GPIF private equity head: ESG hasn’t taken a backseat during covid-19

Environmental, social and corporate governance issues are even more important than they were prior to the coronavirus pandemic, according to the head of private equity and infrastructure at Japan’s Government Pension Investment Fund.

“If we’re going to go back to normal, let’s go back to much better than before,” Yoshitaka Todoroki, managing director at the ¥162 trillion ($1.5 trillion; €1.3 trillion) institution, said in a virtual Q&A session for sister publication Private Equity International’s Responsible Investment Forum: Tokyo on Thursday.

“Rather than stepping back from the covid-19 pandemic issues, we continue to pursue how we can materialise these ESG related ideas. It is becoming far more important to drive ESG issues across GPIF’s portfolio.”

In March, just prior to the height of the pandemic and global lockdowns, GPIF, the California State Teachers’ Retirement System and the UK’s Universities Superannuation Scheme issued a joint statement warning that focusing solely on short-term returns without considering other stakeholders would be to ignore “potentially catastrophic systemic risks”.

“We therefore urge both our partners and the companies in which we invest to rethink their strategy and enhance their disclosures (using frameworks such as the TCFD [Task Force on Climate-Related Financial Disclosures]) regarding their interactions with stakeholders, society, and the environment so that we can collaborate in generating and enhancing long term value,” the statement had noted.

Since issuing that statement, GPIF has attracted “far more investors who agree on that concept”, Todoroki said.

“In the public space, we have selected some indices to drive ESG related investments. We continue to develop such new activities regarding ESG, maybe firstly in the public space, but also the private space. We want to discuss with market participants how we can pursue ESG-related goals or objectives in this market.”

GPIF more than doubled its exposure to alternative assets over the past year, with alternatives accounting for 0.61 percent of its investment portfolio at the end of March, according to its latest annual report. This compares with 0.26 percent at the same point last year.

The pension giant’s private equity fund investments grew 29 percent to ¥18.5 billion over the period. Real estate fund of funds investments tripled to ¥380.8 billion and infrastructure fund of funds investments more than doubled to ¥390.4 billion.

The fund intends to deploy up to 5 percent of its total portfolio into alternatives.

While all three ESG issues are equally important, GPIF may try to effect environmental and social change in its portfolio and fund managers via ‘G’ – governance – methods first, Todoroki added.

“If G is a quicker way to support E and S, we may look at G issues [first],” he said.

– Alex Lynn contributed to this report.