSR procurement.

Figure 3. ESG Issues and Milestones Established by Asset Management One
20 ESG Issues

E

E1: Climate change
E2: Deforestation
E3: Water resource management
E4: Biodiversity
E5: Waste and pollution
E6: Resources and energy management

S

S0: Diversity
S1: Human rights
S2: Labor practices/Health and safety
S3: Product liability and safety
S4: Local communityG

G0: Board Governance and accountability
G1: Capital efficiency
G2: Takeover defense measures
G3: Risk management

ESG

ESG1: CSR/ESG management
ESG2: Corporate misconduct
ESG3: Regional revitalization
ESG4: CSR supply chain management
ESG5: Digital transformation (DX)

8 milestones
1

Identifying ESG issues: ESG analyst identifies and sets out key ESG issues relevant to the company

2

Raising concerns/ suggestions: ESG analyst raises concerns or suggestions to the company

3

Issues recognized: The company recognizes the ESG issues raised by ESG analyst

4

Issues recognized (Senior management): The ESG issues recognized by senior management of the company

5

Initiatives taken: The company has taken initial steps to improve/tackle the issues

6

Plans formulated: The company has established a concrete plan for solving the issues

7

Plans implemented: The company has implemented the plan set out for solutions

8

Completing engagement: Effective actions and positive outcome assessed/confirmed by ESG analyst(Source) Prepared by Asset Management One Co., Ltd.

Meanwhile, FIL Investments, which adopts a “bottom-up”

potentially exert a meaningful impact on total market

approach to asset management, leverages the insights of active

capitalization. The firm chooses engagement themes based oninvestment analysts to specify priority issues for engagement,

issues that lead to corporate value creation, with several new

with the aim of efficiently enhancing beta by promoting change

themes added in 2020. Progress is gauged using three

in large corporations with a significant impact on the equity

indicators—input, output, and outcomes, and in 2020 aroundindex. Specifically, FIL Investments screens for engagement

90% of target companies showed improvements. Many of thetarget companies by selecting those with (i) market capitalization

issues resolved in the past year were related to governance, butof ¥1 trillion or greater, and/or (ii) corporate value with expected

progress was also observed in some problems related to

improvement of 50% or more. This enables FIL Investments tobusiness strategy.

focus their engagement efforts on those companies that can

25

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Interviews with Engagement Officers at
Stewardship-Focused Passive Managers
GPIF asked engagement officers at the two stewardship-focused passive managers about GPIF’s mandate and what they expect

Stewardship Activities and ESG Promotion

from Japanese companies. GPIF fulfills its duty of accountability by actively disclosing information related to this new mandate
launched in 2018.

●Asset Management One Co., Ltd.
(1) What are the strengths of passive management engagement?
Passive managers do not sell the shares we own in investee companies but hold them on a semi-permanent basis—much longer
than active managers. Nor do we engage in divestment. ESG is the most effective engagement theme for improving the market as awhole from an ultra-long-term perspective. Passive managers tend to have a relatively high percentage of ownership of their investee
companies’ stock, which gives them more influence over the investee companies. Moreover, that relationship continues unbroken
over the long term, making it easier to persist with engagement to bring issues to a resolution.
(2) What are your expectations of the Japanese companies that you invest in and with which do you engage?
In what has been described as the VUCA1 era, and with the added trials of the COVID-19 pandemic, many companies are being called on
to address climate change and other social issues. To meet those expectations, we would like to see companies developing long-term

Chapter 2 Measuring the Impacts of ESG Activities

visions that are highly compatible with ESG through broad-ranging internal debate, and to establish medium-term plans to work towardthat vision. Those visions and plans will serve as the foundation from which companies transform their current business strategies into
seamless, sustainable management. The most important point will be how they will implement their initiatives and how effectively they
will be able to promote them to the world. We will also lend them our support through our engagement process.
1 Acronym standing for “volatility, uncertainty, complexity, and ambiguity.”

TERASAWA Toru, Head of the Responsible Investment Group, Asset Management One Co., Ltd. (Interviewed in May 2021)●FIL Investments (Japan) Limited(1) What is your view on the effectiveness of engagement under this mandate?
Many of the companies covered by this mandate are being forced to rethink their existing business strategies due to changes in the structure

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunitiesof their industries. The patient understanding of shareholders who are able to support companies throughout the investment phase is crucial
for them to stay on course in enhancing corporate value over the medium to long term. That is where I see the advantage of passive
management, which allows for sustained engagement. Further, a recent empirical analysis conducted by Professor Kotaro Inoue of the Tokyo
Institute of Technology provided empirical confirmation of the usefulness of engagement skills and expertise that leverage our active
management insights. I see this as an extremely encouraging result that will lead to the success of this mandate. (Please refer to “Empirical
Analysis of Effects of Engagement” on pages 27 and 28.)(2) Have your expectations of companies and your engagement themes changed in light of the pandemic?
Amid growing risk of unexpected environmental change, such as the COVID-19 pandemic and climate change, it has become even more
important for management to make decisions that are not merely an extension of existing strategies if companies are to improve
medium- to long-term corporate value. We aim to have constructive dialogue with companies by encouraging bold decisions from an
investor standpoint, such as business portfolio revision and business model transformation, as well as the establishment of mechanisms
the lead to highly effective governance and innovation that support such decisions.
IKAWA Tomohiro, Director of Engagement and Portfolio Manager, FIL Investments (Japan) Limited (Interviewed in May 2021)* The descriptions and interviews regarding engagement by Asset Management One Co., Ltd. and FIL Investments (Japan) Limited are intended as disclosure information regarding
GPIF’s stewardship-focused passive managers and are not a recommendation of the products, etc. managed by these two companies.

GPIF ESG REPORT 202026

Column

Empirical Analysis of Engagement Effectiveness
GPIF believes that active dialogue between asset managers and companies is essential in improving market sustainability andenhancing investment returns. In addition to initiatives such as our survey of listed companies, we follow up on various empiricalstudies conducted by academics in order to understand the state of engagement and verify its effectiveness. In this column, we
present one such study.

Because the specific details of institutional investor engagements

This column introduces K. Inoue Lab’s review ofare not usually made public, it is impossible to tell externallyengagements conducted by FIL Investments (Japan) Limited (FIL),

whether changes in corporate behavior are due to theone of GPIF’s stewardship-focused passive managers. The

effectiveness of that engagement or if they are autonomous

analysis covers a total of 248 dialogues that FIL conducted withchanges made by the companies themselves. Therefore, until

117 companies with shared KPIs and deadlines by FIL for

now, limited data availability and other issues have severely

achieving the objective of improving corporate value from 2017

limited the amount of empirical research on engagement

to 2019. The analysis includes engagements other than thoseeffectiveness. Recently, however, a number of major asset

related to the stewardship-focused passive manager mandate,managers provided a group led by Professor Kotaro Inoue ofbut does not include the several thousands of interviews it

Tokyo Institute of Technology (“K. Inoue Lab”) with information on

conducts with companies every year (Figure 1).

their engagement activities targeting Japanese companies, which

The results of the analysis showed that companies targeted forthe group used to review each manager’s reasons for selecting

engagement by FIL are characterized by (i) a high percentage ofthe companies to engage with, what kind of dialogue it held withshare ownership by FIL and high portfolio weight and (ii) a low Tobin’swhom, and the effect that those engagements had.

Q2 (low ratio of market value to book value) (Figure 3, left column).

1

Figure 1. Analysis of Effects of Engagement by FIL Investments (Japan) Limited
Dialogue Theme
Dialogue

Dialogue with CEO
Environment/Society

Year

GovernanceCapital Policy

No. ofCompanies

Total
Dialogues

No. of
Dialogues

Percentage(%)

No. of
Dialogues

Percentage(%)

No. of
Dialogues

Percentage(%)

No. of
Dialogues

Percentage
(%)

2017

41

61

18

29.5

58

95.1

31

50.8

14

23.0

2018

59

75

42

56.0

72

96.0

30

40.0

7

9.3

2019

70

112

45

40.2

106

94.6

73

65.2

8

7.1

Total

117

248

105

42.3

236

95.2

134

54.0

29

11.7

(Note) If a single dialogue covered discussion of multiple themes, it was counted multiple times in each of those themes.
(Source) Produced by K. Inoue Lab, Tokyo Institute of Technology, based on data provided by FIL

1. Hidaka, Ikeda, and Inoue, Motivations and Effects of Engagement by Institutional Investors (2021 RIETI Discussion Paper).
2. In this article, calculated using Tobin’s Q ([market value + total liabilities] divided by total assets)
3. This is entirely the opinion of FIL and is not the opinion of GPIF.

27

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives
Column: Empirical Analysis of Effects of Engagement

In this analysis of engagement effectiveness, profit indicators

cross-shareholdings can lead to management complacency as itsuch as ROA (return on assets) and ROE (return on equity),

is an arrangement in which the company ensures stablecorporate value assessment indicators such as PBR (price-to-business from clients in exchange for unconditional approval ofbook ratio) and Tobin’s Q, and corporate governance indicators

the client’s management proposals during proxy voting. FIL has asuch as the ratio of cross-shareholdings to total assets andsimilar view of takeover defense measures, namely that they

whether the company had takeover defense measures werereduce the incentive for management to improve corporate value

selected as dependent variables. This column presents

during normal times and work to earn the trust of existing

particularly noteworthy areas in which the analysis confirmed theshareholders.
An analysis of the impact of engagement on share price also

effectiveness of FIL’s engagement activities.

provides evidence that FIL’s engagement approach is effective.

First, with respect to corporate governance, engagement

As mentioned above, companies targeted for engagement by FIL

cross-shareholdings to total assets and (ii) the scrapping ofare characterized by a low Tobin’s Q, but particularly in cases intakeover defense measures (Figure 2, left column). FIL considers

which FIL was able to engage in dialogue with the CEO after

both of these governance issues to be particularly problematic

sharing their issues of concern, the company’s Tobin’s Q wasfrom the perspective of long-term investors.3 They believe thatshown to increase (Figure 3, right column).

Chapter 2 Measuring the Impacts of ESG Activities

effectiveness was confirmed by (i) decreases in the ratio of

Figure 2. Effect of Engagement on Corporate Governance
Variable

Engagement Effect (2018–2020)

Ref: Average of all listed companies (2017–2020)

Cross-shareholdings (%, percentage of total assets)-0.784**4.431

Existence of takeover defense measures (0, 1)-0.111***

0.099

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities(Note1) The figures for “engagement effect” are coefficients of multiple regression analysis, controlling for various factors such as seasonality and individual company attributes.
They indicate the difference between before and after engagement. *** and ** indicate statistical significance at the 1% and 5% level, respectively.
(Note2) Engagement effectiveness was analyzed based on the values one year after engagement.
(Source) Produced by K. Inoue Lab, Tokyo Institute of Technology, based on data provided by FIL

Figure 3. Effect of Engagement on Corporate Value (Tobin’s Q)
Variable

Difference between engagement target companies
and the average for all listed companies(2017–2019)Engagement effect of achieving dialogue with CEO(2018–2020)

Tobin's Q-0.480***0.147***(Note1) The figures for “engagement effect” are coefficients of multiple regression analysis, controlling for various factors such as seasonality and individual company attributes.
They indicate the difference between before and after engagement. *** indicates statistical significance at the 1% level.
(Note2) Engagement effectiveness was analyzed based on the values one year after engagement.
(Source) Produced by K. Inoue Lab, Tokyo Institute of Technology, based on data provided by FIL

GPIF ESG REPORT 202028

Chapter 1

GPIF’s ESG Initiatives

Engagement with Index Providers and
ESG ratings agencies
GPIF has been actively engaging in dialogue with index providers and ESG ratings agencies since selecting ESG indexes
for Japanese equities in 2017. We have held an ongoing dialogue with these agencies regarding (1) the expansion ofcompanies subject to ESG rating; (2) the promotion of dialogue between ESG ratings agencies and companies; (3)improvement of ESG rating methods; and (4) the governance frameworks of ESG ratings agencies and index providers.

Topics Discussed with Index Providers and ESG Ratings Agencies
In the press release “ESG Indices Selected” announcing the adoption

the governance frameworks and conflict-of-interest management ofof ESG indices for Japanese equities in July 2017, GPIF explained

ESG ratings agencies and index providers are robust. Almost fourthat it emphasized three major points in its selection of ESG indexes,

years have passed since then, and GPIF believes that the importancenamely (i) that the index uses a “positive screening” methodology, inof those three points has in no way diminished. This section provides

other words that equities with high ESG scores are selected; (ii) thatdetails on GPIF’s engagement with index providers and ESG ratings

ESG is evaluated based on publicly available information and theagencies since the adoption of ESG indexes with regards to theseassessment methods and results would be disclosed; and (iii) thatthree points.

Figure 1. Key Evaluation Points of ESG Index Selection and Topics Discussed with Index Providers and ESG Ratings Agencies
Evaluation point (i) Emphasis on ESG, positive screening is key● Emphasize ESG rating as the central element of the index● Positive screening based on ESG evaluation is key● Favor indexes that offer opportunities for a wide range of companies to be selected for the index in order to improve the overall market

Dialogue theme: (1) Expansion of ESG rating coverage

Evaluation point (ii) Promotion of disclosure (based on publicly released information), improvement of rating methodologies● Encouraging companies to disclose more ESG information and improving ESG rating methodologies are essential to enhancing the precision of ESG ratings.
● Both FTSE and MSCI have a policy of actively disclosing their ESG rating methodologies and results in detail, providing feedback on rating outcomes tocompanies, holding dialogue with investors that use their ESG indexes, and linking the outcomes to the improvement of ESG ratings.
Dialogue themes: (2) Promotion of dialogue with companies; (3) improvement of ESG rating methodologies

Evaluation point (iii) Management of governance frameworks and conflicts of interests by ESG ratings agencies● Unlike market capitalization-weighted indexes, there is plenty of room in ESG indexes for human intervention, such as by analysts, in ESG rating andindex construction.
To ensure the continuity, transparency, and neutrality of ESG evaluation, the governance frameworks and conflict-of-interest management of ESG ratings
agencies and index providers are extremely important.
Dialogue theme: (4) Governance frameworks of ESG ratings agencies and index providers(Source) Prepared by GPIF based on the press release, “ESG Indices Selected” (released July 2017)29

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Expansion of ESG Rating Coverage
have indicated that they understand the importance of expanding

importance of providing a broad range of companies with thethe ratings universe, and both FTSE and MSCI have made major

opportunity to be selected as constituents, rather thanstrides in increasing the number of companies they cover (Figure

categorically excluding specific industries or companies from2). As a result, the number of stocks eligible for the MSCI Japaneligibility. This is based on our belief that the possibility of index

ESG Select Leaders Index and the MSCI Japan Empowering

inclusion acting as a driver to encourage companies to improve

Women Index increased to the 700 largest stocks by market

their ESG profiles is key to enhancing the sustainability of thecapitalization in November 2018 and November 2019,

market as a whole

respectively. For the FTSE Blossom Japan Index, the scope ofDespite this, ESG index eligibility is naturally constrained by
the ESG rating universe. In many cases, companies are excluded

companies eligible for inclusion expanded significantly to include
small-cap stocks in December 2020.

from eligibility merely because they are not covered by the relevant

Currently, limited management resources and other issues have

ESG ratings agency, and in our survey of listed companies, many

impeded information disclosure for smaller companies as opposed tohave called for an expansion of ESG rating coverage.

larger ones. Even compared with foreign companies of a similar size,

On the other hand, for ESG ratings agencies, expanding theEngagement with Index Providers and ESG ratings agencies

When selecting ESG indexes, GPIF has emphasized thethese smaller companies have lower ESG scores. We hope that
expanding ESG index inclusion eligibility to small-cap stocks leads toinvestment of management resources. Over the course of

greater interest in ESG ratings by smaller companies, and ultimately

multiple discussions with them, however, the ratings agencies

an enhancement of their ESG initiatives (Figure 3).

Chapter 2 Measuring the Impacts of ESG Activities

coverage universe means hiring more analysts and a greater

Figure 2. Trends in Japanese Equities Included in ESG Rating Universe (FTSE, MSCI)(Number of Companies)
1,500

MSCI

FTSE

1,200

978

900
600

1,352

1,311

732 760

760 754755

2017/3

2018/3

2019/32020/3

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

713

597

300
0

2021/3(Note) In a media release dated June 11, 2021, MSCI announced that the number of Japanese stocks subject to ESG rating had expanded to 1,274, covering all stocks in the MSCI Japan IMI Index.
(Source) FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2021.

Figure 3. Rate of Reporting and ESG Ratings of Japanese Companies by Size
Rate of integrated report/
ESG report publishing(%)

CDP response rate (%)

FTSE ESG rating (simple average)

Large-cap

39

53

2.98

Medium-cap

33

32

2.32

Small-cap

10

4

1.58

(Note1) Data is as of March 2021.
(Note2) FTSE Japan All Cap Index constituent stocks used for calculation.
(Source) FTSE Russell

GPIF ESG REPORT 2020

30

Chapter 1

GPIF’s ESG Initiatives

Promotion of Dialogue with ESG Ratings Agencies and Companies
most out of the world’s major economies. (Figure 4).

As in previous years, GPIF conducted feedback meetings with
ESG ratings agencies during fiscal 2020 to discuss the inquiries

The percentage of companies that consult with FTSE during

and opinions they received from the companies that they rate.

the ESG rating process is also rising, and data from FTSE clearlyMore and more firms are consulting with ESG ratings agencies

shows that the more actively a company consults with them, theover the course of the rating process, and according to MSCI,

greater the improvement in their ESG rating. This trend was also

Japanese firms are among the companies that contact them theseen in an analysis by MSCI.

Figure 4. Percentage of Companies Consulting with MSCI During the ESG Rating Process

(%)
90
80
70
60
50
40
30
20
10
0

Japan

2016

EuropeNorth America

2017

Other (APAC excluding Japan)

2018

2019

2020

(Source) Reproduced by permisson of MSCI ESG Research LLC ©2020.

Improvement of ESG rating methodologies
As GPIF’s investments are predominantly passive, index providers

better ESG information disclosure by companies and improvedand ESG ratings agencies play a pivotal role in the success or

ESG rating methodologies.

failure of our fund management. GPIF engages in dialogue withindex providers and ESG ratings agencies to improve theformer, with a greater number of large-cap companies insustainability of the market and enhance our long-term

particular producing integrated reports and ESG reports, andinvestment performance. In our press release in July 2017an increase in the number of companies disclosing

announcing the selection of ESG indexes for Japanese equities,

information on climate change risks and opportunities in line

we pointed out that ESG ratings vary widely among ratings

with the TCFD framework.

agencies, and that more accurate ESG ratings would require31

We have seen some positive changes with respect to the

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Figure 5. Major Changes in FTSE and MSCI ESG Rating and Index Methodologies since 2017
FTSE Changes
TimingDecember
2017

ESG Rating: Update of climate change theme
Background: Response to climate change initiatives, e.g., TCFD
Details: Added research points on identification of risks and opportunities, scenario analysis, internal carbon pricing, etc.

Engagement with Index Providers and ESG ratings agencies

December
2018

Major Changes

ESG Rating: Update of water security theme
Background: Efforts to further align with initiatives such as CDP, WBCSD (World Business Council for Sustainable Development), and GRI
Details: Added research points on governance, risk management, strategies, etc. concerning water security
ESG Rating: Update of human rights theme

December
2019

Background: Response to update of SASB, CHRB (Corporate Human Rights Benchmark), and UN Guiding Principles on Business and Human Rights
Details: Added research points on internal supervision of human rights, human rights training, implementation of mitigation measures, etc.
ESG Rating: Update of tax transparency theme
Background: Encourage improved disclosure by large-cap companies with high domestic sales ratios
Details: Previously, only large-cap companies with a ratio of sales in high-risk countries of more than 30% had been targeted, but now all companies
classified as large-cap companies are targeted regardless of country and sales.

September
2020
December
2020

Change in index methodology: Change in threshold for inclusion in the FTSE Blossom Japan Index
Details: Changed from 3.1 to 3.3 (exclusion threshold also raised from 2.7 to 2.9 in line with this change)
Change in index methodology: Change in FTSE Blossom Japan parent index
Details: The Blossom index’s parent index was changed from the FTSE Japan Index (large-cap and medium-cap equities) to the FTSE Japan All Cap
Index (large-, medium- and small-cap equities). 12 small-cap equities were included in the Blossom Index as a result of this change.

MSCI Changes
TimingNovember
2019

Change in index methodology: Expansion of eligible universe for MSCI Japan ESG Select Leaders Index

Chapter 2 Measuring the Impacts of ESG Activities

November
2018

Major Updates
Details: The parent index was changed from the MSCI Japan IMI Top 500 Index to the Top 700 Index to reflect expanded coverage of ESG ratings.
Rebalancing frequency was also changed from annual to semi-annual for more timely reflection of ESG rating information.
Change in index methodology: Expansion of eligible universe for MSCI Japan Empowering Women Index (WIN)Details: The parent index was changed from the MSCI Japan IMI Top 500 Index to the Top 700 Index to reflect expansion of gender diversity
score coverage.
ESG Rating: Change in governance pillar
Details: A new theme, Corporate Behavior, was established in the Governance Pillar. This theme consists of the key issues of Business Ethics and Tax
Transparency, and is applied to the ESG ratings of all companies alongside the Corporate Governance theme.
ESG Rating: Change in rating methodology for the financial sector

November2020

Background: Increased importance of climate change risk exposure analysis for banks, such as reporting in line with TCFD recommendations.
Details: Added climate risk analysis and environmental opportunity factors for loans and expanded scope of financing projects covered by the Financing
Environmental Impact assessment. Standardized risk levels among companies in the Consumer Financial Protection assessment.
ESG Rating: Addition of Community Relations as key issue

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Background: Issues related to community relations had previously been divided into two key issues (Biodiversity & Land Use, Corruption & Instability)
depending on what was being affected (the environment or communities).
Details: Established new key issue of Community Relations in the Stakeholder Opposition theme, merging issues related to community relations intoa single key issue.
(Source) Prepared by GPIF based on data from FTSE and MSCI. FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2021.

Meanwhile, ESG ratings agencies are also working to improvetheir methodologies. When they consider changing theseand other ESG rating users (Figure 5).
There are currently significant discrepancies in ESG

methodologies, ESG ratings agencies provide end users suchratings between different agencies. Since analysts’

as asset managers and pension funds with an opportunity toopinions differ even in their assessment of companies

express their opinions (consultations), similar to when they

based on financial information, we will likely never see a

consider changes to index methodologies. In addition tocomplete convergence in their assessment of companies

regular dialogue, GPIF actively exchanges opinions with ESG

based on non-financial ESG information. Nevertheless,ratings agencies through consultations and other

GPIF believes that ESG information needs to be reflected

opportunities. FTSE and MSCI are working to improve theirin the evaluation of companies in more appropriate ways,

rating methods through continuous engagement with GPIF

by improving rating methods, enhancing information

GPIF ESG REPORT 202032

Chapter 1

GPIF’s ESG Initiatives

disclosure, and standardizing disclosure criteria. As amonitor the ESG rating correlation between FTSE and MSCI

reference point to ascertain the current situation, weevery year (Figures 6 and 7).

Governance Framework of ESG Ratings Agencies and Index Providers
Similar to asset managers, index providers and ESG ratings

great responsibility. As such, similar to external asset managers,

agencies play a vital role in GPIF’s fund management. Index-

GPIF conducts due diligence of index providers and ESG ratings

tracking passive investments account for approximately 90%

agencies when selecting ESG indexes. We assess theof our equity portfolio, and since the stocks we invest in andgovernance structures of these companies to ensure thethe weights of these investments are determined by thetransparency and neutrality of their ESG ratings and index

indexes calculated by index providers, these providers

constituent selection processes.
In fiscal 2020, in addition to conducting due diligence on thearguably play a critical role in determining the success orindex providers that GPIF has been using since before we first

failure of our investments.
For ESG indexes in particular, constituent stocks and theiradopted ESG indexes for domestic stocks in 2017, we also

weights vary greatly depending on each firm’s ESG rating, so theperformed follow-up assessments of the ESG ratings agencies andcompanies that conduct these evaluations bear a particularly

index providers that we had conducted due diligence on previously.

Figure 6. FTSE and MSCI ESG Score Correlation Charts (Domestic Equities, as of March 31, 2021)
FTSE Scores
3
2
1
0
-1
-2
-3

-3

-2

-1

0
MSCI Scores

1

2

3

(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 ©2021.

Figure 7. Trends in Correlation Coefficient of ESG Score Data from FTSE and MSCIGPIF ESG REPORT 2020

0.343

0.260

ESG
E
S
G
Trend from March 2017 to March 2021

(Source) Prepared by GPIF based on data from FTSE and MSCI. FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2021.

33

0.250

0.181

0.375

0.364

0.465
0.141

0.027

0.090

0.100

ESG
E
S
G
Trend from March 2017 to March 2021

Foreign Equities

0.573(Correlation Coefficient)

0.478

0.465

0.462

0.356

(Correlation Coefficient) Domestic Equities

Chapter 1 GPIF’s ESG Initiatives

Interviews with ESG Rating Officers

Engagement with Index Providers and ESG ratings agencies●FTSE Russell
How would you describe the characteristics, strengths, and weaknesses of Japanese companies’ ESG initiatives incomparison with other countries?
Japanese companies’ ESG initiatives have improved dramatically in recent years and are fast closing in on those of European
companies. This is because Japanese companies communicate with us more than the global average and are making efforts tobetter understand how to improve their disclosures. Although the environmental scores of Japanese large-cap companies are lower
than their European counterparts, they are higher than U.S. companies and are on par with the average score for developed
countries. Combined with the fact that many companies are posting green revenue, Japanese companies are at an advantage at atime when investors are starting to shift their portfolios to Paris Agreement targets. One area in which Japanese companies do needto improve is corporate governance. When it comes to highly transparent information disclosure and building strong governance andmonitoring frameworks, Japanese companies are lagging behind companies in other developed countries.
What are your expectations of companies regarding their approaches to ESG?
Given the growing expectations from investors, there is an emerging need for companies to place more emphasis on sustainability in theirbusiness decision-making processes. Securing transparency is also important, and consistent, accurate disclosure in line with international

Chapter 2 Measuring the Impacts of ESG Activities

standards such as TCFD has become essential not just for the IR and CSR divisions, but for the entire company and its executive
management. The expectation is that sustainability reports will become just as important as financial reports and that they will provide
supplementary viewpoints on material impacts on business. What investors want to see is not appealing stories about how companies are
putting sustainability into practice, but data with which they can measure companies’ clear commitment and state of progress.
Jaakko Kooroshy, Head of Sustainable Investment Data & Methodologies, FTSE Russell (Interviewed in May 2021)●MSCI
What kind of changes are taking place in the world in terms of companies’ ESG initiatives?
There have been some noteworthy developments in companies’ efforts to respond to climate change and social inequality. (These

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

issues are also featured in MSCI’s 2021 ESG Trends to Watch.) A growing number of companies are announcing their commitments
to reducing greenhouse gas emissions to net zero by 2050 to address the climate change crisis.1 Some companies have alsoannounced their commitment to promoting further diversity in employment and promotion to address the problem of social inequalitythat has been highlighted and exacerbated by the COVID-19 pandemic.2
What kinds of changes are you considering in your company's ESG rating methodology going forward?
To accelerate the transition to a net zero economy, we are focusing on the development of leading-edge analytical tools that will help
institutional investors and companies to measure climate change-related risks appropriately and to align their investment and businessactivities with the path toward net zero.
We will also continue to explore how to make use of exciting new alternative data sources that will enable companies to analyze therisks and opportunities they face regarding a variety of ESG issues, from social inequality to biodiversity, as well as initiatives to manage thoserisks and opportunities in more detail.
Linda-Eling Lee, Global Head of ESG Research, MSCI Inc. (Interviewed in May 2021)
1. The Role of Capital in the Net-Zero Revolution, MSCI, April 2021; 2021 ESG Trends to Watch, MSCI ESG Research, December 2020.
2. 2021 ESG Trends to Watch, MSCI ESG Research, December 2020.

GPIF ESG REPORT 202034

Chapter 1

GPIF’s ESG Initiatives

ESG inAlternative Asset Management
GPIF engages in initiatives to properly integrate ESG in the alternative asset manager selection and monitoring process. In
this report, we conduct a quantitative analysis of climate change risks for domestic real estate in which GPIF invests
through private funds.

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

(1) ESG Ratings When Selecting Asset Managers

estate, and private equity) is generally quite long, and in someSince it began selecting alternative asset managers that adopt acases, the asset manager itself is involved in the corporate

multi-manager strategy in April 2017, GPIF has added an

management and business operations of the investee. As a

examination of prospective asset managers’ ESG initiatives to its

result, more asset managers are focusing on integrating ESG into

screening criteria. Screenings are conducted from many different

their investment processes in order to identify the risks

aspects, including through due diligence questionnaires,

encountered during the holding period and, conversely, to findinterviews with ESG staff, and evaluations by third-party

opportunities for sustainable asset value growth andconsultants. Among other things, we look at the manager’s

improvement of corporate value. This trend is particularlycompany-wide ESG policies, ESG integration in the investment

prominent among overseas asset managers.

process, their oversight systems and how they report to investors

Although we use the collective phrase “alternative asset
management,” material ESG factors actually differ depending on

after an investment is made. All asset managers selected by
GPIF have signed the Principles for Responsible Investment (PRI).

the individual characteristics of the asset and/or business inquestion. The asset manager’s individual investment strategies(2) Post-Investment Monitoringalso make a difference in the ESG initiatives they engage in. With

As of yet, there is still no standardized rating criteria for ESG

an understanding of these differences, GPIF as an asset owner

factors that can be applied across all alternative assets. As such,assesses asset managers’ approach to ESG and monitors theeach asset manager creates their own unique ESG rating criteria

status of their investment.

and scoring methodology based on the characteristics of the asset
and the fund manager’s investment strategy. GPIF monitors asset
managers for any changes in their ESG-related organizational
structure, whether or not the diversified funds in which they invest
are PRI signatories, and the status of their ESG initiatives. In
addition to requiring individual asset managers to provide a reportdetailing the status of their ESG-related investment capabilities andinitiatives, we engage in regular dialogue with them to understandthe state of the ESG-related aspects of their portfolios.

35

GPIF ESG REPORT 2020

The infrastructure market is witnessing a surge of investment in

performance and greenhouse gas emissions have made therenewable energy projects such as wind and solar power ascollection and analysis of data on energy use and CO2 emissionsindividual countries pursue initiatives to reduce greenhouse gas

generated from buildings owned essential for the real estate

emissions by lowering their rate of fossil fuel power generation.

sector. Many companies have installed integrated systems forThis is becoming a major investment sector as investors canmanaging such data in order to monitor the effectiveness andexpect to earn stable revenue through long-term power purchaseprogress of energy conservation measures.

agreements and various government support measures.

Investment Example

Investment Example

Medical offices building owned by a U.S. real estate fund in which GPIF has

The portfolio of wind farms in which GPIF has jointly invested with ainvested. This facility has installed systems that automatically collect andCanadian public pension fund. The portfolio has facilities already in operation

analyze environmental efficiency.

with a capacity of approximately 4.7 GW, along with other facilities under

Chapter 2 Measuring the Impacts of ESG Activities

Increasingly stringent regulations on buildings’ environmental

ESG in Alternative Asset Management

Integrating ESG into Infrastructure Investments

Chapter 1 GPIF’s ESG Initiatives

Integrating ESG into Real Estate Investments

construction or in development totaling more than 10 GW. Stable revenue isensured through long-term power purchase agreements.

Analysis of Real Estate Portfolio Using Climate Value-at-Risk
In its climate-related financial disclosures for fiscal 2020, GPIF

Transition Risks

conducted a quantitative analysis of the climate change risks forIn the transition risk analysis, we measured the carbon intensity

domestic real estate in which GPIF invests through private funds.

(greenhouse gas emissions per area) of each property, andPhysical Risks

to achieve temperature targets of 1.5°C, 2°C, and 3°C targets.

The physical risk analysis assessed risks related to (1) coastal

Results indicated that emissions needed to be reduced by aflooding, (2) fluvial flooding, (3) tropical cyclones, (4) extreme

total of 32.8 CO2 equivalent tons per square meter over the next

heat, and (5) extreme cold by sector.

ten years or so in order for the portfolio analyzed to achieve the

The results of the analysis indicated high risk from (3)1.5°C target.

tropical cyclones and (4) extreme heat across all sectors. On the

The analysis also confirmed that the current warming

other hand, physical risks to the portfolio arising from (1) coastal

potential is currently 2.78°C, which is higher than the 2°C andflooding and (2) fluvial flooding, which are of particular concern

1.5 °C targets set by the Paris Agreement.

in Japan, are low despite the inclusion of a very small number of

There are several limitations inherent this analysis, including theproperties exposed to a high risk of coastal and other flooding.

fact that the average value for each sector was used for properties

As a result, a comprehensive assessment of all physical risks

for which information could not be obtained, and as such, there isfrom (1) to (5) indicate “low” or “very low” risk across all sectors.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

estimated the reduction in carbon intensity required by 2033 in orderroom to improve the accuracy of results. We will continue to engage
in dialogue with external asset managers to encourage further
disclosure of portfolio climate-related risk and risk management.
* Please refer to pages 63 and 64 for details of this analysis.

GPIF ESG REPORT 202036

Chapter 1

GPIF’s ESG Initiatives

Collaboration with Overseas Public Pension Funds
and Other Institutions
GPIF collaborates with a wide range of domestic and foreign institutions. In fiscal 2020, GPIF joined the JPX ESG Knowledge Hub, which
was set up by the Japan Exchange Group (JPX), as a supporter.

Published
Publisheda JointaResearch
Joint Research
Paper with
PaperthewithWorld
the Bank
WorldGroupBank Group

April 2018April 2018

JoinedJoined
the Thirty
the Percent
Thirty Percent
NovemberNovember
2016
2016
Coalition
Coalitionand theand30%
theClub
30% ClubIn 2018, In
GPIF
2018,
andGPIFthe World
and the
Bank
World
Group
Bank
publishedGroup publisheda joint a joint
research research
paper entitledpaper“Incorporating
entitled “Incorporating
Environment,
Environment,
Social Socialand Governanceand Governance(ESG) Factors(ESG)into
Factors
Fixedinto
IncomeFixed Income
Both the Thirty
Both thePercent
ThirtyCoalition
Percent Coalitionin the U.S.in andthe U.S.
the 30%and the 30%

Investment.”
Investment.”
FollowingFollowing
up on thisupresearch,on this research,
in April 2019,
in April 2019,Club in theClub
U.K.in are
the initiatives
U.K. are initiatives
that seekthat
greater
seekdiversity
greater indiversity in

the International
the International
Bank for Bank
Reconstruction
for Reconstruction
and Development
and Development

listed company
listed company
boards byboards
increasing
by increasing
the proportion
the proportionofof(IBRD) and(IBRD)
the International
and the International
Finance Corporation
Finance Corporation
(IFC)
(IFC)

female board
femalemembersboard members
to 30%. GPIF
to 30%.
has GPIF
participatedhas participatedinin– both members– both membersof the Worldof theBank
WorldGroup–
Bankdrew
Group–
up adrew
newup a new

the Thirtythe
Percent
ThirtyCoalition
Percent Coalitionin the U.S.in andthe U.S.
the Investor
and the Investor

proposal proposal
to providetoGPIF’s
provideexternal
GPIF’s asset
external
managers
asset managers
with
with

Group of Groupthe 30%of theClub30%in theClub
U.K.in as
theanU.K.
observeras an observer
since sincean opportunity
an opportunity
to invest toin green
invest bonds.
in greenThis
bonds.
initiative
This hasinitiative has

NovemberNovember
2016. Since2016.
DecemberSince December
2019, we2019,
have also
we have also

led to partnerships
led to partnerships
with otherwith
international
other international
financial financial

participatedparticipatedin the 30%
in theClub30%Japan
Club
Investor
Japan Group.
Investor Group.

institutions
institutions
and governmental
and governmental
financial institutions
financial institutionsinin2018 2018various countries.
various countries.

2016 20162015 2015

SignedSigned
the Principles
the Principles
forfor
SeptemberSeptember
2015
2015
Responsible
Responsible
Investment
Investment

October October
JoinedJoined
ClimateClimate
Action Action
100+ 100+
2018
2018

Climate Action
Climate100+
Actionis an100+
investor-led
is an investor-led
climate change
climateinitiativechange initiative
launchedlaunchedin September
in September
2017. Members
2017. Membersof this initiativeof this holdinitiative holdconstructive
constructive
dialoguesdialogues
with companies
with companies
that havethat
a significant
have a significant
impact onimpact
the resolution
on the resolutionof climateofchange
climateissues.
changeParticipantsissues. Participants
discuss improving
discuss improving
climate change-related
climate change-related
governance,
governance,
making making
efforts to efforts
reducetogreenhouse
reduce greenhousegas emissions,gas emissions,and enhancing
and enhancing
1
participate
participate
inininformation
information
disclosure.
disclosure.
Currently,Currently,
545 investors
545 1investors

GPIF has GPIF
beenhasstepping
been stepping
up its ESGupinitiatives
its ESG initiatives
since it signed
since it signed

the initiative,
the initiative,
includingincluding
pension funds
pensionandfunds
otherand
asset
other
ownersasset owners

the PRI inthe
September
PRI in September
2015. Every
2015.
year,
Every
we report
year, weourreport
ESG our ESG

as well asasasset
well managers.
as asset managers.
GPIF has GPIF
participatedhas participatedin Climatein Climate

initiativesinitiatives
to the PRItoandthereceive
PRI andareceive
full assessmenta full assessment
on how on how

Action 100+
Actionas 100+a supporteras a supporter
since Octobersince 2018,
Octoberand2018,
also and also

we are progressing.
we are progressing.
We also participate
We also participate
in variousin various

participates
participates
as an asset
as an
owner
asset
in owner
the Asiain Advisory
the Asia Advisory
Group Group

committees,committees,
includingincluding
the Assetthe
Owner
AssetAdvisory
Owner Advisory
Committee,
Committee,(AAG), which(AAG),
adviseswhichtheadvisesSteering
the Committee
Steering Committee
on circumstanceson circumstances

SDGs Advisory
SDGs Advisory
Committee,
Committee,
and Japan
andNetwork
Japan Advisory
Network Advisory
Committee.
Committee.
We received
We received
an A+, theanhighest
A+, therating,highestforrating, forstrategy andstrategy
governanceand governancein our 2020
in ourassessment.
2020 assessment.

37

GPIF ESG REPORT 2020and conditions
and conditionsin the Asiain region.
the Asia region.
1 As of June1 30,
As of
2021.
June 30, 2021.

Chapter 1 GPIF’s ESG Initiatives

NovemberNovember
JoinedJoined
JPX ESGJPXKnowledge
ESG Knowledge
Hub Hub
2020
2020

Declared
Declared
SupportSupportDecemberDecember
2018
2018
for thefor
TCFD
the TCFD

Collaboration with Overseas Public Pension Funds and Other Institutions

The ESG The
Knowledge
ESG Knowledge
Hub, establishedHub, establishedby the Japanby theExchange
Japan ExchangeGroup (JPX),Group
is a(JPX), is aplatform that
platform
aimsthatto encourage
aims to encourage
listed companies
listed companies
to disclose
to ESG
disclose
information
ESG information
by
by
GPIF declared
GPIF declared
our support
ourforsupportthe recommendations
for the recommendationsofofthe Task Forcethe Task
on Force
Climate-related
on Climate-related
Financial Financial
Disclosures
Disclosures(TCFD) in(TCFD)
Decemberin December
2018. We2018.
commenced
We commenced
information
information
disclosuredisclosurein accordancein accordancewith the TCFD
with the TCFD
recommendations
recommendations
in Augustin2019
Augustwith2019
our ESGwith Report
our ESG Reportprovidingproviding
one-stop one-stop
access toaccess
contenttoandcontent
informationand informationthat will assistthat willin assist inunderstanding
understanding
ESG investment.
ESG investment.
Another goal
Anotherof thegoal
Hubof istheto Hub
eventuallyis to eventuallyform a form acommunitycommunity
linking listed
linkingcompanies
listed companies
with investors
with investors
and related
andorganizations.
related organizations.
GPIF
GPIF
joined thejoined
ESG Knowledge
the ESG Knowledge
Hub as a Hub
supporter
as a supporter
when it was
when
firstit wasestablishedfirst establishedinin
NovemberNovember
2020. 2020.
https://www.jpx.co.jp/corporate/
https://www.jpx.co.jp/corporate/

2018 and2018
haveanddonehaveso everydone year
so everysince.
year since.

sustainability/esgknowledgehub/sustainability/esgknowledgehub/index.html
index.html

2020 20202019 2019

The International
The International
CorporateCorporate
Governance
GovernanceNetwork (ICGN)
Networkis (ICGN)
an
is an

Chapter 2 Measuring the Impacts of ESG Activities

August August
JoinedJoined
ICGN ICGN
2019
2019

August August
JoinedJoined
CII
CII
2019
2019

The Council
TheofCouncil
Institutionalof Institutional
Investors Investors(CII) is a network(CII) is a of
network ofinternational
international
network of
network
institutionalof institutional
investors investors
and otherandorganizations.
other organizations. institutional
institutional
investors investors
establishedestablishedby U.S. public
by U.S.
pensionpublic funds,
pension funds,
It promotes
It promotes
better corporate
better corporate
governancegovernanceand stewardshipand stewardship
activities activities

with the aim
withofthe
advocating
aim of advocating
and collaborating
and collaboratingin the areasin theof areas ofwith the aim
withoftheadvancing
aim of advancing
efficient markets
efficient andmarketssustainable
and sustainable

shareholder
shareholder
rights andrights
corporateand corporate
governancegovernancein the U.S.in GPIF
the U.S. GPIF

economies.
economies.
GPIF joined
GPIF
ICGN
joinedin August
ICGN in2019.
August 2019.

joined CIIjoinedin August
CII in2019.
August 2019.
Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

ColumnJoint research with ANU on the diversification and portfolio efficiency effect of ESG investment
In a joint research project with the Australian National University (ANU), GPIF is engaged in studying the efficiency of ESG investment throughtime series, cross-country and other quantitative analyses. In particular, this project aims to achieve unique, leading-edge results by using
regime switching models and other sophisticated methods to detect and analyze the conditions of regime changes.

Joint research with Kyoto University on exploration of corporate value in the post-pandemic society
Kyoto University is currently conducting research aimed at the development of methods to measure the social values of diverse stakeholders and theprediction of future trends in a society in which more emphasis is placed on social value post-pandemic. GPIF is participating in this research as part ofa study of the effectiveness of ESG investment, assisting with questionnaire surveys of stakeholders and data analysis.

GPIF ESG REPORT 202038

Chapter 1

GPIF’s ESG Initiatives

Review of ESG Activities and Future Outlook
In fiscal 2020, positive changes continued to be observed in companies’ ESG initiatives and in ESG ratings agencies in the
improvement of their rating methods. We will continue working to secure long-term investment returns by stepping up our
ESG initiatives in cooperation with a number of different partners.

Although ESG indexes remained robust when stock prices

making improvements in these areas.

plummeted due to the COVID-19 pandemic at the end of fiscal

On the other hand, high-quality disclosure by companies

2019, they have lagged slightly in the rebound phase since

is a prerequisite for investors to be able accurately reflect ESG

the beginning of fiscal 2020. We have seen that companies

factors into investment decisions. In recent years, a growing

with high ESG ratings generally have lower risk of declining

number of Japanese companies have been producing

sharply, but tend to perform relatively weaker when value

integrated reports and disclosing information in line with TCFD

stocks are favored. This trend is fairly consistent with ourrecommendations, and we hope to see the emergence of a

intuitive understanding of companies with high ESG ratings.

virtuous cycle in which GPIF’s ESG initiatives provide an

ESG factors are sources of potential long-term risk andincentive for companies to disclose ESG information, leading

opportunity, and as a cross-generational investor, GPIF strives

in turn to the improvement of the quality of ESG investments.

to secure long-term investment returns by taking these into

Regarding ESG-conscious stewardship activities, thisaccount when investing. Having said that, allowing ourreport describes stewardship focused passive investments in

portfolio to deviate from our current policy benchmarks

detail, but we also feel that the quality of engagement of otherunconditionally in order to curb or avoid future ESG risks canexternal asset managers is also steadily improving. We will

potentially cause greater than expected short-term

continue to support constructive dialogue between external

performance swings. Balancing both short-term risks andasset managers and companies and measure the outcomes of

future ESG risks is enormously difficult, but we will constantly

these engagements.

strive to find the optimal balance between the two.
Fiscal 2020 also witnessed many positive changes for
ESG investment. As reported in this ESG Report, the scope of
ESG rating coverage of Japanese equities is expanding
rapidly, which is an extremely positive development.
Previously, small-cap equities were not included in ESG
indexes because they had not been given ESG ratings, whichlead to small-cap companies being automatically excluded
from ESG indexes and therefore causing unintended
investment risk (size bias). Another more fundamental
problem was that, even though ESG-conscious management
is necessary to enhance sustainability regardless of the sizeof the company, inclusion in ESG indexes was not serving as
an incentive for small-cap companies. A larger scope ofcompanies being given ESG ratings allows us work towards

39

GPIF ESG REPORT 2020

UEDA Eiji,
Executive Managing Director and Chief Investment Officer (CIO)

Chapter 1 GPIF’s ESG Initiatives

Column

Review of ESG Activities and Future Outlook

Global Approaches to Climate Change andActions Taken by Japanese Companies
As the world’s major nations commit to reducing greenhouse gas

companies with a U.K. premium listing, where subject firms mustemissions to net zero, central banks, financial institutions, anddisclose in line with the recommendations of the TCFD from 2021.

companies are also undertaking various initiatives related to

In Japan, the Stewardship Code was revised a second time in
March 2020, and states that institutional investors should holdSustainable Finance, the EU released the final version of a

dialogues with companies based on “consideration of sustainability“taxonomy” that provides a clear and common definition of what isaccording to investment strategy.” The second revision of the“green.” In March 2021, the EU Sustainable Finance Disclosure

Corporate Governance Code was also published in June 2021.

Regulation (SFDR) came into effect, and institutional investors

Based on this, companies wishing to be listed on the Prime Market

subject to the regulation will be required to disclose sustainabilityof the Tokyo Stock Exchange (TSE) will now be required to enhance

information beginning from the end of June 2021.

the quality and quantity of their climate change-related disclosures

More than 90 institutions1 have joined the Network of Central

based on the TCFD or an equivalent international framework.

Banks and Supervisors for Greening the Financial System (NGFS)

While Japan is believed to have more institutions endorsing theand are actively engaged in various initiatives such as developing

TCFD than any other country in the world, only 308 of the companies

scenarios for climate change-related analysis.

listed on the First Section of the TSE have TCFD-aligned disclosures.2

The TCFD Recommendations published in 2017 are becoming

The Code sets forth a principle of “comply or explain,” but as most of

the standard for the disclosure of climate change risks andthe companies listed on the First Section of the TSE are expected toopportunities, and the number of institutions endorsing the TCFD

seek a listing on the Prime Market, how much progress thesehas climbed to more than 2,300. In December 2020, the U.K.’s

companies will make in endorsing and actually disclosing according

Financial Conduct Authority introduced a new rule for commercial

to the TCFD Recommendations is a point of high interest.

1

Chapter 2 Measuring the Impacts of ESG Activities

climate change. In June 2020, based on the Action Plan on

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Figure1: Companies Listed on the First Section of the Tokyo Stock Exchange (TSE) That Endorse TCFD, by Industry and Capitalization

Utilities
Financials
Materials
Real Estate
EnergyConsumer Staples
Industrials
Information Technology
Consumer Discretionary
Healthcare
Telecommunications Services

Large-cap equities
100.0
100.0
100.0
100.0
100.0
100.0
80.0
85.7
62.5
61.5
66.7

Grand Total

81.8

Based on the number of equities (%)
Medium-cap equities Small-cap equities
100.0
9.1
62.5
12.2
55.1
5.5
85.7
0.0
50.0
0.0
37.8
2.3
41.0
4.9
51.1
1.1
41.9
0.9
4.0
0.0
0.0
1.1
43.6

3.2

Total
58.3
31.9
20.5
18.2
15.8
15.6
13.7
9.9
9.1
8.8
4.2
14.1

(Note1) Data as of June 30, 2021; number of companies endorsing TCFD is 308.
(Note2) Small- to large-cap classifications by TOPIX. Industry classifications by GPIF.
(Source) Prepared by GPIF based on data from TCFD.
1 As of June 22, 2021
2 As calculated by GPIF based on TFCD As of June 30, 2021

GPIF ESG REPORT 2020

40

Chapter 2

Measuring the Impacts of ESG Activities

ESG Index Performance
The ESG indexes selected by GPIF outperformed market averages over the past four years, but we believe that thesetypes of investments can only be accurately assessed over the long term. We have also confirmed that these ESG indexes
have both improved their Sharpe Ratios and reduced ESG risks over the past four years.

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

2020, some ESG indexes underperformed relative to the TOPIX

from April 2017 to March 2021 and during the previous year

as quality and growth stocks pulled back after the sharp rise thefrom April 2020 to March 2021. Over the past four years, theseprevious fiscal year, while value stocks (relatively cheap stocks)

indexes generally outperformed both their parent indexes androse. However, the overall performance of all ESG indexes

market averages (TOPIX for Japanese equities and MSCI ACWI

remained stable.

(excluding Japan) for foreign equities).
Figure 2 shows the performance from April 2017 to March

universe to include small-cap stocks. We look forward to seeing

2021. As GPIF has only invested in the ESG indexes for foreign

further efforts to reduce the impact of specific style factors andequities for a short period, this figure only includes thesize biases on performance.

performance of five domestic equity ESG indexes: (1) the MSCI

41

In fiscal 2020, some ESG indexes expanded their investment

GPIF believes that in the case of ESG investments, the longer

Japan ESG Select Leaders Index (MSCI ESG Select Leaders), (2)the investment period, the better the improvement in risk-

the MSCI Japan Empowering Women Index (MSCI WIN), (3) the

adjusted returns. In order to verify this, we calculated theFTSE Blossom Japan Index (FTSE Blossom), (4) the S&P/JPX

relationship between the Sharpe Ratio and the ESG rating for the

Carbon Efficient Index (S&P/JPX Carbon), and a composite ESG

four domestic equity ESG indexes and the TOPIX index as shownindex (an equally-weighted combination of ESG indexes (1) toin Figure 3. The Sharpe Ratio, which is widely used as an(4)). This graph displays the relative performance of these

indicator of risk-adjusted returns, is the ratio of portfolio returnindexes compared with the market average (TOPIX) by dividing

rates divided by the portfolio risk (standard deviation of return).

the value of each index by the price of the TOPIX.

The higher the value, the more efficient the portfolio. Figure 3

Using the composite ESG index as a proxy for theconfirms that ESG indexes (1) to (4) have higher ESG ratings thanperformance of ESG indexes overall, the share price for these

the TOPIX, and that their Sharpe Ratios using risk and return forindexes relative to the TOPIX fell below 1 during the period fromthe past four years also tend to be higher (i.e. more efficient).

fiscal 2017 to the first half of fiscal 2018, but from the second

Note that these results only cover a short four-year period

half of fiscal 2018, it exceeded 1 and started to trend upward. In

and only examine certain indexes. While the impact of ESG

fiscal 2019, all ESG Indexes continued to rise relative to TOPIX

ratings on risk-adjusted returns needs to be examined over thedue to outperformance in quality and growth stocks (stocks withlong term, we can say that, for at least the past four years, both

relatively high-margins and high-growth rates), which have a

improvement in the Sharpe Ratio and the reduction of ESG risks

relatively strong correlation with ESG Index constituents. In fiscal

have been achieved.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Figure 1. Returns of Seven ESG Indexes Selected by GPIF
April 2017 to March 2021 (past 4 years, annualized)
Return Rates(Reference) April 2020 to March 2021

Excess Return

Return Rates

Excess Return

(b)

(c)

(a-b)

(a-c)

(a)

(b)

(c)

(a-b)

(a-c)

ESG Index

Parent
Index

TOPIX

Parent
Index

TOPIX

ESG Index

Parent
Index

TOPIX

Parent
Index

TOPIX

(1) MSCI ESG Select Leaders10.38%

9.51%

0.87%

1.31%

38.90%

43.43%(4.53)%(3.23)%(2) MSCI WIN

9.89%

9.51%

0.38%

0.82%

37.49%

43.43%(5.94)%(4.65)%(3) FTSE Blossom

9.65%

9.57%

(4) S&P/JPX Carbon

9.23%

9.07%

ESG Index

Parent
Index

9.07%

MSCI ACWI ex
Japan(5) S&P Global Carbon

13.23%

13.41%(6) MSCI ESG Universal

13.89%

13.24%(7) Morningstar GenDi

13.91%

13.77%

13.38%

0.08%

0.58%

43.93%

43.81%

0.16%

0.16%

41.95%

42.13%MSCI ACWI ex
ESG Index
Japan

ParentIndex

ParentIndex(0.18)%(0.14)% 58.22%

59.95%

0.65%

0.52%

59.34%

60.10%

0.14%

0.53%

58.38%

60.25%

42.13%

0.12%

1.80%

(0.18)%(0.18)%MSCI ACWI ex
Japan

ParentIndex(1.73)%(1.99)%

60.21%(0.76)%(0.87)%(1.87)%(1.83)%

Chapter 2 Measuring the Impacts of ESG Activities(a)

MSCI ACWI ex
Japan(Note1) Index returns include dividends. The periods used to calculate index return rates differ from the terms of GPIF’s actual investments.
(Note2) The parent indexes (constituent universe) for (1) to (7) are as follows: (1) MSCI JAPAN IMI TOP700, (2) MSCI JAPAN IMI TOP700, (3) FTSE JAPAN ALL CAP, (4) TOPIX, (5) S&P
Global Large Mid (ex JP), (6) MSCI ACWI ex Japan ex China A, (7) Morningstar Developed Markets (ex JP) Large-Mid

ESG Index Performance(Source) Prepared by GPIF based on data from FactSet.

Figure 2. Relative Prices of ESG Indexes for Domestic Equities (1) to (4), Composite ESG Index and TOPIX(Relative Price: Multiple)
1.08(1) MSCI ESG Select Leaders
1.06
1.04
1.02

(2) MSCI WIN(3) FTSE Blossom(4) S&P/JPX Carbon
Composite ESG Index

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

1.00
0.98
0.96
2017/3

2018/3

2019/32020/32021/3(Note1) Relative prices are normalized to 1 as of March 31, 2017.
(Note2) The composite ESG index is an equally-weighted combination of ESG indexes (1) to (4).
(Source) Prepared by GPIF based on data from FactSet.

Figure 3. Relationship Between Domestic Equity ESG indexes and TOPIX Index ESG Ratings and Sharpe Ratios
Sharpe Ratio(1) MSCI ESG Select Leaders

0.70(2) MSCI WIN

0.65
0.60
0.55
4.0

TOPIX

(4) S&P/JPX Carbon

4.5(3) FTSE Blossom

5.0

5.5

(ESG Ratings)(Note1) ESG ratings are based on data as of the end of March 2021. Sharpe Ratios are from April 2017 to March 2021 (annualized).
(Note2) ESG ratings are the average of FTSE and MSCI (Refer to page 43 and 44 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 ©2021.

GPIF ESG REPORT 2020

42

Chapter 2

Measuring the Impacts of ESG Activities

Portfolio ESG Rating
GPIF invests in a broad range of equity and fixed-income assets in Japan and overseas through external asset
management companies. In this year’s report, we once again measured the ESG rating of our equity portfolios. Results
confirmed that the portfolio ESG rating continued to improve for both domestic and foreign equities, despite some impact
from methodology changes at FTSE and MSCI.

Analysis of Portfolio ESG Rating
GPIF invests in a broad range of equity and fixed-income assets

This is likely due to a change in MSCI’s ESG rating methodology

in Japan and overseas through external asset managementin November2020, in which the weight of the G score wascompanies. We have about 2,417 companies in our domestic

increased to at least 33% of the ESG score.

equity portfolio and 3,285 companies in our foreign equity
portfolio. Similar to last year, in this year’s report we once again

and G ratings for GPIF’s equity portfolios from March 2017. In

measured the ESG rating of our equity portfolios as below.

the FTSE evaluation, the E, S and G ratings were all on an

We calculated the weighted average ESG score, E score, S

upward trend until March 2020 before leveling off or falling inscore and G score for our portfolio based on ESG ratings fromMarch 2021. In the MSCI evaluation, on the other hand, the Eboth FTSE and MSCI (excluding stocks for which an ESG rating

rating for both domestic and foreign equities continued to

was not available). The overall ESG rating, weighted by market

decline, the S rating fell after trending upward until March 2020,

capitalization, represents the sum of the E, S and G ratings.

and the G score varied from region to region.

(MSCI ratings include an industry adjustment factor.)
Figures 1 to 4 show the trend in each ESG rating for GPIF’s

We compared the ESG ratings for GPIF’s equity portfolios toratings for the whole market by using the same methodology toequity portfolios every year from March 31, 2017 to March 31,

calculate the ESG ratings for market representative indexes,

2021, as well as the ESG rating for market representative

using TOPIX in the case of domestic equities and the MSCI ACWI

indexes as of March 31, 2021. In the FTSE evaluation, the ESG(excluding Japan) in the case of foreign equities. As a result, in

rating for domestic equities increased, but there was a slight fall

the analysis of the TOPIX and MSCI ACWI (excluding Japan),in the rating for foreign equities. On the other hand, the MSCI

similar changes in E, S, and G scores to GPIF’s equity portfolios

ESG rating continued to improve for both domestic and foreign

were observed. These results support the view that the change inequities. The G score for domestic equities, in particular, showsscores was due to changes in methodology by FTSE and MSCI. It

significant improvement from 1.34 to 1.58.

also shows that GPIF’s equity portfolios are outperforming the

The change in scores may be due to changes in FTSE’s and43

Figures 5 and 6 show trends over time in each of the E, S,

market in ESG scores, albeit marginally (Figures 1 to 4). This

MSCI’s methodologies. For MSCI, the E and S scores for bothresult is likely due to the adoption of ESG Indexes and Carbon

domestic and foreign equities declined, while the G score rose.

Efficient Indexes.

GPIF ESG REPORT 2020

■E ■S ■G(ESG Ratings)
5.0

2.0
1.0

2.63

2.95

2.96

2.93

0.99

0.97

0.96

2.44

2.61

0.80

0.86

0.86

0.77

0.83

0.81

0.95

0.86

0.92

0.96

1.02

0.98
1.02

1.00

■ Industry Adjustment ■ E ■ S ■ G
5.79

5.92

5.85

5.29

5.44

5.51

1.02

1.09

1.16

1.34

1.58

1.57

2.19

2.24

2.31

2.38

2.11

2.10

3.0

1.56

1.56

1.39

1.36

1.21

1.20

2.0

0.0

1.02
0.98
0.71
0.65
0.55
0.52
2017/3 2018/3 2019/3 2020/3 2021/3 2021/3

3.35

3.37

3.34

3.33

1.20

1.23

1.28

1.28

1.28

1.27

0.95

1.00

1.06

1.09

1.07

1.07

0.89

0.93

1.01

1.00

0.99

0.99

Figure 4. MSCI ESG Ratings (Foreign Equities)■ Industry Adjustment ■ E ■ S ■ G(ESG Ratings)
7.0
6.0
5.0

3.0

6.01

6.04

5.95

1.68

1.80

1.80

1.78

2.02

2.06

2.16

2.08

2.06

1.34

1.20

1.21

1.13

1.13

5.32

5.54

5.73

1.45

1.61

1.91
1.40

2.0
1.0
0.0

(Reference)
TOPIX

0.98
1.03
0.83
0.79
0.57
0.56
2017/3 2018/3 2019/3 2020/3 2021/3 2021/3
Reference:
MSCI ACWIGPIF Portfolio(ex-Japan)

Figure 5. FTSE ESG Ratings for Each Category

Figure 6. MSCI ESG Ratings for Each Category(ESG Ratings)
1.5(ESG Ratings)
3.0

1.02

1.0
0.86

0.77

0.98

0.97

0.89

0.99

1.20
1.07
0.95

0.80

0.5

1.28
2.19
2.0
1.56

2.11

1.91
1.58

1.02

1.0

E

S
G
E
S
G
Domestic Stocks
Foreign Stocks
Trend from March 2017 to March 2021

0.0

1.40

1.21
1.02
0.52

0.0

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

GPIF Portfolio

3.16

2017/3 2018/3 2019/3 2020/3 2021/3 2021/3
Reference:
MSCI ACWIGPIF Portfolio(ex-Japan)

4.0

4.0

3.04

Portfolio ESG Rating

5.0

0.0

(Reference)
TOPIX

Figure 3. MSCI ESG Ratings (Domestic Equities)

6.0

2.0

0.97

2017/3 2018/3 2019/3 2020/3 2021/3 2021/3(ESG Ratings)
7.0

3.0

1.0

GPIF Portfolio

1.0■E ■S ■G(ESG Ratings)
5.0

Chapter 2 Measuring the Impacts of ESG Activities

3.0

0.0

Figure 2. FTSE ESG Ratings (Foreign Equities)

4.0

4.0

Chapter 1 GPIF’s ESG Initiatives

Figure 1. FTSE ESG Ratings (Domestic Equities)

E

1.13

2.08
1.80
1.45
1.03
0.56

Industry
IndustryS
G Adjustment
ES
G Adjustment
Domestic Stocks
Foreign Stocks
Trend from March 2017 to March 2021

Figures 1, 2, and 5 (Note) GPIF holdings: Among the stocks held by GPIF, we analyzed those with ESG ratings by FTSE.
(Source) Prepared by GPIF based on data from FTSE. FTSE Russell.
Figures 3, 4, and 6 (Note1) GPIF holdings: Among the stocks held by GPIF, we analyzed those with ESG ratings from MSCI.
(Note2) Industry adjustment: Difference between the final rating and the weighted average of each company’s rating for environmental (E), social (S) andgovernance (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 ©2021.

GPIF ESG REPORT 2020

44

Chapter 2

Measuring the Impacts of ESG Activities

ESG Rating Ranking by Country
ESG Rating Ranking by Country
FTSE

MSCI

March 2017 March 2018 March 2019 March 2020 March 2021 Latest Value

March 2017 March 2018 March 2019 March 2020 March 2021 Latest Value

3.89

7.46

3.75

7.18

3.19

6.07

3.06

5.70

2.91

5.34

2.55

4.24

2.54

4.19

2.33

4.07

1.51

2.92

Rate of Improvement in FTSE ESG Ratings by Country
Past Four Years(Rate of Improvement)
1.0
0.8 0.75
0.6

Past One Year

0.55 0.06
0.62

0.58

0.0

0.47

0.46

0.14
(0.00)

India

Hong
Kong

South
Korea

Japan

FranceCanada

0.34
0.06

U.K.

U.S.

0.4

0.33

0.30
0.55

0.43

0.42
0.29

0.19

0.2

Past One Year

0.37

0.23

0.22

0.10 0.10

0.0(0.04)(0.08)

(0.2)

0.38

0.78 0.58

0.56

0.6

0.07

0.01
(0.01)

0.90

0.8

0.50

Past Four Years(Rate of Improvement)
1.0 0.90

0.4
0.2

Rate of Improvement in MSCI ESG Ratings by Country(0.14)

(0.2)
China

U.K.

Canada

U.S.

Japan

Hong
Kong

China

India

France

South
Korea

(Note) This figure shows the change over the four years from the end of March 2017 to the end of March 2021 and over the most recent year.

FTSE ESG Rating Distribution for Japanese Companies(Number of Companies)

March 2017

March 2021

MSCI ESG Rating Distribution for Japanese Companies(Number of Companies)

120

70

100

60

March 2021

50

80

40

60

30

40

20

20
0

March 201710
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 4.5-5←Low(ESG Ratings)
High→

0

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 Developed Index” and “FTSE Emerging Index” and MSCI’s “MSCI All Country World Index,” the analysis focused on thosethat had an ESG rating.
(Source) Prepared by GPIF based on data from FTSE and MSCI. FTSE Russell. Reproduced by permission of MSCI ESG Research LLC ©2021.

45

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

ColumnChapter 2 Measuring the Impacts of ESG Activities

Corporate Governance and Corporate Behavior ofJapanese Companiesscored higher than foreign companies (Figure 1). On the otherfor GPIF’s equity portfolio, the G (corporate governance) score ofhand, Japanese companies scored lower than their foreign

both Japanese and foreign companies has been improving incounterparts in the Corporate Governance category, which

recent years. Over the past year in particular, the G score ofassesses the company in question on matters including “Board”,

foreign companies, while still higher than that of Japanese“Pay,” “Ownership and Control,” and “Accounting.” (Figure 1).

companies, has flattened, while Japanese companies’ scores

To find out if other ESG rating agencies rate Japanese

have improved significantly from a lower level than their non-companies’ corporate behavior highly as well, we checked

Japanese counterparts. Why are the corporate governance

Sustainalytics’ evaluation metrics for “Corporate Governance”

scores of Japanese companies improving?

and “Corporate Behavior”, which are similar to those of MSCI. As

In 2020, MSCI changed its ESG rating methodology for the

ESG Rating Ranking by Country

As shown in “Portfolio ESG Rating” (page 43), in the ESG ratings

with the MSCI results, we found that foreign companies had ahigher rating in “Corporate Governance” than Japanesecategory as a risk indicator in addition to the existing category ofcompanies, while Japanese companies rated higher in"Corporate Governance." In this “Corporate Behavior” category,“Corporate Behavior” than foreign companies. Many Japanese

the company in question is assessed on matters such ascompanies have problems with “Corporate Governance,” but if“Business Ethics”, “Corruption & Instability”, and “Taxthey can improve them, it will lead to improvement in their G

Transparency.” Calculation of GPIF’s equity portfolio scores inscore from rating agencies, and, as a result, significant

terms of corporate behavior found that Japanese companies

improvement in their overall ESG score can be expected.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

assessment of G (Governance), adding a “Corporate Behavior”

Figure 1. G score Comparison Between MSCI and Sustainalytics (as of May 31, 2021)
Domestic Equities(Score)Foreign Equities

MSCI

5.5

Sustainalytics

6.1
4.7

4.8

4.0

3.4
1.5

Corporate Behavior

Corporate GovernanceCorporate Behavior

2.2

Corporate Governance(Note1) GPIF evaluated portfolio companies for which data exists from both companies with respect to common criteria in the "Corporate Governance" and "Corporate Behavior"categories as well as the overall G Pillar score.
(Note2) Weighted average scores according to the market capitalization weight of each issue in GPIF’s portfolio(Note3) Ratings by Sustainalytics were converted to a scale of 1 (low) to 10 (high).
(Source) Prepared by GPIF based on data from MSCI and Sustainalytics.
Reproduced by permission of MSCI ESG Research LLC ©2021. Used with permission by Sustainalytics, a Morningstar company. Copyright 2021.

GPIF ESG REPORT 2020

46

Chapter 2

Measuring the Impacts of ESG Activities

Gender Diversity in JapaneseCompanies
Gender diversity is a central element of the “S” in ESG. This is a major issue for Japanese companies, but at the sametime, it is an area with tremendous potential for improvement. In this chapter, we provide an overview of the current
status of Japanese companies through a comparison with foreign companies and consider their challenges.

Gender Diversity in Japanese Companies
GPIF adopted the MSCI Japan Empowering Women Index (WIN)(v) in Figure 1) which companies are required to disclose underin 2017 and the Morningstar Gender Diversity Index (GenDi) in

the Act on Promotion of Women’s Participation and Advancement

2020 as passive equity benchmarks. In December 2019, GPIF

in the Workplace. We examined data for the 700 companies (500

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

until 2019) eligible for inclusion in this index. Looking at theto increase the ratio of female executives in Japanese

median percentage for each criterion, (i) % Female New Hirescompanies. A large body of evidence shows that companies withand (ii) % Women in the Workforce were both 20-29% , (iv) %greater gender diversity are able to access a wider pool of talent,

Women in Senior Management was less than 10%, and (v) %which can potentially lead to more exceptional management

Women on Board was 10-19% (calculated excluding 0% values).

performance. From a macro-economic perspective as well,

From the perspective of gender diversity, the ratio of men is highhigher gender diversity has the potential to boost the economic

and women remain in the minority for each criterion. On theperformance of individual countries. Based on thisother hand, looking at the trend over the past five years, while (i)understanding, GPIF invests in companies with greater gender% Female New Hires and (iii) Difference in years men anddiversity in order to enhance the sustainable growth of ourwomen are employed by the company have remained steady, (ii)

investments and the market as a whole for the purpose of% Women in Workforce, (iv) % Women in Senior Management,

increasing long-term investment returns.

and (v) % Women on Board are trending upward. Although not a

Similar to last year, we reviewed data for the metrics used indirect criterion of the WIN index, the percentage of companies

the WIN index scoring methodology to gauge progress in genderwith at least one female director on their board of directors rose

diversity at Japanese companies as shown below.

significantly from 40% in 2017 to 72% in 2021 (Figure 1).

The WIN index covers, among other things, five criteria ((i) to
Figure 1. Actual Values for WIN Index Quantitative Score Items (Median)(i) % Female New Hires

2017

2018

2019

2020

2021

25.0%

27.9%

28.0%

28.9%

28.1%

(ii) % Women in the Workforce

17.0%

18.6%

18.8%

20.2%

21.2%

(iii) Difference in years men and women are employed by the company(16.6%)(16.5%)(16.5%)(17.5%)(18.2%)(iv) % Women in Senior Management

3.5%

4.5%

4.6%

5.1%

5.5%

(v) % Women on Board*

10.0%

10.0%

10.0%

11.1%

12.5%

Rate of Disclosure for (i) to (v)

73.6%

72.7%

77.3%

75.4%

74.0%

40%

42%

52%

61%

72%

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@2021.

47

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Comparison of Japanese and Foreign Companies
Next, we analyzed how gender diversity in Japanese companies is“Workers employed part-time, % of employed people” (50.8%),

evaluated internationally. Every year, the World Economic Forumand the low average of women’s income (43.7% lower than men).

(WEF) calculates the Global Gender Gap Index, which measures

To compare the situation at Japanese companies with foreigncompanies in more detail, we conducted an international

assessed with this index, Japan ranked 120th in 2021 (121st ofcomparison using the Equileap Gender Equality Scorecard used in

153 countries in the previous year). The Global Gender Gap Index

the GenDi Index, as shown below.

rates countries based on indicators across the four areas of

Chapter 2 Measuring the Impacts of ESG Activities

the gender gap in individual countries. Among the 156 countries

The Scorecard assigns companies a score ranging from 0 to

Economic Participation and Opportunity, Educational Attainment,

100 points in four categories: (1) Gender Balance in Leadership

Health and Survival, and Political Empowerment. Japan scoredand Workforce; (2) Equal Compensation & Work-Life Balance; (3)particularly low in the economic and political rankings, ranking

Policies Promoting Gender Equality; and (4) Commitment,

117th among 156 countries in the economic area. The Global

Transparency, and Accountability. As of March 31, 2021, 3,814

Gender Gap Report 2021 cited as reasons for Japan’s low ranking

companies based in 25 developed countries have beenin the “Economy” area its low percentage of female “Legislators,

researched. Looking at the average scores of these companies by

senior officials and managers” (14.7%), high rate of female

country, Japan ranked 23rd among the 25 countries surveyed.

Gender Diversity in Japanese Companies

Advancement of Women into Executive Positions Remains a Challenge
asset managers have a policy of opposing proposals for thefor each of the 19 criteria included in Equileap’s scoring

appointment of top management if there are no women on

methodology to verify which areas had particular room forthe board. As mentioned above, the ratio of companies withimprovement (Figure 2). While Japanese companies rank highly

at least one female director on the board rose significantly inglobally in terms of “parental leave” and “flexible work options,”

companies assessed by the WIN Index, and we believe thatsimilar to last year, they continue to lag significantly behind thethis kind of shareholder lobbying is behind this trend.

global standard in terms of the gender balance of boards of

Nevertheless, even today, approximately 30% of companies

directors, executive positions and senior management – criteria

have no female directors. We believe that improving thethat are particularly emphasized in the scoring methodology. For

gender balance in companies’ employees and managers will

this reason, the gender balance of directors and executives is

be a major long-term challenge for the improvement of thealso a major theme in institutional investors’ engagement. Some

gender balance of directors.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

We examined the standardized scores for Japanese companies

Figure 2. Individual Criteria of Average Gender Scorecard and Standardized 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

Criterion
Standardized Score Change from previous year
1 Board of Directors
30.5
(0.7)
2 Executives
29.8
(1.2)
3 Senior Management
32.9
(1.7)
4 Workforce
43.7
1.7
5 Promotion & Career Development Opportunities
37.6
(1.6)
6 Living Wage
47.0
0.7
7 Gender Pay Gap
44.2
0.3
8 Parental Leave
65.0
0.6
9 Flexible Work Style Options
60.1
4.6
10 Training and Career Development
53.1
0.7
11 Recruitment Strategy
28.2
9.0
50.7
1.6
12 Freedom from Violence, Abuse and Sexual Harassment
13 Safety at Work
45.3
3.0
14 Human Rights
56.9
1.7
15 Social Supply Chain
45.6
(0.4)
16 Supplier Diversity
29.3
0.7
17 Employee Protection
38.9
4.0
18 Commitment to Women’s Empowerment
51.5
(1.4)
19 Audit
45.8
(0.8)

(Note) Standardized scores have been calculated based on the average score for each criterion among companies evaluated in each of the 25 countries. Standardized scores of
40 or lower are shown in red.
(Source) Prepared by GPIF based on data from Equileap.

GPIF ESG REPORT 2020

48

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Disclosure and Analysis of Climate-Related
Financial Information: Composition and Key Points
In this our third year of disclosing in line with TCFD recommendations, we expanded our greenhouse gas emissions analysis to include the entire
supply chain, and newly added a portion of our alternative asset portfolio (domestic real estate) to the scope of assets analyzed. Additionally, forthe first time, we included an analysis of the implications of the shift to a low-carbon society on inter-industry transfers of opportunities and risks.

Analysis Expanded to Include Scope 3 Emissions and Inter-Industry Analysis
In this year’s report, in addition to Trucost and MSCI, whom we(e.g., the Scope 1 emissions of one company may be included

partnered with last year, we newly engaged Astamuse Co., Ltd. toin the Scope 3 emissions of another company). However, ourprovide analysis support for our climate-related financial

priority was to fully understand the situation across the entire

disclosures in line with TCFD recommendations. Astamuse is a

supply chain, and thus we conducted the analysis based on theJapan-based research company that excels in the analysis of

total value of Scope 1, 2, and 3 emissions.

intellectual property and patent information and of research and49

The initial Climate Value-at-Risk (CVaR) model used todevelopment investment. As in the previous fiscal year, wemeasure the impact of climate change risks and opportunities on

conducted a multifaceted analysis that leveraged thesethe value of equities and corporate bonds was limited to Scope 1

companies’ respective strengths by dividing up the various areas

emissions, but has been recently updated to include Scope 2 andto be analyzed by each company (Figure 1).

Scope 3 emissions. In this model, the introduction of carbon

In particular, we aimed to improve three issues that were

pricing causes costs for the company to increase in direct

outstanding from the previous fiscal year’s analysis: (1) include

proportion to Scope 1 emissions, but Scope 2 electricity andthe entire supply chain in our greenhouse gas emissions

upstream Scope 3 raw materials emissions-related costs areanalysis; (2) expand the analysis to include not only traditional

affected by the share of costs passed down to the company.

asset classes but also alternative asset classes; and (3) provide

Similarly, for greenhouse gas emissions occurring when products

an analysis of inter-industry transfer of opportunities and risks

are used in downstream Scope 3, the analysis must reflect theaccompanying the transition to a low-carbon society. Our firstextent that demand will change if the company passes on carbon

aim was to “(1) include the entire supply chain in ourcosts to the customer. In general, policy risks tend to increase as

greenhouse gas emissions analysis” by adding Scope 3

the scope of the analysis expands, resulting in a significant

emissions. Greenhouse gas emissions across the entire supply

negative impact to CVaR. This is seen particularly for companies

chain can be roughly divided into the following categories: thethat produce goods that generate significant greenhouse gas

company’s direct emissions (Scope 1), indirect emissions

emissions when used. In the analysis for this report, expanding

related to purchased electricity (Scope 2), indirect emissions

the analysis to include Scope 2 and Scope 3 caused CVaR to fallfrom procured products and services other than purchased

significantly, predominantly in domestic stocks. (Please refer toelectricity (upstream Scope 3), and indirect emissions from thepages 57–58 for details.) While the expanded CVaR analysis

consumption and use of sold products and services

reflects a portion of Scope 1 and 2 pass-through costs, there is a(downstream Scope 3) (Figure 2). Expanding the carbon

limit to how far these extremely complex factors, such as pricefootprint measurement of our portfolio to include Scope 3

pass-through and price elasticity of demand, can be accounted

emissions requires a degree of caution, as problems such as

for. As such, the results should be considered to occur within acounting the same greenhouse gas emissions twice may arise

certain range.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

The second issue was to “(2) expand the analysis to include

redistributed within the same sector or industry. If we consider,classes.” In this year’s climate-related financial disclosures, we

powered vehicles to electric and hydrogen-powered vehicles, thisconducted a CVaR analysis of domestic real estate in which GPIF

is not such an unreasonable assumption. However, when viewed

invests through private funds. The results of that analysis showedfrom a more long-term perspective, there are some additional

that, even though real estate in Japan is naturally exposed to risks

points that need to be considered in the analysis. They include

such as typhoons and flooding, the risk to the value of GPIF’s(1) the contribution of low-carbon technologies throughout theoverall portfolio is limited. (Please refer to pages 63–64 for details.)

supply chain to reductions in carbon emissions beyond sector

The third issue was to “(3) provide an analysis of inter-boundaries will result in the transfer of benefits and demandindustry transfer of opportunities and risks accompanying the

between sectors, and (2) changes in the prices of goods andtransition to a low-carbon society.” In the patent-based CVaR

services due to carbon pricing, etc. will bring changes to theassessment of opportunities from low-carbon technologies, theoverall demand structure. An analysis by Astamuse focusing onamount of possible revenue from environmental technologies in apoint (1) above found that the opportunities associated with thecertain sector that can be earned going forward is assumed totransition to a net-zero society greatly exceeded the risks,

be equal to the cost of climate change policy (cost of reducing

especially in the energy and chemical industries, and that Japan

carbon emissions) in that same sector. In other words, in thehas promising technologies in these industries. (Please refer totransition to a low-carbon society, opportunities and risks will be

pages 65–68 for details.)

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

for example, an intra-sector shift in demand from gasoline-

Chapter 2 Measuring the Impacts of ESG Activities

not only traditional asset classes but also alternative asset

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

Analysis Performed by

Carbon footprint analysis

Equities / corporate bonds

TrucostCarbon intensity analysis

Equities / corporate bonds /government bonds

TrucostClimate Value-at-Risk (CVaR)-based analysis*

Equities / corporate bonds /government bonds / real estate

MSCI

Warming potential analysis

Equities / corporate bonds / realestateMSCI

Industries

Astamuse

Industries / countries

Astamuse

Equities

TrucostAnalysis of inter-industry transfer of transition risks and opportunities
Total patent asset analysis of decarbonization technologies by country/region
SDGs positive impact / additionality analysis**Disclosure and Analysis of Climate-Related Financial Information: Composition and Key Points

Asset Class(Note1) * In the CVaR analysis of government bonds, impact on GDP, not the price of government bonds, was analyzed.
(Note2) ** In the SDGs-related analysis, all opportunities arising from the resolution of the social issues identified in the SDGs were analyzed, not only climate change-related opportunities.
(Source) Prepared by GPIF based on various materials

Figure 2. Greenhouse Gas Emissions by Scope

Upstream Scope 3

Rawmaterials

Employee commuting and Transportation
business travel

Leased assets

Scope 1

Scope 2

Direct emissions associated with thecompany’s activities(e.g., emissions associated with
fuel combustion,
manufacture of products)

Indirect emissions associatedwith the use ofelectricity and steam

Waste generated in operations

Upstream activities

Downstream Scope 3

Use ofsold products

End-of-life treatment Processing ofof sold products
sold products

Transportation and distribution Investments

Reporting company

Downstream activities(Note) The above figure indicates the major sectors included in each scope.
(Source) Prepared by GPIF based on the GHG Protocol, etc.

GPIF ESG REPORT 2020

50

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Portfolio Greenhouse
Gas Emissions
This analysis measures the greenhouse gas emissions (carbon footprint) of the companies held in GPIF’s portfolio, basedon an understanding of the characteristics of the portfolio’s asset classes and sector weightings. Downstream Scope 3
emissions were newly added to the fiscal 2020 analysis.

Features of GPIF’s Portfolio
The analysis looked mainly at four asset classes in GPIF’s

understand the characteristics of our portfolio prior to

portfolio: domestic bonds, foreign bonds, domestic equities,

interpreting these results.

and foreign equities. Some alternative assets (domestic real

The GPIF portfolio is composed of roughly half bonds andestate in which GPIF invests through private funds) were also

half equities by overall market value (Figure 1). On the fixed

analyzed. In the sections that follow, we analyze greenhouseincome side, domestic bonds accounted for 25.92% of allgas emission volumes (carbon footprint), transition risks,2holdings while foreign bonds accounted for 24.61%. For

physical risks, and opportunities relating to these asset

equities, domestic issues comprise 24.58% of the total

classes using data as of March 31, 2021. Because analysis

portfolio and overseas issues 24.89%. The majority of bondresults are heavily influenced by the investment amount andholdings, both domestic and foreign, consist of government

sector weighting of each asset class, it is important tobonds (Figure 2).

Figure 1. Breakdown of Portfolio Asset Types(Total for GPIF’s Pension Reserves)

Figure 2. Breakdown by
Category in GPIF Bond Portfolio (%)

13

As of March 31, 2021

Foreign Stocks

Domestic Bonds

24.89％

25.92％

Domestic Stocks

Foreign Bonds

24.58％

24.61％■Domestic Bonds ■Foreign Bonds(Source) GPIF

■Domestic Stocks ■Foreign Stocks

Domestic Bonds
Foreign Bonds

89.1 86.2

Government Bonds,
Government-Related Bonds

As of March 31, 2021

6.1 7.9

4.8 5.9

Corporate Bonds

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

1 Alternative assets account for around 0.7% of the pension reserve fund. Alternative assets are generally allocated to the four main portfolio asset types according to theircharacteristics.
2 Transition risks are risks that arise from policy, technological innovation, demand change, etc. that accompany the transition to a low-carbon economy.
3 Physical risks are risks from direct damage to an asset, supply chain disruption, etc., resulting from climate change.

51

GPIF ESG REPORT 2020

difference in the composition of the domestic and foreignof energy companies, which have relatively high greenhouseequity portfolios (Figure 3). The domestic equity portfolio has

gas emission volumes, is greater than that for domestic

a higher proportion invested in the high-emitting industrials

corporate bonds. On the other hand, the proportion of corporate

and consumer discretionary sectors, while the foreign equity

bonds issued by telecommunication services and healthcare

portfolio has a high proportion in the low-emitting informationcompanies, which have lower emissions, is also high.

Chapter 2 Measuring the Impacts of ESG Activities

sectors. In the foreign corporate bond portfolio, the proportion

Chapter 1 GPIF’s ESG Initiatives

When examining GPIF’s equity portfolio by sector, there is a

It is necessary to bear this sector bias in GHG emissions

technology, financials, and healthcare sectors.
Looking at the corporate bond portfolio, the largest sector

in mind when examining the results of the analysis presented

for both domestic and foreign bonds is financials (Figure 4).

in the following sections. Around 90% of stock investments

Among domestic corporate bonds, the proportion of utilities

and 70% of bond investments by GPIF are passive

and industrials is higher than that for foreign corporate bonds.

investments, which means our investment is virtually identical

Since utilities include electric power companies, this sector isto the sector ratios of each benchmark.

characterized by higher greenhouse gas emissions than otherFigure 4. Breakdown of GPIF Bond Portfolio by
Sector Based on Total Market Value (%)

%
25

%
45

Domestic Stocks
Foreign Stocks

Domestic Bonds
Foreign Bonds

40

As of March 31, 2021

20

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Figure 3. Breakdown of GPIF Equity Portfolio by
Sector Based on Total Market Value (%)

As of March 31, 2021

35
30

15

25
20

10

15
10

5

5
EnergyAnalysis of Portfolio Greenhouse Gas Emissions

Information Technology

Materials

Healthcare

Consumer Staples

Real Estate

Telecommunications Services

Consumer Discretionary

Utilities

Industrials(Source) GPIF

Financials

0

EnergyUtilities

Real Estate

Materials

Telecommunications Services

Consumer Staples

Healthcare

Financials

Information Technology

Consumer Discretionary

Industrials

0(Note) Only corporate issues are analyzed.
(Source) GPIF

Figure 5. Greenhouse Gas Emissions per Million Yen of Sales (CO2 Equivalent Tons)
Telecommunications Consumer Consumer
Services
Discretionary Staples

Domestic
StocksForeign
StocksDomestic
Bonds
Foreign
Bonds

EnergyFinancials

Healthcare

Industrials

Information
Technology

Materials

Real Estate

Utilities

1.22

10.25

4.77

25.02

0.85

1.13

15.91

5.59

20.20

3.25

23.50

1.09

7.57

6.27

35.54

1.28

1.17

18.98

3.08

27.93

5.34

29.46

1.30

9.27

9.57

23.31

1.00

1.13

9.91

4.32

25.09

2.77

25.01

1.02

9.97

10.07

34.62

1.22

0.88

9.96

3.08

32.15

3.98

31.75

(Note) The aggregate scope of greenhouse gas emissions includes Scopes 1, 2, and 3. In each asset class, the top three sectors by volume of greenhouse gases emitted are shaded.
For bonds, only corporate issues were analyzed. Data are as of March 31, 2021.
(Source) S&P Trucost Limited © Trucost 2021

GPIF ESG REPORT 202052

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Major Variations in the Magnitude of Greenhouse Gas Emissions by Sector According to the Scope of Calculation
In this year’s report, we expanded the calculation scope ofequity portfolio emissions by sector and scope, downstream

our carbon footprint and other analyses to include indirect

Scope 3 accounts for 50% or more of total emissions for 7 ofemissions from the consumption and use of sold products

the 11 sectors. This means that analysis result interpretations

and services (downstream Scope 3) in addition to directvary greatly depending on whether downstream Scope 3

emissions by the company (Scope 1), indirect emissions

emissions are considered. For portfolios with a higher weight

related to purchased electricity (Scope 2), and indirectof industrials, energy, and consumer discretionary companies

emissions from procured products and services other thanin particular, analysis results change dramatically depending

purchased electricity (upstream Scope 3). Looking at GPIF’s

on whether or not Scope 3 is included in the calculation.

Figure 6. GHG Emissions by Scope in GPIF Equity Portfolio(× 10,000 tCO2e)

Industrials (84)Consumer Discretionary (77)Materials (56)Energy (81)
Information Technology (65)Consumer Staples (28)
Utilities (40)
Financials (63)
Healthcare (21)Real Estate (63)Telecommunications Services (35)
0

5,000

10,00015,00020,000■Scope 1 ■Scope 2 ■Upstream Scope 3 ■Downstream Scope 3(Source) S&P Trucost Limited © Trucost 2021
(Note) Numbers in brackets are the percentage of downstream Scope 3 emissions in total emissions.

Carbon Footprint (GHG Emissions) Analysis

53

This analysis measures the carbon footprint of GPIF’s equity andenhancing the transparency of these emissions and thecorporate bond portfolios for Scopes 1 through 3, based on thepotential for reducing them is crucial for companies to takecharacteristics of downstream Scope 3 emissions.

efficient emission reduction measures.

Looking at total emissions by asset class, domestic equities

Figure 8 shows long-term greenhouse gas emission trends

were found to have the highest level of emissions, followed byfor Scopes 1, 2, and 3, using 100 for fiscal 2017 emissions as aforeign equities, foreign corporate bonds, and domestic corporatebase . The results indicated that fiscal 2020 saw the largest

bonds (Figure 7). This result is roughly the same as last year’s,

reduction of emissions in the four years since fiscal 2017. Thisbut does not necessarily mean that domestic companies havemay be attributable to the impact of COVID-19, as well as tomore or less carbon emissions than foreign companies. Rather, itchanges in the companies held in GPIF’s portfolio and invested

reflects the relative size and sector holding of each asset classamounts. Emissions related to foreign bonds increased

within GPIF’s portfolio.

significantly between fiscal 2018 and 2019. This is likely due to

The breakdown of the portfolio’s carbon footprint shows

the decrease in the weight of domestic corporate bonds in thethat the combined emissions of Scopes 2 and 3 account for

portfolio and corresponding increase in the weight of foreign

65% or more of the total emissions for all assets. As such,corporate bonds in fiscal 2019. In fiscal 2020, emissions related

calculating emissions across the entire supply chain andto foreign corporate bonds also fell greatly.

GPIF ESG REPORT 2020

Figure 8. Greenhouse Gas Emission Trends(FY2017 = 100)

(× 10 million tCO2e)
35

Downstream Scope 3

180

30

Upstream Scope 3

160

25

Scope 2
Scope 120140

Chapter 2 Measuring the Impacts of ESG Activities

120

15

100

10

80

5
0

Chapter 1 GPIF’s ESG Initiatives

Figure 7. Greenhouse Gas Emissions by Scope

60

GPIF
Portfolio

Reference: GPIF Portfolio
TOPIX

Domestic Stocks

Reference:
Domestic
Foreign
MSCI ACWI
Bonds
Bonds
(ex Japan and (Corporate) (Corporate)
China A-shares)

Foreign Stocks

40

Bonds

(Source) S&P Trucost Limited © Trucost 2021

2017

2018

2019

2020 (Fiscal year)

Domestic Stocks

TOPIX

Foreign Stocks

MSCI ACWI(ex Japan and China A-shares)

Domestic Bonds(Corporate)

Foreign Bonds(Corporate)(Source) S&P Trucost Limited © Trucost 2021
(Note) The aggregate scope of greenhouse gas emissions includes Scopes 1, 2, and 3.

Carbon Intensity Analysis
had a higher level of investment in the financials sector, which

added per unit or some other metric. While carbon intensity can

has a low carbon intensity.
Finally, we analyzed the factors contributing to carbon

be calculated in a variety of ways, this analysis adopted theweighted average carbon intensity (WACI) approach for equities

intensity across the equity and corporate bond portfolio as aand bonds, in line with TCFD recommendations. WACI iswhole (Figure 10). In this analysis, we broke down the factors of

calculated by multiplying each company’s carbon emissions tochanges in carbon intensity from fiscal 2019 to fiscal 2020 into

revenue (C/R) by the weight of that company in the portfolio, then(1) corporate profits, (2) companies’ emissions volumes, (3)taking the sum of those products to get the weighted average of

weight of each company in the portfolio, and (4) other factors.

carbon intensity.

The carbon intensity (CO2-equivalent tons per million yen ofsales) of GPIF’s equity and corporate bond portfolio increased byparticularly high for domestic equities and foreign bonds (Figure

7.8%, from 9.70 tons to 10.46 tons, in the space of a year. The

9). For the former, Scope 3 downstream emissions accounted forlargest contribution was from the change in (3) weight of eacharound 74% of WACI, largely due to relatively high allocations tocompany in the portfolio. This may be due to the shift to the newindustrials, consumer discretionary and materials – all sectors

policy asset mix beginning in fiscal 2020, which saw a decrease

with high indirect emissions. Foreign corporate bonds, on thein the weight of domestic bonds, which have a low carbon

other hand, in addition to having higher allocations to several

intensity, and an increase in the weight of foreign bonds, whichcarbon intensive sectors than domestic corporate bonds, also

have a high carbon intensity.

Figure 9. Weighted Average Carbon Intensity (WACI)
for Equities and Corporate Bonds

Figure 10. Analysis of Factors Contributing to
Carbon Intensity(WACI, tCO2e)■Scope 1 ■Scope 2 ■Upstream Scope 3 ■Downstream Scope 3(tCO2e per million yen of sales)

12.0

10

10.0

8

8.0

6

6.0

Analysis of Portfolio Greenhouse Gas Emissions

Out of GPIF’s equity and corporate bond portfolios, WACI was

12

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Carbon intensity is calculated by dividing GHG emissions by value

9.70

0.01

0.74

0.06

10.46

Others

FY2020(0.05)

4

4.0

2
0

2.0

Domestic Stocks

Foreign Equities(Source) S&P Trucost Limited © Trucost 2021

Domestic Bonds(Corporate)

Foreign Bonds(Corporate)

0.0

FY2019Corporate Emissions Portfolio
Profits
Volume Weighting(Note) “Other” represents the cross term of “Corporate Profits,” “Emissions Volume”
and “Portfolio Weighting.”(Source) S&P Trucost Limited © Trucost 2021

GPIF ESG REPORT 2020

54

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Equity and Corporate Bond
Portfolio Using Climate Value-at-Risk, etc.
Climate Value-at-Risk (CVaR) is a method of measuring how climate policy changes and disasters caused by climatechange impact corporate value. CVaR is an integrated approach that assesses both the risks and opportunities vis-à-vis
corporate value stemming from climate change.

Revision of CVaR Analysis Model
GPIF first conducted a CVaR analysis of the climate change risks

increase in opportunities for all factors and an improvement ininherent in its portfolio in the ESG Report 2019. Since then, theaggregate CVaR from -6.6% to -5.7%.

CVaR methodology has been further refined through an
expansion of the analysis to include Scope 3 emissions andrevisions made to the CVaR calculation model itself. This fiscal

the elements of those changes shows that the greatest impact

year we have continued to conduct climate-change risk analysis(-4.3%) was the result of weighting stocks by revenue instead ofon our portfolio in line with the TCFD recommendations. The

market capitalization in the weighted average sector (industry)following sections examine the impact of these model changes

profit ratio calculations used in CVaR (Figure 2). As weighted

on analysis results.

average market capitalization can change significantly due to

The risks and opportunities considered in the CVaR analysis

55

This revision of the analysis methodology had a particularly
significant impact on technological opportunities. A breakdown ofstock price fluctuations, using weighted average revenue instead

are comprised of “transition risks and opportunities” andprovides more consistent analysis results. This method can also“physical risks.” “Transition risks and opportunities” combines

curtail the excessive impact on sector profit margins caused by“policy risks,” which indicate the impact from greenhouse gas

some large companies with large market capitalization in certain(GHG) emission regulations, and “technological opportunities,”

industries that have few companies. Results also confirm thatwhich indicate income opportunities made possible fromupdating the data on environment-related income (-2.3%), which

technologies that have a competitive advantage under tightenedis the source of technological opportunities for individual

regulations. “Physical risks,” on the other hand, considers thecompanies, and changes in market capitalization (-2.2%) also

impact of changes in the natural environment and disasters

had an impact. Looking at the factors of policy risk changes

caused by climate change. For each of these components, wereveals that, in addition to the impact of the different

compared the results of three analyses: (1) portfolio analysis as

methodology used to calculate sector profit margins (-1.7%)of March 31, 2020 using the old calculation model, (2) portfolio

seen in the case of technological opportunities, the expansion ofanalysis as of March 31, 2020 using the new model, and (3)the scope of the analysis to Scope 3 (-3.2%) and the refinement

portfolio analysis as of March 31, 2021 using the new modelof Scope 2 (-1.6%) also had an impact. In terms of physical(Figure 1).

risks, fluvial flooding risks were added to the analysis, but theUnder the 2°C scenario, the comparison revealed that the

impact of that change was only slight, because these risks haveintroduction of the new model (comparison between (1) and (2))

already been incorporated as physical risks in other categories.

resulted in a reversal of transition risks and opportunities from a

As mentioned above, even for the same portfolio, there is apotential upside to corporate value of 8.1% to a potential

significant difference in the CVaR analysis results caused by thedownside of 0.4% due to increased policy risks and a decline inrevision of the calculation model. Having said that, comparing

technological opportunities. On the other hand, physical risks

this year’s portfolio with the previous fiscal year using the new

improved slightly from -6.4% to -6.2%. A comparison of lastmodel, climate change-related risks were shown to haveyear’s and this year’s portfolios based on the new model

decreased, indicating that CVaR this year did not substantially(comparison between (2) and (3)) showed a decrease in risks anddeteriorate from the previous fiscal year.

GPIF ESG REPORT 2020（%）20■(1) Data as of March 31, 2020 with old model
15■(2) Data as of March 31, 2020 with new model■(3) Data as of March 31, 2021 with new model

Figure 2. Breakdown of Changes in GPIF Portfolio CVaR
(Total of Equities and Corporate Bonds)
Due to Analysis Model Revision by Factor(Weighted Average Technological Opportunities CVaR, %)

16

14.7%

14

(2)

8.1%

(4)

10

(4.3)%

8
6

5
1.7%

0.1%

(8.6)%New model

Scope 1 cost pass-throughScope 3 added(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

Scope 2 added

Physical Risks

Sector profit margin, etc.

Technological
Opportunities

4.6%(3.2)%
Old model

Policy Risks

New model

Transition Risks
and Opportunities

WACC(8.2)%(8.6)%

Environment-related income

AggregatedCVaR(5.8)%(6.2)%(6.4)%(6.6)%(16)

Market capitalization(5.7)%(6.6)%(14)

0

Sector profit margin(5)(8) (6.6)%(1.7)%(1.6)%(12)2
Old model(0.4)%(6)(10)(2.3)%

40(10)

2.3% 8.2%(2.2)%

Chapter 2 Measuring the Impacts of ESG Activities

10(Weighted Average Policy Risk CVaR, %)

0

14.7%

12

8.3%
8.2%

Chapter 1 GPIF’s ESG Initiatives

Figure 1. Changes in GPIF Portfolio CVaR
(Total of Equities and Corporate Bonds)
Due to Analysis Model Revision(Note) Data is current as of March 31, 2020
(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

In this report, we calculated CVaR for a scenario in which thethe 1.5°C scenario, while the negative impact increases more as

global temperature rise from the pre-industrial period to the end

we move toward the 2°C and 3.0°C scenarios (i.e. less policyof this century does not surpass 2°C (the 2°C scenario) and

restrictions). Compared with last year’s report, the gaps in CVaR

conducted our analysis based on the result of those calculations.

between each scenario are smaller, owing largely to the analysis

As CVaR results vary depending on the temperature increase

model revision. However, for both equities and corporate bonds,

scenario being assumed, we first confirm the CVaR of GPIF’s

the impact of technological opportunities and policy risks areequity and corporate bond portfolio under scenarios in whichhigher in the scenarios with greater curbs in temperature rises,

policies are implemented to limit temperature increase to 1.5°C,

indicating that climate policy trends are likely to have a

2°C, and 3°C (Figure 3).

significant impact on corporate value. Investors will have to pay

To understand the overall trend represented by each of the
scenarios, we focused first on aggregate CVaR for the total

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

CVaR by Temperature Increase Scenario

close attention to climate change policy trends going forward asthese will play a pivotal role in investment decisions.

portfolio and found that the risks to the portfolio are smallest in

Analysis of Equity and Corporate Bond Portfolio Using Climate Value-at-Risk, etc.

Figure 3. CVaR by Temperature Increase Scenario (%)
CVaR for 3°C Scenario(1) Transition Risks and Opportunities
Policy Risks
Technological Opportunities(2) Physical Risks(3) Aggregate

Equities
0.07(1.12)
1.19(6.08)(6.01)

Corporate Bonds(0.18)(0.23)
0.05(0.90)(1.08)

Total Portfolio
0.06(1.07)
1.13(5.82)(5.76)

CVaR for 2°C Scenario(1) Transition Risks and Opportunities
Policy Risks
Technological Opportunities(2) Physical Risks(3) Aggregate

Equities
0.33(8.42)
8.75(6.08)(5.75)

Corporate Bonds(3.68)(3.90)
0.22(0.90)(4.58)

Total Portfolio
0.11(8.19)
8.30(5.82)(5.71)

CVaR for 1.5°C Scenario(1) Transition Risks and Opportunities
Policy Risks
Technological Opportunities(2) Physical Risks(3) Aggregate

Equities
0.72(17.54)18.26(6.08)(5.36)

Corporate Bonds(8.11)(8.49)
0.38(0.90)(9.01)

Total Portfolio
0.25(17.08)17.33(5.82)(5.57)(Note) Physical risks are analyzed under assumptions corresponding to a 4°C–6°C scenario.
(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

GPIF ESG REPORT 2020

56

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Technological Opportunities: Remarkably High Scores for Domestic Equities
We saw on the previous page that technological opportunities

discretionary sector, which includes automotive manufacturers,

have changed dramatically from the previous year due toscored markedly higher compared with other sectors in therevisions made to the analysis model. Here, we investigate thedomestic equities portfolio. Within this sector, “automobiles”

patent scores used to calculate technological opportunities forhad the highest patent score, followed by “energy supply,”companies included in GPIF’s equity and corporate bond“electric vehicles,” and “chemicals” (Figure 1). In theportfolios. While analysis results are affected by the amounts

information technology sector, patent scores are high ininvested in individual companies, the portfolio as of March 31,“energy supply” and “automobiles.” Meanwhile, in the case of2021 examined in this analysis is generally in line with the policy

foreign equities, the scores for industrials are the highest, withasset mix. As such, in terms of equities, the portfolios do notpatents related to aircraft, wind power, and automobiles making

deviate significantly from policy benchmarks. The patent scoremajor contributions. In the information technology sector,

calculation tabulates all low-carbon technology patents held by a“information technology” scored highly, while “automobiles”

given company and reflects any change in the number of suchscored highly in the consumer discretionary sector, similar topatents. The results of this analysis do not differ greatly from thedomestic equities (Figure 2).

1previous year, with domestic companies in the automotive andIn the domestic bond portfolio as well, “automobiles” tend toenergy supply sectors scoring exceptionally high. The inter-

have higher scores in the consumer discretionary sector as in theindustry transfer of transition risks and opportunities analysis

domestic equity portfolio, as does “energy supply” in the

introduced on page 65 employs a different methodology to

information technology sector. For foreign corporate bonds, there

assess the patent competitiveness of decarbonization

was an increase in the weighted average patent scores intechnologies by county and region.

“automobiles” and “energy supply” for the consumer
discretionary sector (Figures 3 and 4).

Looking at patent scores by sector, the consumer
Figure 1. Technological Opportunities: Domestic Equity Portfolio

Figure 2. Technological Opportunities: Foreign Equity Portfolio

Consumer Discretionary

Industrials

Information Technology

Information Technology

Industrials

Consumer Discretionary

Materials

EnergyUtilities

Materials■Automobiles ■Batteries ■Construction

EnergyReal EstateConsumer Staples

0500■GHG Reduction Technology ■Hydrogen Fuel■Information Technology ■Solar ■Aircraft

Utilities■Wind Power ■Others

Financials■Chemicals ■Electric Vehicles ■Energy Supply

Financials■Information Technology ■Solar ■Aircraft

Telecommunications Services

Telecommunications Services
Consumer Staples■GHG Reduction Technology ■Hydrogen Fuel

Healthcare■Automobiles ■Batteries ■Construction

Healthcare■Chemicals ■Electric Vehicles ■Energy Supply■Wind Power ■Others

Real Estate

1,000 1,500 2,000 2,500 3,000 3,500 4,000

0

50

100

150

(Weighted Average Patent Score)

200

250

300

350

400

(Weighted Average Patent Score)(Note) Reproduced by permission of MSCI ESG Research LLC ©2021(Note) Reproduced by permission of MSCI ESG Research LLC ©2021

Figure 3. Technological Opportunities: Domestic Corporate Bond Portfolio

Figure 4. Technological Opportunities: Foreign Corporate Bond Portfolio

Consumer Discretionary

Consumer Discretionary

Information Technology

Industrials

Materials

EnergyUtilities

Information Technology

Industrials

Materials■Automobiles ■Batteries ■Construction

Energy■Chemicals ■Electric Vehicles ■Energy Supply

Real Estate■GHG Reduction Technology ■Hydrogen Fuel

Telecommunications Services

0

500

1,000

■Chemicals ■Electric Vehicles ■Energy Supply■GHG Reduction Technology ■Hydrogen Fuel

Consumer Staples■Information Technology ■Solar ■Aircraft

Real Estate■Wind Power ■Others

Financials

Healthcare
Telecommunications Services■Information Technology ■Solar ■Aircraft

Consumer Staples■Automobiles ■Batteries ■Construction

Utilities

Healthcare■Wind Power ■Others

Financials
1,500

2,000

(Weighted Average Patent Score)(Note) Reproduced by permission of MSCI ESG Research LLC ©2021

0

200

400

600

800

1,000

(Weighted Average Patent Score)(Note) Reproduced by permission of MSCI ESG Research LLC ©2021

1 The evaluation of patent scores is based on “forward citations,” which is the number of patents cited in other parties’ patent applications, “backward citations,” which is thenumber of other parties’ patents cited when filing one’s own patent application, “market coverage,” or the total GDP of countries to which the patent application was filed, and“cooperative patent classification (CPC) coverage.” Please refer to Analysis of Climate Change-Related Risks and Opportunities in the GPIF Portfolio (a supplementary guide to
the ESG Report 2019) for details.

57

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Policy Risks: Expanding the Scope of Analysis Enables Evaluation of a Wider Variety of Risks
introduction of Scope 3 in the current fiscal year. Meanwhile,

opportunities, constitute transition risks and opportunities. In the

Scope 3 risks tend to be smaller than those of Scopes 1 and 2 inpolicy risk evaluation conducted in the supplementary guide toall sectors as a whole. This is due to the fact that, althoughlast year’s ESG Report 2019, we analyzed the Scope 1 andabsolute Scope 3 greenhouse gas emissions are generally large,

Scope 2 emissions of companies in the portfolio. This year, thethis is not necessarily the case when companies’ assumed

scope of the analysis was expanded to include Scope 3

burden rates are taken into account. By sector, energy andemissions. These emissions consist of “upstream Scope 3,”

utilities have the highest Scope 3 policy risks, followed by thewhich encompasses the raw materials, services, and labor inputs

consumer discretionary sector, which includes automobiles.

to companies’ production activities, and “downstream Scope 3,”

Conversely, for Scopes 1 and 2, risks for the materials sector

which covers the sale of produced goods and services. In theexceed those for the consumer discretionary sector.

analysis, we focused on changes in Scopes 1 and 2 from theForeign equities showed the same trend as last year, withprevious year and the magnitude of Scope 3 risks (Figures 1–4).

risks in the utilities, energy, and materials sectors remaining

For overall policy risk CVaR including Scope 3, results forhigh. Policy risks in the utilities sector also increased from lastyear. Compared with foreign equities, domestic equity policy risksenergy sector (which includes companies such as fossil fuelare greater in the energy sector, because certain companies inmining companies), the utilities sector (which includes electric

the sector are weighted more heavily than others.

power and other companies), and the materials sector, while

In the corporate bond analysis, the three industries with therisks in the healthcare, telecommunications services, andhighest risks remain the energy, utilities, and materials industries,

financial sectors remain low. This was a similar trend to last year.

both domestically and overseas. Changes in Scopes 1 and 2

Scope 1 and 2 risks decreased across all sectors (industries)

differ from those of equities, however, due to the fact that thefrom the previous year, including energy (11.5 percentage

equity portfolio and corporate bond portfolio have different

points), utilities (4.8 percentage points), and materials (9.1

constituent companies. In terms of Scope 3, we found there topercentage points). This may be largely attributable to the fact

be meaningful policy risks in the energy sector, which isthat a portion of the costs of reducing emissions were passed

impacted greatly by the use of fossil fuels, in both domestic andthrough to the corporate value chain as a result of theforeign portfolios.

Figure 1. Policy Risk: Domestic Equity Portfolio (%)

Figure 2. Policy Risk: Foreign Equity Portfolio (%)

Scopes 1 + 2

(1.1)
(1.2)
(2.1)
(2.7)
(2.8)
(6.5)
(10.0)(11.0)(30.1)(69.7)(95.2)

(0.5)
(0.6)
(0.8)
(1.3)
(1.5)
(3.5)
(6.5)
(2.6)
(25.3)(46.8)(63.2)

Scope 3

Change fromprevious year
(percentage points)

Sector

0.1
0.3
0.0
0.5
0.5
0.6
1.9
1.6
9.1
4.8
11.5

Information Technology
Healthcare
Real Estate
Financials
Telecommunications Services
Consumer Discretionary
Consumer Staples
Industrials
Materials
Utilities
Energy

(0.6)
(0.7)
(1.3)
(1.4)
(1.3)
(3.0)
(3.5)
(8.4)
(4.8)
(23.0)(32.0)

Policy Risk
CVaR

Scopes 1 + 2

(0.8)
(1.3)
(1.6)
(1.7)
(1.7)
(3.6)
(6.0)
(7.6)
(23.9)(36.8)(46.6)

(0.5)
(0.8)
(1.3)
(1.1)
(1.5)
(1.3)
(4.2)
(6.5)
(21.2)(32.9)(31.3)

Scope 3
(0.4)
(0.5)
(0.3)
(0.6)
(0.3)
(2.3)
(1.8)
(1.1)
(2.6)
(3.9)
(15.3)

Change fromprevious year
(percentage points)
0.2
0.1
0.1
0.2
0.3
0.5
1.7
3.5
12.3
(3.8)
17.9

(Note) Changes from the previous year refers to changes in Scopes 1 + 2(Source) Reproduced by permission of MSCI ESG Research LLC ©2021(Note) Changes from the previous year refers to changes in Scopes 1 + 2(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

Figure 3. Policy Risk: Domestic Corporate Bond Portfolio (%)

Figure 4. Policy Risk: Foreign Corporate Bond Portfolio (%)

SectorTelecommunications Services
Financials
Real Estate
Information Technology
Healthcare
Consumer Staples
Consumer Discretionary
Industrials
Materials
Utilities
EnergyPolicy Risk
CVaR

Scopes 1 + 2

0.0
(0.1)
(0.1)
(0.2)
(0.3)
(0.4)
(0.8)
(2.2)
(19.3)(24.7)(39.7)

0.0
0.0
0.0
(0.2)
(0.1)
(0.2)
(0.1)
(2.0)
(18.7)(23.6)(11.7)

Scope 3
0.0
0.0
(0.1)
0.0
(0.2)
(0.2)
(0.7)
(0.2)
(0.6)
(1.1)
(28.0)

Change fromprevious year
(percentage points)

Sector

0.0
0.0
0.1
0.1
0.0
0.1
0.1
1.7
9.3
(15.2)
35.4

Real Estate
Information Technology
Healthcare
Telecommunications Services
Consumer Discretionary
Financials
Consumer Staples
Industrials
Materials
EnergyUtilities(Note) Changes from the previous year refers to changes in Scopes 1 + 2(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

Policy Risk
CVaR

Scopes 1 + 2

(0.1)
(0.2)
(0.2)
(0.2)
(1.0)
(1.3)
(1.9)
(6.7)
(13.5)(17.7)(20.6)

(0.1)
(0.2)
(0.2)
(0.2)
(0.5)
(1.1)
(1.4)
(6.6)
(13.2)(13.1)(20.4)

Scope 3

Analysis of Equity and Corporate Bond Portfolio Using Climate Value-at-Risk, etc.

Healthcare
Telecommunications Services
Financials
Real Estate
Information Technology
Consumer Staples
Industrials
Consumer Discretionary
Materials
Utilities
EnergyPolicy Risk
CVaR

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

domestic equities showed that there were greater risks in the

Sector

Chapter 2 Measuring the Impacts of ESG Activities

We also analyzed policy risks, which, together with technological

Change fromprevious year
(percentage points)

0.0
0.0
(0.1)
0.0
(0.6)
(0.1)
(0.6)
(0.2)
(0.3)
(4.6)
(0.2)

0.0
(0.1)
0.0
0.1
(0.1)
(1.0)
(0.6)
(2.8)
1.1
(0.5)
4.2

(Note) Changes from the previous year refers to changes in Scopes 1 + 2(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

GPIF ESG REPORT 2020

58

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Physical Risks: Coastal Flooding Risk Particularly Notable
Next, we conducted an analysis of the physical risks1 in GPIF’s

portfolio, the financials, real estate, and telecommunications

portfolio. In the physical risk analysis, we examined potential

services sectors have significant physical risks. Most of these aredeterioration in corporate revenues arising from asset damage

caused by coastal flooding and extreme heat. It is likely thatand productivity declines caused by climate change-induced

financials are affected by the location of physical offices, and theabnormal weather, such as floods and extreme heat. At the same

consumer staples sector is affected by the fact that many

time, we also analyzed the potential for increased revenues

production bases and distribution facilities are located at low

resulting from such extreme weather. For example, if rising

altitudes, exposing them to the risk of flooding. For both domestic

temperatures lead to an improvement in operating rates and a

and foreign portfolios, extreme heat has a significant impact on

reduction in heating costs in cold regions, the results of thethe energy sector, where temperature increases and other factors

physical risk analysis will be positive. This year, we started

are likely to impact fossil fuel mining efficiency and the refining

analyzing fluvial flooding risk to evaluate the impact of riverbusiness. Industrials were considered to have high policy risks inoverflows caused by heavy rain and other factors.

both the domestic and foreign portfolios, but the analysis showedthat physical risks for this sector are low.

As was the case last year, physical risks by sector and by

For domestic bonds, physical risks were found to be highest

portfolio continue to show different trends from policy risks(Figures 1 and 2). First, in the domestic equity portfolio, thein the utilities sector, followed by the healthcare, consumer

utilities and energy sectors were shown to have significant

staples, and materials sectors, while for foreign bonds, thephysical risks in addition to policy risks, followed by the financials

consumer discretionary, real estate, and financials sectors had

and consumer staples sectors. On the other hand, the risk to

the highest risk (Figures 3 and 4). It is likely that the risk oftelecommunications services, which was high last year, has

coastal flooding is high in any of these portfolios because of thedecreased due to an increase in the ratio of investment inlocation of facilities such as offices and factories.

companies with relatively low physical risks. In the foreign equity
Figure 1. Physical Risks: Domestic Equity portfolio
Utilities

Figure 2. Physical Risks: Foreign Equity Portfolio
Utilities

EnergyEnergyFinancials

Financials

Consumer Staples

Real Estate

Materials

Telecommunications Services

Industrials

Consumer Staples

Real Estate■Coastal Flooding■Extreme Cold

Materials

Consumer Discretionary■Fluvial Flooding■Extreme Heat

Industrials■Heavy Precipitation ■Heavy Snowfall

Healthcare

Healthcare
Telecommunications Services■Tropical Cyclones

Consumer Discretionary■Wind Gusts

Information Technology(80)

Information Technology
(70)

(60)

(50)

(40)

(30)

(20)

0

(10)

10

(10)

■Coastal Flooding■Extreme Cold
■Fluvial Flooding■Extreme Heat■Heavy Precipitation■Heavy Snowfall■Tropical Cyclones■Wind Gusts(8)(Weighted Average Physical Risks CVaR, %)Figure 3. Physical Risks: Domestic Bond Portfolio

Consumer Discretionary
Real EstateConsumer Staples

Financials

Materials

Industrials

EnergyEnergyReal Estate

Telecommunications Services

Consumer Discretionary
Telecommunications Services■Coastal Flooding■Fluvial Flooding■Extreme Cold

Utilities■Coastal Flooding■Extreme Cold

■Extreme Heat

Consumer Staples■Fluvial Flooding■Extreme Heat■Heavy Precipitation ■Heavy Snowfall

Materials■Heavy Precipitation ■Heavy Snowfall■Tropical Cyclones

Healthcare■Tropical Cyclones■Wind Gusts

2■Wind Gusts

Information Technology

Information Technology
(10)

0

(2)

Figure 4. Physical Risks: Foreign Bond Portfolio

Utilities

Financials(4)(Weighted Average Physical Risks CVaR, %)Healthcare

Industrials

(6)

(8)

(6)

(4)

(2)

0

2

(Weighted Average Physical Risks CVaR, %)

(2)

(1.5)

(1)

(0.5)

0

0.5

(Weighted Average Physical Risks CVaR, %)1 In this year’s ESG Report, we used the term “physical risks,” as opposed to “physical risks and opportunities” used in last year’s report. However, as stated in this report, as
was the case last year, the positive and negative effects on corporate earnings have been offset.

59

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Analysis of Portfolio Global Warming Potential
The results of the analysis showed that the warming

Global warming potential is a measure of the extent topotential of GPIF’s portfolio as a whole was 3.40°C forreviewed can potentially contribute to global warming,

domestic equities, 3.26°C for domestic bonds, 3.49°C for

expressed as an increase in temperature. Specifically, we

foreign equities, and 4.34°C for foreign bonds (Figures 1–4).

estimate individual companies’ greenhouse gas emission

In all asset classes, warming potential is well above 2°C.

trends through 2100, and gauge how much global average

Looking at domestic and overseas trends, the warming

temperatures would increase if all greenhouse gas

potential for foreign companies was generally higher than thatemissions followed the same path.

for domestic companies.

Chapter 2 Measuring the Impacts of ESG Activities

which greenhouse gases emitted by the companies

A breakdown of trends by sector reveals that warming

In estimating warming potential, we (1) derive a function

potential tended to be high in the energy and materials

based on literature such as the Emissions Gap Report

sectors across all asset classes (Figures 1–4), while apublished by UNEP, (2) estimate the future carbon intensity ofcomparison of the domestic and overseas portfolios showseach company, (3) calculate the warming potential for eachthat the warming potential of foreign companies is higher

company in the portfolio using the function derived in (1) andthan that of Japanese companies, particularly in the energy

the carbon intensity of each company estimated in (2), andand materials sectors.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

linking carbon intensity to warming potential for each sector

In all cases, warming potential is naturally lower when(4) calculate the weighted average warming potential of theemission reduction targets are factored in than when they are

portfolio using the portfolio weight of each company.
In previous years’ reports, we used Scope 1 (direct) andnot. To bring the global warming potential closer to 2°C, it is

Scope 2 (indirect) emissions for this analysis, but this year,

critical for companies to set reduction targets and take action

we also included Scope 3 emissions in addition to factoring into achieve them.

companies’ emission reduction targets.
Global Warming Potential in GPIF Portfolio by Sector■Scope 1 + 2 Warming Potential ■Scope 3 Warming Potential■Cooling Potential ●Aggregate Warming Potential

Utilities

Industrials

Information
Technology

Healthcare

Materials

Telecommunications
Services

Financials

Real EstateConsumer Staples

Consumer
Discretionary

EnergyTotal

Utilities

Industrials

Information
Technology(5)

Healthcare(5)

Materials

0
Telecommunications
Services

0
Financials

5

Real Estate5

Consumer Staples℃ 4.34 8.49 4.17 4.51 4.76 4.20 4.31 6.14 2.97 2.73 3.29 3.42
10 （4.25）（8.46）（4.10）（4.21）（4.67）（4.16）（3.77）（6.07）（2.95）（2.69）（3.16）（3.15）

Consumer
Discretionary℃ 3.49 7.34 4.06 4.07 4.88 3.23 2.80 5.27 3.10 2.80 3.02 3.54
10 （3.38）（7.28）（3.99）（3.83）（4.77）（3.17）（2.50）（5.18）（3.07）（2.66）（2.93）（3.41）

EnergyFigure 4. Foreign Bonds

Total

Figure 3. Foreign Equities■Scope 1 + 2 Warming Potential ■Scope 3 Warming Potential■Cooling Potential ●Aggregate Warming Potential

Analysis of Equity and Corporate Bond Portfolio Using Climate Value-at-Risk, etc.

Utilities

Industrials

Information
Technology

Healthcare

Materials

Telecommunications
Services

Financials

Real EstateConsumer Staples

Consumer
Discretionary■Scope 1 + 2 Warming Potential ■Scope 3 Warming Potential■Cooling Potential ●Aggregate Warming Potential

EnergyTotal

Utilities

Industrials

Information
Technology(5)

Healthcare(5)

Materials

0
Telecommunications
Services

0
Financials

5

Real Estate5

Consumer Staples℃ 3.26 5.24 3.61 3.97 4.17 3.34 3.59 4.03 2.64 3.18 2.41 2.76
10 （3.19）（4.74）（3.47）（3.60）（3.96）（3.34）（3.51）（4.02）（2.58）（2.91）（2.35）（2.71）

Consumer
Discretionary℃ 3.40 6.13 4.26 4.11 4.04 3.63 3.66 3.30 3.05 3.01 2.71 2.56
10 （3.28）（5.69）（4.16）（3.89）（3.86）（3.63）（3.32）（3.28）（2.94）（2.88）（2.62）（2.53）

EnergyFigure 2. Domestic Bonds

Total

Figure 1. Domestic Equities■Scope 1 + 2 Warming Potential ■Scope 3 Warming Potential■Cooling Potential ●Aggregate Warming Potential(Note) Global warming potential figures do not have emission reduction targets factored in. Figures in parentheses ( ) indicate global warming potential with emissions reduction targets factored in.
(Source) Reproduced by permission of MSCI ESG Research LLC ©2021. All rights reserved.

GPIF ESG REPORT 2020

60

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Greenhouse Gas Emission and Climate Value-at-Risk
Analysis of Government Bond Portfolio
Understanding how the many risks related to climate change will affect government bond prices is an extremely complex problem.
These risks, however, undeniably have the potential to affect GPIF’s portfolio considering the fiscal burden and other impacts from theresponse to climate change-related transition and physical risks. In this report, we conducted an analysis based on several assumptions
to gauge the potential impact of climate change risks to GDP for the countries in which we invest.

Analysis of Government Bond Greenhouse Gas Emissions, etc.
The greenhouse gas emissions and other analyses covered so

is made up of about half foreign and half domestic government

far have examined the equities and corporate bonds issued bybonds (Figure 1). In addition, when we examined the differencecompanies in which GPIF invests. This section, meanwhile,

between the country weights of GPIF’s overall government bondanalyzes sovereign bonds issued by national governments.

portfolio versus a weighted average benchmark of foreign and

There are basically two ways of analyzing climate change risk

Japanese government bonds derived from the ratios in thefor government bonds: one is to consider only greenhouse gas

policy asset mix, GPIF’s overall government bond portfolio wasemissions produced by the government sector of the nation

shown to be similar to the benchmark, albeit with slightly lower

issuing the bond, while the other takes into account the entire

holdings in Japanese bonds.
Based on the concept of weighted average carbon intensity

sphere of influence of the nation as a whole, including
greenhouse gas emissions generated by the activities of that

(WACI), we compared greenhouse gas emissions per million

country’s corporations and individuals. The analysis conducted

yen of gross domestic product (GDP) for countries in thefor this report adopts the latter approach.

government bond portfolio against the GPIF’s overall

In the analysis of government bonds, just as when

government bond portfolio and the benchmark. In this analysis,

analyzing equities and corporate bonds, it is important to

WACI for GPIF’s overall government bond portfolio was found tounderstand that results are greatly influenced by factors suchbe slightly higher than the benchmark (Figure 2). This was

as which specific sovereign bonds make up the portfolio. The

partly because the portfolio is overweight in bonds issued byoverall GPIF portfolio of foreign and domestic government

countries where greenhouse gas emissions are relatively high,bonds (hereinafter, “GPIF’s overall government bond portfolio”)

such as Indonesia and South Africa.

Figure 1. Weight by Country in GPIF Government Bond Portfolio

Figure 2. Carbon Intensity of Government Bond Portfolio

As of March 31, 2021

U.K. 3.0%
Spain 3.3%

Others
9.4%(tCO2e/million yen)

4

3Germany 3.6%
Italy 5.3%

Japan
47.5%

France 5.4%
U.S.
22.7%

2

1

0

GPIF Portfolio

Benchmark■Domestic ■Exports ■Imports(Source) GPIF, S&P Trucost Limited © Trucost 2021

61

GPIF ESG REPORT 2020

(Source) GPIF, S&P Trucost Limited © Trucost 2021
(Note) Greenhouse gas emissions are categorized as “domestic” or “imports” fordemand inside a region, and as “exports” for emissions associated withdomestic production to meet overseas demand.

Chapter 1 GPIF’s ESG Initiatives

CVaR Analysis of Government Bonds
Last year, we conducted a CVaR analysis of equities andtechnologies will not become widespread until that year. The

corporate bonds only, but this year, we also conducted theanalysis also assumes that carbon prices will not risesame analysis for government bonds. While the analysis for

significantly until 2030 and will increase sharply thereafter.

securities values, the CVaR methodology for government bonds

United States, and Europe in each of these two scenarios. Eachassesses how the implementation of policies to achieve theregion showed a decline in GDP when climate measures were

2°C target would affect GDP trends for individual countries

taken, although the magnitude of the impact varies by scenario

through 2050.

and region.

Chapter 2 Measuring the Impacts of ESG Activities

In this report, we analyzed the impact on GDP in Japan, theequities and corporate bonds estimates the impact on

Figure 3 shows the difference in the impact on GDP

For this analysis, we used the REMIND model developed by
the Potsdam Institute for Climate Impact Research and adopted

between the immediate 2°C scenario and the delayed 2°C

by the Network of Central Banks and Supervisors for Greening

scenario (difference in GDP between the two scenarios). If thethe Financial System (NGFS).1 There is no one single path tovalue on the graph is positive (negative), it can be interpreted

achieving the 2°C target by the end of this century; for thisas a positive (negative) impact on GDP if the immediate 2°C

analysis, we assumed (1) an immediate 2°C scenario, in which

scenario is implemented.
Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

In the case of Japan, the immediate 2°C scenario has aproactive climate action is taken immediately, and (2) a delayed

negative impact on GDP as of 2030, but a positive impact on

2°C scenario, in which climate action is delayed.
For (1) the immediate 2°C scenario, we assume that the

GDP as of 2040 and 2050. In the United States and Europe,

power generation capacity from renewable energy will rapidly

the immediate 2°C scenario has a positive impact on GDP at all

expand in the 2020s, carbon prices will surge throughout thetime points—2030, 2040, and 2050. The result of this analysis

world in the 2030s, and decarbonization efforts will accelerateshows that the immediate 2°C scenario can be expected toacross the entire economy. Meanwhile, for (2) the delayed 2°C

have a positive impact on GDP in the long term compared withscenario, we assume that by 2030 each country will achieve

the delayed 2°C scenario.

the national targets set in 2016 at the conclusion of the Paris
Agreement, but conversely that environmentally friendly energy
Figure 3. Analysis of GPIF Government Bond Portfolio: Difference in GDP between Immediate 2°C Scenario and Delayed 2°C Scenario
Immediate 2°C Scenario vs Delayed 2°C Scenario (%)

Country/Region

2040

Japan

(0.4)

0.1

0.4

U.S.

0.2

0.6

0.3

Europe

0.2

0.3

0.6

（%）

0.8
0.6
0.4
0.2
0.0
(0.2)
(0.4)
(0.6)

Japan

2010

U.S.

2050

Greenhouse Gas Emission and Climate Value-at-Risk Analysis of Government Bond Portfolio

2030

Europe

2020

2030

2040

2050

(Year)(Note) Delayed 2°C scenario set at 0%. Some estimates at the time of publication of the model (June 2019) are used in the figures for 2020.
(Source) MSCI ESG Research LLC, REMIND-MAgPIE 1.7-3.0, NGFS Phase I Scenarios of June 2020, IIASA 2020

1 Please refer to page 40 for information about the NGFS. Of NGFS Phase 1’s three models, we used the REMIND model (REMIND 1.7-MagPIE 3.0 Integrated Assessment Model) only.

GPIF ESG REPORT 2020

62

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Real Estate Portfolio
Using Climate Value-at-Risk
In last year’s report, GPIF conducted an analysis of climate-related financial information for traditional asset classes only. Thisfiscal year, however, we are including a new analysis of domestic real estate included in alternative assets. CVaR enables us
to analyze the physical risks, transition risks, and global warming potential of our domestic real estate portfolio.

Features and Physical Risks of GPIF’s Real Estate Portfolio
GPIF’s portfolio includes traditional assets such as equities anduse methods that emphasize information on the location andbonds, as well as alternative assets such as infrastructure,

topography of the property. Results are expressed in terms ofprivate equity, and real estate. In this year’s climate-related

physical risk CVaR and classified into six levels: very high, high,financial disclosures, we conducted a quantitative analysis of

medium, low, very low, and no risk.

climate change risk for domestic real estate in which we invest

The results of the analysis indicate a high risk from (3)through private equity funds. Among these, we are able totropical cyclones across all sectors. Risks from (4) extreme heatanalyze the impact of physical risks and transition risks on thewere relatively high as well, except for rental housing. On thevalue of real estate assets. Breaking down domestic real estateother hand, risks posed to the overall portfolio by (1) coastal

properties included in the analysis by type, industrial properties

flooding and (2) fluvial flooding, which are of particular concern

such as logistics facilities account for the largest share at 61%,

in Japan, are low despite the inclusion of a very small number offollowed by rental housing (15%), retail (12%), and offices (10%).

properties with a particularly high risk of coastal and otherIn the physical risk analysis, we assessed the risks of (1)flooding (Figure 1). As a result, comprehensive physical risks

coastal flooding, (2) fluvial flooding, (3) tropical cyclones, (4)covering (1) to (5) are generally “low” or “very low” in eachextreme heat, and (5) extreme cold, as well as comprehensive

sector. However, when we looked at the distribution of physicalphysical risks covering all of those risks by sector. If available,risks for each property, we found that there were a small number

information on countermeasures against physical risks for eachof properties with high risks, such as coastal flooding (Figure 2).

property is partially included in the analysis, but in general, we

Global Warming Potential and Transition Risks
This analysis also confirmed that the warming potential of the

topography of the property if such information has not been

entire portfolio analyzed is currently 2.78°C, which is higher thandisclosed. The analysis results showed that portfolio emissions

the 2°C and 1.5°C targets set by the Paris Agreement (Figure 3).

need to decline by a total of 32.8 CO2-equivalent kilograms per

In the analysis of transition pathways, we measured the carbon

square meter over the next ten years or so in order to achieveintensity (greenhouse gas emissions per area) of each property

the 1.5°C target (Figure 4).

and estimated the required reduction in carbon intensity by 2034

63

As described above, by analyzing climate-related financial

needed to reach the 1.5°C, 2°C, and 3°C targets. Data on

information on the real estate portfolio using CVaR, we were able

environmental performance and the energy usage for eachto evaluate physical risks from natural disasters, global warming

property is included in the analysis if available, but in general, we

potential, and the distance to the achievement of the 1.5°C

use methods that emphasize information on the location andtarget. However, unlike climate-related risk and opportunity

GPIF ESG REPORT 2020

assets, and the fact that results differ at the portfolio levelroom for further development in the analysis for alternative

depending on whether the weighted average is calculated using

assets. There are several reasons for this, such as datagross floor area or asset price.

Chapter 1 GPIF’s ESG Initiatives

analysis for traditional asset classes, there is still a great deal of

limitations that restrict the scope of analysis for alternative

Chapter 2 Measuring the Impacts of ESG Activities

Figure 1. Physical Risks by Sector
Coastal Flooding

Fluvial Flooding

Tropical Cyclones

Extreme Heat

Intense Cold

Aggregate
Physical Risks

Industrial

Very Low

Low

High

High

No Risk

Low

Offices

Very Low

No Risk

High

High

No Risk

Very Low

Rental Housing

Very Low

No RiskHigh

No Risk

No Risk

Low

RetailNo Risk

No Risk

High

High

No Risk

Very Low

Others

No Risk

No Risk

High

High

No Risk

Very Low

40％

60％(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Figure 2. Distribution of Properties by Physical Risk
Aggregate
Physical Risks
Extreme Cold
Extreme Heat
Tropical Cyclones
Fluvial Flooding
Coastal Flooding
0％

20％

80％

100％

■ No Risk ■ Very Low ■ Low ■ Medium ■ High ■ Very High
(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

Figure 4. Reduction in GHG Emissions Required toAchieve 1.5°C Scenario

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

Figure 3. Global Warming Potential: Domestic
Real Estate Portfolio(kg CO2e/square meters)

50
40
30
20

32.8
45.8

10

13.0
0

Present■ Carbon Intensity of Portfolio(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

1.5°C Scenario■ Reduction Required to Achieve Targets(Source) Reproduced by permission of MSCI ESG Research LLC ©2021

GPIF ESG REPORT 2020

64

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Inter-Industry Transfer ofTransition Risks and Opportunities
As the world transitions to a net-zero society, we expect a large-scale transfer of risks and opportunities between industries tooccur. Our analysis shows that the opportunities associated with the transition to a net-zero society greatly exceed the risks,particularly in the energy and chemical industries. We also discover that Japan has promising technologies in these industries.

Inter-Industry Risk and Opportunity Transfer Visualization Process
The analyses presented in previous sections of this report adopt

preferably to 1.5 degrees Celsius, compared to pre-industrial

a bottom-up approach to explore the impact of climate risks onlevels” (Step 1 of Figure 1) as agreed in the Paris Agreement.

GPIF’s portfolio. This approach begins by measuring and

Next, we identified the technologies that contribute to theanalyzing the carbon footprint, CVaR, and other factors of

reduction of GHG, estimated emissions reduction rates for eachindividual companies and securities, then aggregating the results

technology compared with existing technologies, and forecast theacross all of GPIF’s equity and bond holdings.

implementation of each in 2030 and 2050. We then use theseThis section departs from the perspective of the directtechnology fields (Step 2 of Figure 1, and Figure 2). By

related risks and opportunities will shift between industries overaggregating emissions reduction contributions for eachthe long term to 2030 and 2050, according to an analysis

technology by industry, we can estimate GHG reduction

performed by Astamuse. Specifically, this analysis uses data on

contributions by industry for 2030 and 2050. The analysis

industry-level required greenhouse gas (GHG) reductions,performed by Astamuse is unique in that its estimation of the

expected GHG reduction contributions of individual

implementation rate of GHG reduction technologies uses not only

decarbonization technologies, and projections for the rate at

the number of global patent applications, but also competitive

which they will be implemented in society. As opposed to theresearch and development investments (grants), such as Japan’s

CVaR analysis, which assumes that the transfer of risks andGrants-in-aid for Scientific Research (kakenhi), as well as trends

opportunities occur within the same industry, the purpose of thisin the number of research papers published as a way to analyze

analysis is to focus more on the opportunities inherent in

the future life cycle of those technologies.

decarbonization and appraise different GHG reduction

Finally, the analysis identifies potential inter-industry

technologies by understanding the transfer of risks andtransfers of risks and opportunities by calculating the gap

opportunities that occur between industries. We reveal the

between required GHG reductions and reduction contributions forpotential for certain industries to boost growth by turning risks

each industry. A positive value indicates a net opportunity –for other industries into opportunities for themselves.

where the opportunity is greater than the risk – and a negative

The first step in this analysis is to identify the emissions

65

figures to calculate the GHG reduction contributions of individual

impact on GPIF’s portfolio to examine how climate change-

value indicates a net risk (Step 3 of Figure 1). For reference, we

reductions required in each industry by 2030 and 2050 toalso multiplied these values by the carbon price forecast forachieve the target of limiting global warming to “well below 2,2030 and 2050 to convert them into monetary values.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Figure 1. Inter-Industry Risk and Opportunity Transfer Visualization Process
Estimate (1) Required GHG reductions by industry for 2030/2050.
* The Sustainable Development Scenario (SDS) developed by the International Energy Agency (IEA) is used to estimate required GHG
reduction rates for 2030/2050 for each industry.

Step 2:
Opportunity Analysis

Identify technologies with the potential to contribute to GHG reductions by industry and estimate (2) GHG Reduction
Contributions (= current GHG emissions × GHG reduction rate × implementation rate) in 2030/2050 for individual
decarbonization technologies.

Step 3:
Risk and Opportunity
Transfer Visualization

Net Opportunities of GHG Reduction = (2) GHG Reduction Contributions – (1) Required GHG Reductions* As a reference, the values were converted into monetary amounts using the carbon price based on the scenario of keeping the rise inglobal mean temperature to within 2°C in 2100 with a probability of 66%, which was proposed by the International Energy Agency andInternational Renewable Energy Agency.

Chapter 2 Measuring the Impacts of ESG Activities

Step 1:
Risk Analysis(Source) Prepared by GPIF based on Astamuse analysis

Figure 2. Top Ten Technology Fields Expected to Contribute to GHG Reductions in 2050

Industries

Technology Fields

Present
GHG Emissions of GHG Reduction
Target Segment
Rate
(a)
(b)

GHG Reduction
Contributions(a × b × c)

GHG Reduction
Rate (d)2050
Implementation
Rate
(e)

GHG Reduction
Contributions(a × d × e)%%billion tons%%

billion tons

10.02

100%

65%

6.51

100%

65%

6.51

8.00
6.64

90%
100%

5%
15%

0.36
1.00

90%
100%

85%
85%

6.12
5.65

6.64

99%

50%

3.29

99%

85%

5.59

11.48

55%

15%

0.95

55%

85%

5.37

7.27
8.83

71%
65%

50%
15%

2.58
0.86

71%
65%

100%
85%

5.16
4.88

billion tons

Hydropower energy, small andEnergymedium hydroelectric power
generation
Chemicals
CCS from large emitters
EnergyMarine energy
Solar power generation, solar
Energycells, solar thermal power
generation
Bioenergy
Energy(power generation, fuel)Telecommunications Power semiconductors
Chemicals
Methanol production
SocialPower generation by anaerobic
Infrastructure digestion of waste biomass
EnergyGreen hydrogen
Hydrogen/
Energyammonia power generation

6.64

15%

15%

0.15

85%

85%

4.80

8.43

100%

0%

0.00

100%

50%

4.21

10.02

79%

5%

0.40

79%

50%

3.96

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

2030
Implementation
Rate
(c)

(Source) Prepared by GPIF based on Astamuse analysis

Inter-Industry Demand Shift Forecast
For chemicals, although decarbonization opportunities in

2050 as determined by the above process is shown in Figure2030 are not as great, from 2030 to 2050, technological

3. In 2050, opportunities will outweigh risks in nine industries,

developments in Carbon Capture and Storage (CCS) from

including energy, chemicals, and social infrastructure, whilelarge-scale sources of CO2 emissions and Direct Air Capturerisks will outweigh opportunities in four industries, including(DAC) are forecast to accelerate, and, as costs come down andconstruction, civil engineering, and construction-related

efficiency improves, these technologies are expected to be moreproducts. The energy industry, which is considered to have thewidely adopted. In the social infrastructure industry, progress ingreatest net opportunities in 2030 and 2050. While thisthe utilization of useful biogases through the treatment of waste

industry is required to reduce GHG emissions the most in bothand sewage sludge and the implementation of underground andtarget years, it is also expected to contribute greatly tosubmarine carbon storage will lead the reduction of GHG

decarbonization in other industries through a wide range ofemissions in a variety of different sectors, including agriculture,technologies, including hydrogen systems and infrastructure,

forestry and fisheries.

hydropower energy and small and medium hydroelectric power

Analysis of Inter-Industry Transfer of Transition Risks and Opportunities

The risk and opportunity profile for each industry in 2030 andOn the other hand, the construction, civil engineering, andgeneration (proliferation of small and medium hydroelectric

construction-related products industry is expected to havepower generation, optimization of weather forecasting andnegative net opportunities in both 2030 and 2050. While thepower generation, and improvement of flow control), and solar

required GHG reduction in this sector is just as high as that ofpower generation and solar cells (weight reduction and costthe energy sector, unlike that and other industries, thereduction through the use of new materials). These GHG

technologies in construction and civil engineering, such as

reduction contributions are expected to far exceed the level oflow-energy housing, are seen as making limited GHG reduction

reductions required for the industry.

contributions to other industries.
GPIF ESG REPORT 2020

66

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Figure 3. Transfer of Risks and Opportunities by Industry in 2030 and 2050
2030

Industries

2050年
GHG Reduction
Net Opportunity

Reduction
RequiredContributions
Reduction (b)(a)

Volume(a - b)(Reference)
Monetary
AmountReduction
Contributions(a)Required
Reduction(b)

GHG Reduction
Net Opportunity
Volume(a - b)(Reference)
Monetary
Amountbillion tons

billion tons

billion tons

US $billion

billion tons

billion tons

billion tons

US $billion

Energy

16.22

3.82

12.4

1,302.1

42.74

7.97

34.77

6,258.5

Chemicals, etc.

2.20

0.53

1.67

175.7

14.92

2.95

11.97

2,154.5

Social Infrastructure

1.61

0.26

1.35

142.0

12.36

0.54

11.82

2,126.9

Electrical Equipment

2.45

0.01

2.44

256.1

5.25

0.08

5.17

930.3

Automobiles

2.18

0.17

2.02

211.9

5.75

0.92

4.83

869.4

Machinery

0.75

0.11

0.64

67.1

5.22

0.63

4.59

826.1

Telecommunications

2.58

0.34

2.24

235.2

5.16

1.34

3.82

687.4

Transportation

0.24

0.20

0.04

4.6

1.97

0.95

1.02

184.0

Durable Consumer Goods

0.60

0.09

0.52

54.3

0.86

0.49

0.38

67.9

Food

0.04

0.19

(0.15)(16.2)

0.37

1.07

(0.7)

(126.6)

Agriculture, Forestry and Fisheries

0.32

1.39

(1.07)(112.3)

1.85

2.77

(0.92)(166.3)

Metals, Mining / Paper Products

1.52

0.64

0.87

91.7

2.48

3.57

(1.09)(196.7)

Construction, Civil Engineeringand Construction-Related
Products

0.19

1.49

(1.3)

(136.1)

0.83

8.27

(7.43)(1,337.9)(Note) Carbon price is a reference value converted at US $105/ton in 2030 and US $180/ton in 2050.
(Source) Prepared by GPIF based on Astamuse analysis

Analysis of Patent Competitiveness of Decarbonization Technologies by Country/Region
This analysis also examined the patent competitiveness ofJapan’s technological competitiveness is highest include thedecarbonizing and low-carbon technologies by country andenergy technology field (hydropower energy, small andregion. In MSCI’s CVaR analysis of low-carbon technologies,

medium hydroelectric power generation, hydrogen/ammonia“forward citations,” “backward citations,” “market coverage,”

power generation, etc.) the chemical technology field (fueland “cooperative patent classification coverage” were

cells and storage batteries), and the metal, mining and paper

factored into the estimation of patent value. The analysis

product technology field (low-carbon steelmaking). On theperformed by Astamuse, on the other hand, assigns eachother hand, the analysis found that the United States ispatent a “Patent Impact Score,” which evaluates the patent’s

superior in bioenergy and marine energy within the energy

impact in terms of its exclusivity rights, in addition to factors

technology field, the social infrastructure technology field,

such as the geographical scope (countries of application, etc.)

and the transportation technology field (Figure 4).

and remaining term of these rights. Next, each company’s“Total Patent Assets” is obtained by calculating the sum of all

evolution of technologies toward net-zero will bring about a

Patent Impact Scores for each individual company. The

shift in supply and demand among industries and among

competitiveness of each country’s patents is calculated using

countries, and that many companies in Japan have thethe Total Patent Asset indicator.

potential to benefit from this shift.

The results of this analysis indicate that the areas where

67

This analysis shows that socioeconomic trends and the

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Areas for Improvement in Analysis
The other issue beyond the scope of this analysis isestimates as sound as possible, several points still need to beinvestment. Although investment in research and development

refined to improve the accuracy of these assessments. In

is taken into account in estimating the future implementation

particular, we recognize room for improvement in therates of decarbonization technologies, the enormous

following areas.

expenditures required for implementation toward 2030 and

The first has to do with the competitive relationship between

Chapter 2 Measuring the Impacts of ESG Activities

While many different techniques were employed to make the2050 has not been factored into this analysis. Some of thatdifferent decarbonization technologies. For example, in theinvestment may be covered by government expenditure, but theenergy field, hydropower energy and solar power generation

majority will be borne by the industries concerned. In thecompete with each other; as one technology becomes moreenergy and chemical sectors in particular, it is evident thatwidely adopted, the other technology will have less room to grow.

aggressive investment will be necessary going forward if major

This point, however, is not considered in the analysis.

opportunities are to be gained.

Figure 4. Comparison of Total Patent Assets of Decarbonization Technologies by Country/Region
Japan
26.3

U.S.
100.0

Europe49.4

U.K.
South Korea
6.7
22.5

100.0

39.3

51.3

4.3

33.6

100.0
100.0
100.0
100.0
27.7
39.0
59.0
100.0
34.7
25.3
72.0
42.7
50.7

81.8
42.0
68.2
78.4
54.6
100.0
100.0
98.4
100.0
100.0
100.0
100.0
100.0

38.5
38.5
36.7
69.5
100.0
70.2
21.3
65.4
31.6
28.7
37.4
95.8
46.9

4.4
2.2
9.4
5.7
3.4
15.7
3.0
12.1
21.4
13.1
11.4
3.1
1.9

43.7
12.7
54.1
76.2
15.2
52.9
20.3
89.4
29.5
28.2
34.9
72.9
41.2

78.6

100.0

39.4

11.6

37.4

100.0
100.0
46.4
65.4
100.0

32.0
31.6
100.0
100.0
48.0

18.0
18.8
5.2
46.2
20.9

4.1
2.0
0.0
13.4
1.3

36.5
57.3
2.7
30.4
43.9

100.0

96.1

97.6

8.2

62.9

69.2

100.0

67.4

8.1

50.0

100.0
100.0
99.7
99.7

97.0
88.1
100.0
100.0

92.2
25.0
48.2
43.6

11.6
5.4
7.9
9.2

65.4
25.8
12.0
22.7

100.0

60.7

57.7

10.3

29.4

100.0
92.7
100.0
25.2
69.1
23.5
90.6
58.2
20.4
81.0

34.1
56.9
39.8
100.0
100.0
100.0
94.5
100.0
99.0
87.3

29.1
8.1
32.4
17.0
35.2
16.3
100.0
66.6
100.0
19.7

3.2
3.2
1.6
3.1
2.3
4.7
18.9
28.3
9.9
0.0

62.1
100.0
36.1
20.0
23.1
40.3
26.7
15.8
14.0
100.0

100.0

70.1

49.4

7.8

59.5

86.1

100.0

49.2

1.7

9.3

Analysis of Inter-Industry Transfer of Transition Risks and Opportunities

Technology
Bioenergy
Hydropower energy, small and mediumhydroelectric power generation
Smart grid / smart city
Hydrogen/ammonia power generation
Hydrogen systems and infrastructure
Solar power generation
Wind Power
Marine energy
High-efficiency thermal power generation
Geothermal power
Nuclear power, nuclear fusion
Social Infrastructure
Underground and submarine carbon storage
Underground injection, submarine storage
Waste and sewage sludge treatment
Chemicals
Bio materials
Materials capable of CO2 absorption/adherence/
separation/condensation/long-term storage
Fuel cells
Batteries
Reduction of CFC emissions, green refrigerants
Carbon reuse
Metal, Mining, and Paper Products Low-carbon steelmaking
Construction, Civil Engineering andEnergy-efficient housing
Construction-Related ProductsElectrical Equipment
Electrification of industrial equipment, energy
management
Energy harvesting
Reducing losses in power transmission
Machinery
Electric drive, power supply equipment
Ammonia drive
Heat storage, heat transport technology, heatpumps
Automobiles
Hydrogen/fuel cell vehicles
Clean energy vehicles
Electric Vehicles
Durable Consumer Goods
Energy-efficient home appliances and lighting
Transportation
Smart transport, MaaS
Modal shift
Agriculture, Forestry and Fisheries Advanced uses of wood
Smart agriculture
Cultured meat/meat substitutes/dairy substitutes
Afforestation, desert greening
Food
Reducing byproducts and food waste in
manufacture of food products
Telecommunications
Power semiconductors

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

Technology Fields
Energy(Notes1) Indexed with the country with the highest total patent asset score in each technology domain assigned a score of 100.
(Notes2) “Europe” refers to EU member countries.
(Notes3) Chinese patents are not included in the analysis because it is difficult to compare them with patents from other countries from a quality perspective.
(Source) Prepared by GPIF based on Astamuse analysis

GPIF ESG REPORT 2020

68

Chapter 3

Evaluation and Analysis of Climate Change Risks and Opportunities

Analysis of Revenue Opportunities
Through Contributions to SDGs
In this section, we expanded the discussion beyond climate change and analyzed the opportunities that will arise forindividual companies with the resolution of the social issues identified by the Sustainable Development Goals (SDGs)
defined by the United Nations, as well as the contributions those companies make to resolve the issues.

SDGs Positive Impact Analysis
In previous sections, we analyzed the risks and opportunities
in the context of climate change, but this section expands thediscussion beyond climate change by presenting an analysisof the indirect contributions of GPIF’s equities portfolio to theresolution of social issues identified in the Sustainable
Development Goals (SDGs) defined by the United Nations.
In this analysis, we determine the percentage of total
revenue generated by products and services that contributeto the SDGs for the companies in GPIF’s equities portfolio
based on definitions by Trucost. We then measure theexposure of companies contributing to the SDGs by using
portfolio holding weights to calculate the weighted averagerevenue exposure, or “SDGs Positive Impact,” of the portfolio.
In a comparison of the SDGs Positive Impact of GPIF’s
domestic and foreign equities portfolios for each SDG, theforeign equities portfolio generally tends to have a greater
positive impact. This result suggests that, from theperspective of contributing to the SDGs and securing profit
opportunities thereby, Japanese companies have much roomfor growth (Figure 1).

Figure 1. SDGs Positive Impact by Individual Goal (%)
SDG 1. No Poverty
SDG 2. Zero Hunger
SDG 3. Good Health and Well-Being
SDG 4. Quality Education
SDG 5. Gender Equality
SDG 6. Clean Water and Sanitation
SDG 7. Affordable and Clean Energy
SDG 8. Decent Work and Economic Growth
SDG 9. Industry, Innovation and Infrastructure
SDG 10. Reduced Inequalities
SDG 11. Sustainable Cities and Communities
SDG 12. Responsible Consumption and Production
SDG 13. Climate Action
SDG 14. Life below Water■Foreign Stocks■Domestic Stocks

SDG 15. Life on Land
SDG 16. Peace, Justice and Strong Institutions
SDG 17. Partnerships for the Goals
0

5

10

15

(Source) GPIF, S&P Trucost Limited © Trucost 2021

SDGs Additionality Analysis

69

Each year, the Sustainable Development Solutions Network

Education, for example, the G20 nations’ total contribution to the(SDSN), launched in 2012 by the UN Secretary-General, releases

gap is only around 30%, indicating that, if the SDGs are to be

the Sustainable Development Report. The report includes theachieved, improvement will be needed in non-G20 countries,“SDGs Performance Gap,” which estimates the distance to theespecially African nations. On the other hand, for SDG 13:

achievement of each target of the SDGs. The gap for each

Climate Action, the G20 nations’ total contribution to the gap iscountry is expressed as the contribution rate of the country to theover 80%, indicating that this is a challenge particularly for the

global gap (Figure 2). For SDG 1: No Poverty and SDG 4: Quality

developed nations and China.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

Figure 2. SDGs Performance Gap
Japan

U.S.

EU

China

India

SDG 1.

No Poverty

0.1

0.2

0.3

1.8

21.8

G20 Total
33.3

SDG 2.

Zero Hunger

1.0

3.5

4.6

10.5

23.8

57.8

Good Health and Well-Being

0.3

1.5

1.5

11.7

24.5

50.8

Quality Education

0.0

0.1

1.1

5.4

17.3

30.2

SDG 5.

Gender Equality

1.6

2.6

3.1

10.7

29.2

58.7

SDG 6.

Clean Water and Sanitation

0.7

2.1

2.6

17.2

23.1

56.3

SDG 7.

Affordable and Clean Energy

0.4

1.0

1.4

20.1

19.7

49.7

SDG 8.

Decent Work and Economic Growth

0.9

2.8

4.7

10.3

14.0

49.2

SDG 9.

Industry, Innovation and Infrastructure

SDG 10. Reduced Inequalities

0.3

0.5

2.1

10.5

21.5

47.6

0.8

5.0

3.1

16.0

17.6

62.4

SDG 11. Sustainable Cities and Communities

1.2

1.4

2.7

13.5

27.2

56.8

SDG 12. Responsible Consumption and Production

3.3

12.5

14.7

13.7

8.8

74.7

SDG 13. Climate Action

4.7

16.3

14.6

17.2

5.2

81.9

SDG 14. Life below Water

2.0

3.9

6.1

23.2

16.6

66.3

SDG 15. Life on Land

1.4

4.3

2.9

18.7

22.0

66.3

SDG 16. Peace, Justice and Strong Institutions

0.4

2.9

3.1

18.2

18.7

57.9

SDG 17. Partnerships for the Goals

1.2

3.0

4.7

22.8

20.8

65.1

Chapter 2 Measuring the Impacts of ESG Activities

SDG 3.
SDG 4.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities(Source) Prepared by GPIF based on Sustainable Development Report 2020

In the SDGs Positive Impact Analysis mentioned above, we linked
the SDGs targets with companies’ products and services. Even if

SDGs Additionality.
Comparing the weighted average SDGs additionality and thetwo companies provide the same products and services, theirbenchmark for GPIF’s portfolio reveals that both domestic anddegree of contribution to the SDGs will increase if the products andforeign equities slightly exceeded the benchmark, showing that theservices are provided in countries that are a long way from

portfolio makes a relatively large contribution to the SDGs (Figure 3).

achieving the SDGs. For example, marketing a certain drug inAmong equities in major economies (top ten countries andregions by MSCI ACWI composition weight), we calculated therates is likely to make a greater contribution to the SDGs than if theweighted average SDGs additionality by constituent country andsame drug were marketed in developed countries with low

ranked them by country and region. Taiwan came out on top, farmorbidity rates. From this perspective, the SDGs Additionality

ahead of the others, while Japan ranked seventh (Figure 4). In

Analysis uses the SDGs Performance Gap to examine which

Taiwan, semiconductor-related companies, which have an

products and services marketed in which countries and regions

extremely high weight in the index, are making significant

are able to contribute to what extent to the achievement of thecontributions to SDG 9: Industry, Innovation and Infrastructure andSDGs. These contributions are aggregated for each company

SDG 17: Partnerships for the Goals, which seems to be largely

according to the composition of their net sales to determine their

attributable to individual company attributes.

Figure 3. GPIF Portfolio Weighted Average SDGs
Additionality

Figure 4. Comparison of Weighted Average SDGs
Additionality by Major Countries and Regions

Switzerland
China

GPIF Portfolio

59.9

TOPIX

57.5

Foreign
StocksGPIF Portfolio

77.4

MSCI ACWI ex Japan

77.1(Source) GPIF, S&P Trucost Limited ©Trucost 2021

TaiwanWeighted Average
Additionality (%)
Domestic
StocksAnalysis of Revenue Opportunities through Contributions to SDGs

emerging countries that have poor sanitation and high morbidity

U.S.
CanadaAustralia
Japan
Germany
U.K.
France
0

20

40

60

80

100

120

140（%）(Note) Only includes constituents of MSCI ACWI. Graph shows the top ten
countries/regions by composition weight in order of highest to lowest
weighted average additionality.
(Source) MSCI, S&P Trucost Limited ©Trucost 2021

GPIF ESG REPORT 202070

Editor’s Note
Final Observations and Future Challenges

While ESG information is currently considered one element of non-financial information, the time is fast approaching when it
will transform into financial information, particularly for information on the risks and opportunities associated with climatechange. On the other hand, current analysis methods are still limited in terms of identifying the extent to which climate change
will impact future corporate value and industry structure. As a cross-generational investor, GPIF believes that it needs toaddress this issue head on.

Importance of Disclosure Within the External Management Framework
This is GPIF’s fourth ESG Report since it was first published inalso frustrating that we are unable to convey how corporate2018 – one year after we began passive investment based on

engagement is progressing from a front-line perspective due to

ESG indexes. The reason we started creating this report was

restrictions on in-house equity investment. In an effort to partiallybecause we believe that the effect of ESG investments cannot be

overcome these shortcomings, this ESG Report includes

measured by short-term investment performance alone; incommentary from ESG rating officers at ESG rating companies

addition to risk and return, many other different aspects need toand engagement officers at asset managers. We believe that,be evaluated. In this report, we once again focus on whether

while paying due attention to fairness and neutrality as a public

GPIF’s ESG investments are, as we hope, leading to theinstitution, communicating the state of GPIF’s ESG investment

improvement of ESG evaluations and the enhancement ofand engagement is important not only to enhance transparency

individual companies’ ESG initiatives.

but also to improve the effectiveness of our ESG investment. We

As such, compared with other pension funds and investment

feel that further efforts and innovation are needed to make thecompanies, our ESG report inevitably focuses more heavily on

more specialized contents easier for beneficiaries and companies

ESG scores and other quantitative evaluations and analyses. It is

to read and understand.

Risks and Opportunities of Climate Change Transforming into Financial Information

71

The introduction of carbon pricing is continuing apace aroundcategories—steel, cement, fertilizer, aluminum and electricity.

the world, and discussions and deliberations on carbon pricing

We have now entered an era in which identifying and reducing

are also progressing in Japan. In addition, the European

greenhouse gas emissions associated with companies’

Commission, which is at the forefront of climate change policy,

business activities are directly connected to corporate profits

has announced the introduction of a “carbon border tax” onand value. In other words, for companies, climate change risks

imports from countries with less stringent environmental

and opportunities are transforming from non-financial

regulations. This tax targets five high-emitting productinformation into financial information.

GPIF ESG REPORT 2020

Chapter 1 GPIF’s ESG Initiatives

This can also be applied to investors. We have entered an

expected to contribute significantly to greenhouse gas reductions
in downstream industries. At first glance, the introduction of

intensity of portfolios is not only part of being accountable tocarbon pricing may seem to be a major drawback for the

beneficiaries, but is also considered an element of risk

performance of these industries, but the growing need for

management and investment strategy from the perspective ofgreenhouse gas reduction technologies and increased priceassessing the impact on investee company and portfolio asset

competitiveness of low-carbon products can result in significant

values. This understanding lead us to begin analyzing the

growth opportunities. Socio-economic systems and industrial

impact of climate change on corporate value using the Climate

structures could see major changes between 2030 and 2050

Value-at-Risk (CVaR) method in last year’s ESG Report 2019. Inthat are far more drastic than those analyzed in this report.
Although we feel that the content of our analysis is improving

gas emissions used in the CVaR analysis to include Scope 31.

year by year, there is still much room for improvement before we

While this raises the fundamental question of whether

can properly identify the impact of climate change on future

greenhouse gas emissions in the supply chain can becorporate value and industrial structure – it is not a simple

measured appropriately, there is another equally if not more

problem that we will be able to answer in just a year or two. As adifficult issue: how to assess the change in demand associatedcross-generational investor, however, we believe that this is anwith cost burden and price changes.

issue that we need to address head on.

Chapter 3 Evaluation and Analysis of Climate Change Risks and Opportunities

this ESG Report 2020, we expanded the scope of greenhouse

Chapter 2 Measuring the Impacts of ESG Activities

era in which measuring the carbon footprint and carbon

In the new CVaR analysis, we analyzed the impact of climatechange on corporate value throughout the supply chain using theassumed burden rate (assumed price pass-through rate) for the

2020年度 ESG活動報告 別冊

GPIFポートフォリオの
気候変動リスク・機会分析

increase in costs associated with climate change. However, whiletransported or used, the CVaR model does not assume that price

Editor’s Notethe assumed burden rate is roughly set for each product
For All Generations

control is greatly affected in the real world by the brand power ofthe product or by the presence or absence of substituteproducts. Neither does it assume that demand structure changes
as the sales price of the product or service changes. To
005_8221379682110.indd

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supplement the CVaR analysis, therefore, we also conducted an

2021/07/30

11:06:05

For a more detailed report of the results of the analysis

analysis of inter-industry transfer of transition risks andconducted for TCFD disclosure, please see the Analysis ofopportunities. The relationship between the required reduction

Climate Change-Related Risks and Opportunities in the GPIF

and the reduction contributions discussed in this analysis canPortfolio, scheduled for publication around the fall of 2021. (*Thealso be summarized in the relationship between Scopes 1 + 2

photo above is an artist’s rendition of the cover.)and Scope 3. Although in the energy and chemical sectors,
business activities themselves have a large environmental

Kenji Shiomura

impact, their greenhouse gas reduction technologies are

Editor-in-Chief, ESG Report (ESG Team Head)

1 Emissions from procured products and services other than purchased electricity (upstream Scope 3) and indirect emissions from the consumption and use of sold products andservices (downstream Scope 3)

GPIF ESG REPORT 202072

Annual Report 2020

ESG Illustrated

Disclaimer
Equileap
This report contains certain data sourced from Equileap Investment Services Support or its affiliates (hereafter “Equileap”).
Equileap is a third-party data provider and does not accept any direct or indirect liability for the accuracy, completeness or use of
the information it provided. The Equileap data and information contained herein: (a) is proprietary to Equileap; (b) may not be
copied or distributed without Equileap’s express written consent; and (c) is not warranted to be accurate, complete or timely.
Copyright 2021 Equileap. All Rights Reserved.

FTSE
London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group2021. FTSE Russell
is a trading name of certain of the LSE Group companies. “FTSE®”, “FTSE Russell®”, “Beyond Ratings®” are trademarks of therelevant LSE Group companies and are used by any other LSE Group company under license. All rights in the FTSE Russell
indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors
accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained inthis communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s
express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

MSCI
Although GPIF’s information providers, including without limitation, MSCI ESG Research LLC and its affiliates (the “ESG
Parties”), obtain information from sources 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 ofmerchantability and fitness for a particular purpose. None of the Information is intended to constitute investment advice or arecommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such, nor should
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 for any errors or omissions in connection with any data or Information herein, or any liability for any direct,
indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of suchdamages.

S&P Trucost
Certain data and information contained herein has been supplied by S&P Trucost Limited. All rights in and to the Trucost data,
information and reports (including any and all intellectual property contained therein) vest in Trucost and/or its licensors oraffiliates. Neither Trucost, nor its affiliates, nor its licensors accept any liability for any errors, omissions or interruptions in the
Trucost data, information and/or reports. No further distribution of the data, information and/or reports is permitted without
Trucost’s express written consent. S&P Trucost Limited and/or its licensors or affiliates do not in any manner warrant or
represent that its’ respective data, information and reports contained herein are appropriate or available for use in any particularlocation. Your access and use of the relevant data and reports shall be done so in compliance with all applicable laws.

73

GPIF ESG REPORT 2020

Investment Principles

1

Our overarching goal should be to achieve the investment returns required for the public
pension system with minimal risks, solely for the benefit of pension recipients from along-term perspective, thereby contributing to the stability of the system.

Our primary investment strategy should be diversification by asset class, region, and2

timeframe. While acknowledging fluctuations of market prices in the short term, we shallachieve investment returns in a more stable and efficient manner by taking fulladvantage of our long-term investment horizon. At the same time, we shall securesufficient liquidity to pay pension benefits.
We formulate the policy asset mix and manage and control risks at the levels of the3overall asset portfolio, each asset class, and each investment manager. We employ bothpassive and active investments to attain benchmark returns (i.e., average market
returns), while seeking untapped profitable investment opportunities.

Based on the idea that sustained growth of companies being invested in and the market as4

a whole is required for long-term investment returns on assets under management, we
promote investments that take into account the non-financial elements of environmental,social and governance (ESG), in addition to financial elements, with a view to ensuringlong-term returns for the benefit of pension recipients.

5

We promote a variety of activities (including ESG-conscious initiatives) that fulfill ourstewardship responsibility of promoting long-term aims and sustainable growth of ourinvestments and the market as a whole with a view to increasing long-term
investment returns.

GPIF ESG REPORT 2020

74

GPIF Homepage

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Inquiries:
Planning and Communication Division,
Planning and Communication Department
Government Pension Investment Fund
Toranomon Hills Mori Tower 7th Floor, 1-23-1
Toranomon, Minato-ku, Tokyo 105-6377, Japan
TEL: +81-3-3502-2486 (direct dial)
FAX: +81-3-3503-7398
Website: https://www.gpif.go.jp/en/

G P I F Tw i t t e r