30 March 2022

GPIF Adopted a ESG Index for Japanese Equities
GPIF has evaluated general ESG indices for Japanese equities based on the information submitted throughthe Index Posting System, which GPIF uses to collect information on a variety of indices. As a result of theevaluation, GPIF has adopted the following index and has begun passive investment tracking it.

<New adopted index>
Type
General ESG

Index NameFTSE Blossom Japan Sector Relative Index<Characteristics of the index>
The evaluation is primarily based on the FTSE Russell’s ESG ratings, and evaluation on companies’
management attitude toward risks and opportunities of climate change is also considered.

<Primary evaluation criteria>[1] ESG ratings play a central role in the constituent selection / weighting process of the index.
[2] ESG ratings for the index are highly transparent, and the evaluation methods is easy tounderstand for companies so that the index is expected to boost overall equity market in Japan.
[3] The index does not include the negative screening which excludes specific industries orbusinesses from the index constituents.
[4] The index has a relatively small tracking error relative to a parent index and is a tilt index with alarge investment capacity or an index with a large number of constituents.

< Comment from MIYAZONO Masataka, President of GPIF >GPIF has been expanding its adoption of ESG indices since it first adopted ESG index for Japaneseequities in the fiscal year 2017. GPIF commenced passively investing \760billion* in assets tracking FTSE
Blossom Japan Sector Relative Index, and the number of ESG indices for both Japanese and foreign equities
adopted by GPIF has reached eight in total. GPIF will aim to ensure long-term profits from the sustainablegrowth of portfolio companies and the market as a whole through its ESG investment and stewardship
activities, continuing to improve the indexes we have already adopted and adopt new indices.
*Initial investment includes new allocations as well as allocations from passive investments tracking other ESG
indices.

New Adoption of ESG Index～New adoption of FTSE Blossom Japan Sector Relative Index ~30March, 2022
Government Pension Investment Fund

Government Pension Investment FundKey Points for Adoptionof ESG Index andOverview of the New
Index

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Key Points for Adoption of New ESG Index
 GPIF has evaluated general ESG indices for Japanese equities which collected through the Index
Posting System in terms of contents of ESG ratings and index construction methods.
 The following are key consideration points for the evaluation.
[1] ESG ratings play a central role in the constituent selection/weighting process of the index.
[2] ESG ratings for the index are highly transparent, and the evaluation methods is easy tounderstand for the companies so that the index is expected to boost overall equity market in Japan.
[3] The index does not include the negative screening (Note1) which excludes specific industries
or businesses from the index constituents.
[4] The index has a relatively small tracking error relative to a parent index and is a tilt index witha large investment capacity or an index with a large number of constituents.
 GPIF selected FTSE Blossom Japan Sector Relative Index proposed by FTSE Russell, which was
highly evaluated from the above points, and commenced passively investing ¥ 760 billion (Note 2) inassets tacking the index. Through the investment in the index, GPIF expects to improve the riskadjusted return of the portfolio as well as the sustainability of the market and the economy.
(Note 1) Excludes so-called controversies screening, which is evaluated according to the severity of the controversies.
(Note 2) Initial investment includes new allocations as well as allocations from passive investments tracking other ESG indices.

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Primary ESG Index Evaluation Criteria

Organizational
Structure Global infrastructure/index development capacity
 Infrastructure within Japan
 Dialogue with investors
 Dialogue with issuers/media

ESG Ratings

 Validity
 Transparency
 Understandability
 Data quality

Index
Evaluation

 Index construction methodology (validity, transparency, and understandability)
 Risk/return characteristics (sector/factor bias, turnover) Capacity

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Overview of New General ESG Index for Japanese Equities
FTSE Blossom Japan Sector Relative Index(“FTSE Blossom SR”)

Index Name

・The FTSE Blossom SR is a general ESG index that screens stocks based on FTSE Russell’s ESG
ratings as well as assessment of magnitude of environmental damage by companies, and companies’
management attitude toward climate change risks.
Index Concepts/
Characteristics

・The assessment is conducted from the following three perspectives.
[1] FTSE Russell’s ESG ratings, [2] Carbon Intensity (greenhouse gas emissions/sales), and [3]Management attitude toward climate change risks/opportunities. Comparison of [1] is performed
within the same industry, and comparison of [2] and [3] are performed within all stocks.
・The index is expected to mitigate the potential ESG risk of the portfolio while industry weights areneutralized, and it restrains tracking errors relative to a parent index.

Index Construction
Constituent Universe(Parent index)
Number of Index
Constituents
GPIF Initial Investment

Selection (best-in-class)
FTSE Japan All Cap Index [1,391 stocks]
494
Approx. ¥ 760 billion (Note1)(Note 1) Initial investment includes new allocations as well as allocations from passive investments tracking other ESG indices.
(Note 2) Data as of February 15, 2022
(Source) Prepared by GPIF from various materials.

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5Performance - FTSE Blossom Japan Sector Relative Index
Year and Cumulative Returns (%)

Cumulative Returns (As of Dec. 2016 = 100)
200

44.0

50
40
30

180

20

15.2

15.9
6.4

10

160

14.1 12.7

8.9

4.3

8.0

0
-10

140

-20

-4.0 -5.0
FY2017FY2018-8.4-9.5

FY2019120

FY2020Blossom SR

Last 3 years

2021/122021/092021/06

2021/032020/122020/09

2020/06

2020/03

2019/122019/092019/06

2019/032018/122018/092018/06

2018/032017/122017/092017/06

2017/03

2016/12

Blossom SR

16

15.4

15

15.0

13

Last 3 years

Last 5 years

Last 3 years Last 5 years

Tracking error (%)
14.6

2.0
14.3

14

TOPIX

FY2021

TOPIX

Total risk (%)
2016/09100

42.1

Last 5 years

1.4

1.3

Last 3 years

Last 5 years

1.0
0.0

Blossom SRTOPIXa Total Return14.12%

12.67%

a Total Return

Blossom SR
8.89%

TOPIX
7.99%

b Total risk

15.40%

14.97%b Total risk

14.60%

14.26%

c Return/Risk (a/b)

0.92

0.85

c Return/Risk (a/b)

0.61

0.56

d Excess Returns

1.45%

d Excess Returns

0.89%

e Tracking error

1.42%

e Tracking error

1.32%

f Information Ratio (d/e)

1.02

f Information Ratio (d/e)

0.68(Note) Data is based on data up to the end of December 2021.

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Characteristics of FTSE
Blossom Japan Sector
Relative Index

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Characteristics of FTSE Blossom Japan Sector Relative Index
ESG Rating(1)FTSE, ESG Rating (2)TPI Management Quality Score

Parent Index

FTSE Japan All Cap Index [1,391 stocks]

Issuer Size

Large, Mid, and Small Cap

Screening (controversy, etc.)

Companies with a less than 2.0 points in ESG rating

Number of Index Constituents

494 stocks

Constituent Selection /Weight Calculation Method

Restrictions
Rebalance•

The following stocks are selected from constituents of the parent index.

[1] The top 50% stocks in ESG rating within the respective sectors are selected.
[2] For the stocks with higher carbon intensity (GHG emissions / sales) (the top 10%)selected in [1] , they can be selected only if they score three or more in TPI Management
Quality Score.
•

For stocks with lower carbon intensity, only ESG rating is used for screening criteria
instead of TPI Management Quality Score.

•

Industry weights are neutralized•

The upper limit on the weight of individual stocks is the lower of 10% weight of theindex or five times the weight of the parent index.

Every six months(Note) Data as of February 15, 2022

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FTSE Blossom Japan Sector Relative Index
Constituent Selection Process
FTSE Japan All Cap Index Constituents
The bottom 50% in the same industry

FTSE ESG Rating
The top 50% in the same industry

GHG Emissions (Carbon Intensity)
Low/medium emissions:
90% of the total

Large Emissions: Top 10%

TPI Management Quality Score
3 or more

Less than 3※Refer to the next page

Selected Stocks
in FTSE Japan ESG Sector Relative Index

Non-Selected Stocks

Determine weights to be industry neutralized(Note) Carbon Intensity is evaluated based on the ranking of all constituents of the parent index.
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What are Transition Pathway Initiative (TPI) andManagement Quality Score (MQ-score)?
Transition Pathway Initiative (TPI) TPI is an initiative established in 2017 under the leadership of asset owners in the United Kingdom to assesscompanies’ readiness for a transition to a low-carbon economy and to support their efforts to address climatechange.
 120 investors around the world have expressed their support for TPI, and their total assets under management are$40 trillion (as of February 2022).
 TPI assessment framework is compliant with TCFD, and the data is used by Climate Action 100+ (Note) in which
GPIF participates as a supporter.

Management Quality Score (MQ-score) TPI Management Quality Score (MQ score) provides the scores based on the assessment on the quality ofmanagement of greenhouse gas emissions and responses to risks and opportunities for the transition to a lowcarbon economy by reviewing the information publicly disclosed by companies.
 Companies need to meet survey items (refer to the next page) depending on the level from 0 to 4, in order toreach the respective score levels. In order to earn a higher score, companies are required to enhance theirefforts. For example, companies need to disclose their greenhouse gas emissions and their reduction targets inorder to earn a score of three or more.
 All survey items used for TPI MQ score are also included in the climate-change theme for FTSE Russell ESG
rating-model.
(Note) Climate Action 100+ is an investor-led initiative launched in September 2017 to address climate change issues. It has been holding constructive dialogues
with companies that are highly influential in resolving climate change issues on the efforts to improve governance on climate change and to reduce greenhouse gas
emissions, and to enhance information disclosure.
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19 questions to generate the MQ-score
Level 0
Unaware of (or not
Acknowledging)
Climate Change

Level 1
Acknowledging
Climate Change asa Business Issue

Level 2
Building Capacity

Level 3Integrating into
Operational
Decision-Making

Level 4
Strategic
Assessment

Question 1: Does the company acknowledge climate change as a significant issue for the business?

Question 2: Does the company recognise climate change as a relevant risk and/or opportunity for the business?
Question 3: Does the company have a policy (or equivalent) commitment to action on climate change?
Question 4: Has the company set greenhouse gas emission reduction targets?
Question 5: Has the company published information on its operational (Scope 1 and 2) greenhouse gas emissions?
Question 6: Has the company nominated a board member or board committee with explicit responsibility for oversight of theclimate change policy?
Question 7: Has the company set quantitative targets for reducing its greenhouse gas emissions?
Question 8: Does the company report on Scope 3 emissions?
Question 9: Has the company had its operational (Scope 1 and/or 2) greenhouse gas emissions data verified?
Question 10: Does the company support domestic and international efforts to mitigate climate change?
Question 11: Does the company have a process to manage climate-related risks?
Question 12: (applicable to some sectors only): Does the company disclose materially important Scope 3 emissions?
Question 13: Does the company disclose its membership and involvement in organisations or coalitions dedicated specificallyto climate issues?
Question 14: Has the company set long-term quantitative targets for reducing its greenhouse gas emissions?
Question 15: Does the company's remuneration for senior executives incorporate climate change performance?
Question 16: Does the company incorporate climate change risks and opportunities in their strategy?
Question 17: Does the company undertake climate scenario planning?
Question 18: Does the company disclose an internal price of carbon?
Question 19: Does the company ensure consistency between its climate change policy and the positions taken by tradeassociationsof which it is a member?
(Source) FTSE Russell, THE TRANSITION PATHWAY INITIATIVE
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(Reference) List of ESG indices adopted by GPIF [1]FTSE Blossom
Japan Index

FTSE Blossom
Japan Sector
Relative Index

MSCI JapanESG Select Leaders Index

MSCI ACWI ESG
Universal Index

Classification

General ESG

General ESG

General ESG

General ESG

Investment Target

Japanese equities

Japanese equities

Japanese equities

Foreign Equities

・The index is FTSE Russell's
ESG-Index series, which has oneof the longest track records
globally. The index is evaluatedusing FTSE4Good Japan Index's
ESG rating scheme.

・Assessments are performed
based on FTSE Russell’s ESG
rating which FTSE Blossom
Japan Index also uses. For thecompanies with high carbon
intensity (greenhouse gas
emissions/sales), management
attitude toward climate-changerisks/opportunities is also
assessed.

・The MSCI Japan ESG SelectLeaders Index is a broad ESG
index that integrates various
ESG risks into today’s
portfolio. The index is basedon MSCI ESG Research used
globally by more than 1,000
clients.

・ One of MSCI’s flagship ESG
indexes, this index adjusts theweight of constituents basedon each issuer’s current ESG
rating and rating trend toelevate the ESG metrics of theindex overall.

Index Concepts/
Characteristics

Index Construction

・The index is a general ESG
index that selects stocks withhigh absolute ESG ratings andadjusts industry weights toneutral.

Selection (best-in-class)Constituent Universe FTSE JAPAN ALL CAP INDEX(Parent index)[1,391 stocks]
Number of Index
Constituents

230

・The index selects stocks withrelatively high ESG ratings withineach industry and adjusts industry
weights to neutral.

・ The index is comprised ofstocks with relatively high
ESG scores in each industry.

・ The index was developed forlarge investors seeking toenhance ESG integration whileachieving the same level ofinvestment opportunity andrisk exposure as the parent
index.

Selection (best-in-class)Selection (best-in-class)TiltedFTSE JAPAN ALL CAP INDEXMSCI JAPAN IMI TOP 700[699 stocks]

MSCI ACWI ex Japan ex China
A ESG Universal with Special
Taxes Index[2,209 stocks]

222

2,150

[1,391 stocks]
494(Note) Data as of February 15, 2022

(Source) Prepared by GPIF from various materials.
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(Reference) List of ESG indices adopted by GPIF [2]S&P/JPX Carbon
Efficient Index

S&P Global
LargeMidCap
Carbon Efficient
Index

MSCI Japan Empowering
Women Index (“WIN”)

Morningstar® Developed Markets
Ex-Japan
Gender Diversity IndexSM (GenDi)

Classification

E (climate change)

E (climate change)

S（women's empowerment）

S（women's empowerment）

Investment Target

Japanese equities

Foreign Equities

Japanese equities

Foreign Equities

・ Constructed by S&P Dow
Jones Indices based on carbon
data provided by Trucost, apioneer in environmental
assessment.

・ Constructed by S&P Dow
Jones Indices based on carbon
data provided by Trucost, apioneer in environmental
assessment.

・ This index is designed to
overweight companies that havelower carbon footprints (annual
greenhouse gas emissions
divided by annual revenues) andthat actively disclose theircarbon emission information.

・ This index is designed to
overweight companies that havelower carbon footprints (annual
greenhouse gas emissions
divided by annual revenues) andthat actively disclose theircarbon emission information.

・ MSCI calculates the genderdiversity scores based on
information disclosed under“the Act on Promotion of
Women’s Participation andAdvancement in the
Workplace” and selects
companies with higher gender
diversity scores from eachsector.

・ Determines investment
weighting based on assessmentof companies’ commitment togender equality, using theEquileap Gender Equality
Scorecard.

Index Construction

TiltedTiltedSelection (best-in-class)TiltedConstituent Universe(Parent index)

TOPIX[2,178 stocks]

S&P Global Large Mid Index(ex JP)[3095 stocks]

MSCI JAPAN IMI TOP 700[699 stocks]

Morningstar Developed Markets(ex JP) Large-Mid[2,175 stocks]

Number of Index
Constituents

1,825

2,163

352

2,158

Index Concepts/
Characteristics

・ The first index designed tocover a broad range of factors
related to gender diversity.

・ Ratings are conducted in four
categories: (1) Gender balancein leadership and workforce; (2)equal compensation and worklife balance; (3) policies
promoting gender equality; and(4) commitment, transparency,
and accountability.

(Note) Data as of February 15, 2022 (Source) Prepared by GPIF from various materials.
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