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World’s largest asset owner makes landmark gender balance decision

World’s largest asset owner makes landmark gender balance decision

The Japanese Government Pension Investment Fund (GPIF) has thrown its weight behind efforts to get more women serving on the boards of global corporations.

GPIF has joined the 30% Club in the UK and the Thirty Percent Coalition in the US, both of which are seeking to achieve a minimum of 30% women on boards.

The JPY135 trillion (€1.14 trillion) fund, the world’s largest, said it believed the integration of environment, social and governance (ESG) factors into investment process mitigated investment risk, and gender diversity is widely regarded as one of major social and governance factors.

Launched in 2011, the Thirty Percent Coalition is a US organisation of more than 80 members committed to the goal of women, including women of colour, holding 30% of board seats across public companies. Among its members are representatives of such institutional investors as California State Teachers’ Retirement System (CalSTRS), Ohio Public Employees Retirement System, and City of Philadelphia Board of Pensions & Retirement.

The 30% Club, which was launched as a campaign in the UK in 2010, has a similar goal on its national ground. It wants to achieve a minimum of 30% women on FTSE-100 boards. Currently the figure stands at 27%.

The fund’s ESG push

Since the beginning of this year GPIF has announced several ESG-related initiatives. The reason behind the shift is the belief that a pension fund such as GPIF should increase its long-term investment returns for pension beneficiaries by fostering sustainable growth and worth of companies in which they invest.

In October, the fund established a new division in its Public Market Investment Department, called ‘Stewardship & ESG’. The new division replaced the ‘Stewardship Enhancement Group’ which was set up in March this year. The change is supposed to strengthen the fund’s fiduciary duty for beneficiaries through further stewardship and ESG activities.

Among these activities is running a forum for the world’s largest asset owners to accelerate progress on ESG. The Global Asset Owners’ Forum offers the fund an exchange of opinions with non-Japanese asset owners, who have made advances in ESG investments, such as CalPERS and PGGM.

Prior to engaging in the above activities, GPIF accepted Japan’s Stewardship Code in May 2014 and became a signatory of the Principles for Responsible Investment (PRI) in September 2015.

As at the end of June 2016, the GPIF allocated 39% of its assets to domestic bonds, 21% to domestic equities, 13% to foreign bonds, 21% to foreign equities and 5.5% to what it called short-term assets.

It means that it owns €479 billion worth of companies’ shares, more the total capitalisation of all publicly listed companies in Brazil, Belgium or Russia. In Japan, it owns over 2.5% of all publicly listed equities.

Not a role model

The GPIF’s move might become a substantial, if not ground-breaking, for the public companies in Japan.

According to a November 2015 MSCI ESG report ‘Women on Boards’, women comprise only 3.4% of directors in Japan, which was the lowest number across developed markets, and even below the level of many emerging markets.

The study said that in the MSCI World Index companies, women held 18.1% of all directorships whilst female directors comprised 8.4% of boards at MSCI Emerging Markets Index companies.

Among the key conclusions of the research is the finding that companies in the MSCI World Index which lacked board diversity suffered more governance-related controversies than average.

It also revealed that companies with strong female leadership generated a return on equity of 10.1% per year versus 7.4% for those without, measured on an equal-weighted basis. However, the authors of the study said that in this case they could only establish correlation, not causality. 

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