GPIF Chooses Two Indices for Its ESG Benchmark

CEO Takahashi hopes the picks will push companies ‘to work on carbon efficiency and disclosure’ practices.

The world’s largest pension fund has selected two of its carbon-friendly indices as the benchmark for its environmental, social, and governance (ESG) strategy as it continues to cut pollutants from its portfolio.

Japan’s $1.4 trillion Government Pension Investment Fund (GPIF) will utilize the S&P Global Ex-Japan LargeMidCap Carbon Efficient Index and the S&P/JPX Carbon Efficient Index for the passive investment tracking of its green stocks.

The megafund will place its non-Japanese eco-friendly equities in the global index, and its domestic ESG shares will go into the S&P/JPX guide.

The indices are designed to cut high-carbon companies and replace them with lower carbon counterparts from the same industry. It does this by shifting the weights of constituents based on how problematic their carbon-related business practices are. The calculations are made according to Trucost, an ESG analytics specialist.

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“GPIF hopes that the selected global environmental stock indices will provide an opportunity for companies to work on carbon efficiency and disclosure,” said Norihiro Takahashi, the fund’s chief, who added that the Japanese pension giant does not believe in full divestment from such companies, but will instead dramatically reduce its stakes. 

An example Takahashi gave for the way GPIF has been integrating its ESG practices was how “significantly cutting the greenhouse gas emissions of the entire portfolio” has achieved “a reduction of climate change risk.”

The fund’s chief investment officer, Hiro Mizuno, could not be reached for comment.

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