Japan Urged to Push Pension Funds to Adopt ESG Principles

(Bloomberg) -- The world’s biggest industry body for sustainable investing wants pension funds to help pick up the slack for Japan, which is lagging in integrating environmental, social and governance factors into investment decision-making.

Such investors, whose behaviour is likely to influence other money managers, have been slow to adopt the United Nations-backed Principles for Responsible Investment, according to Michiyo Morisawa, the PRI’s Japan head. The government needs to push public pension funds to commit to ESG in order to spur a wholesale shift toward sustainable investing in the country, she said.

The PRI are the main globally recognized standards regarding ESG investment, and a nation’s take-up of the principles reflects its moves to adopting greener finance and helping to solve the pressing global issue of reducing carbon emissions. Signatories to the PRI commit to mandatory reporting requirements regarding their holdings.

More money managers would likely follow pension funds, and the government’s involvement could be a possible game changer, Morisawa said in an interview.

With only 92 sign-ups, Japan is far behind the U.S., the U.K. and Ireland, France and Scandinavia. Even though the Government Pension Investment Fund, the world’s largest retirement fund, adopted the principles in 2015, Japan’s three major public pension funds have yet to join. The PRI has almost 4,000 signatories globally and collectively represents about $100 trillion in assets under management.

“Japan has made little progress in involving public pension funds to commit, which is different from other countries,” Morisawa said. Since the funds in Japan delegate investment management authority of their assets to trust banks and fund managers, their actions are likely to have a positive ripple effect on the industry, she said.

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