Japan’s GPIF Finds Portfolio Firms Proactive on ESG Disclosure

Japan’s $1.7 trillion Government Pension Investment Fund (GPIF) has reported that a survey it recently conducted shows its portfolio companies are proactively working on environmental, social, and governance (ESG) information disclosure.

The findings came from the pension giant’s sixthannual survey of listed companies that aims to evaluate the ESG stewardship activities carried out by its external asset managers. The survey, which received responses from 681 of the 2,186 targeted companies, focuses on how portfolio companies view asset managers’ engagement activities. It also tries to determine the actual status of constructive dialogue between the companies and asset managers, as well as the changes that have been seen since the previous survey.

The GPIF said companies are carrying out information disclosure not only through integrated reports, but also through new disclosure criteria such as the Task Force on Climate-Related Financial Disclosures (TCFD).

“Moreover, there has been a growing virtuous cycle, where the disclosure of non-financial information of investee companies including ESG information is further increased, and more and more investors have been utilizing such information,” the fund said in its report on the survey.

For more stories like this, sign up for the CIO Alert newsletter. 

The survey also found that due to the COVID-19 pandemic, 78.1% of companies said they saw changes in the content and themes of dialogues with institutional investors, particularly concerning the “S” in ESG, such as health, safety, and work reforms for employees. Additionally, more than half of the companies said their ESG initiatives have changed.

“Corporate governance” was indicated as the main theme in the companies’ ESG activities by 71.7% of the respondents. The theme indicating the largest increase in response rate from the previous survey was “climate change” (+9.7%), which is a repeat from the previous survey, followed by “health and safety” (+8.0%), and “environmental opportunities” (+3.8%).

The report said that “this indicates that increased attention is being paid to a wide range of ESG themes, such as environment (E), represented by climate change-related issues, and society (S), which reflects the impact of the COVID-19 outbreak in addition to governance (G).”

The survey also found that 31% of respondents have endorsed the TCFD, of which 67% said they had already followed the TCFD recommendations in disclosing information. And 90% of the respondents indicated that they disclosed information partially or fully in terms of governance, strategy, risk management, and indicators and goals. Additionally, many companies cited issues common to corporations and society as the major themes in their ESG activities, including corporate governance (71.7%), climate change (63.6%) and diversity (43.2%).

“For a pension fund like GPIF, a long-term orientation and the sustainable growth of its investee companies and the market as a whole are essential in increasing long-term investment returns,” Masataka Miyazono, president of GPIF said in the report. “GPIF considers that it is important to carry out engagement activities from a long-term perspective in order to increase corporate value over the long term, and thus encourages its asset managers to act in line with this policy.”

He added that “proactive disclosure of ESG information by investee companies is extremely important for investors to efficiently understand, carry out dialogues, and make investment decisions.”

Tesla Recruits Former CIO of $1.5 Trillion Japanese Pension Fund GPIF

Goldman Sachs Veteran Tapped as Japan’s GPIF CIO

Tags: environmental, ESG, Governance, Government Pension Investment Fund, GPIF, Japan, social, stewardship, Task Force on Climate-Related Financial Disclosures (TCFD), TCFD, Tokyo Stock Exchange

The Supreme Court has agreed to hear a case that aims to determine whether a retirement plan that pays or charges its participants fees that are significantly higher than those of other available investments is breaching its fiduciary duties under the Employee Retirement Income Security Act (ERISA).

The case, Hughes v. Northwestern University, is focused on the ERISA rule that requires fiduciaries of an employee benefit plan to discharge their duties with “care, skill, prudence, and diligence.” ERISA stipulates that fiduciaries who breach their duties “shall be personally liable to make good to such plan any losses to the plan resulting from each such breach.” However, what the phrase “care, skill, prudence, and diligence” actually means has been difficult to nail down.

The question the justices will attempt to answer is whether participants in a defined contribution (DC) ERISA plan have a plausible claim for relief against plan fiduciaries for breach of the duty of prudence for allegedly causing plan members to pay fees higher than those available for other materially identical investment products or services.

The Third and Eighth Circuit Courts ruled that a plan participant can adequately plead a breach of fiduciary duty by claiming that the retirement plan charged excessive fees when lower-cost alternatives existed. However, the Seventh Circuit held that virtually identical pleadings are insufficient to state a claim, because it is necessary to credit the defendant’s explanation for not offering lower cost options for the retirement plan before allowing a complaint to proceed.

For more stories like this, sign up for the CIO Alert newsletter. 

The plaintiffs, who are being represented by Schlichter Bogard & Denton, are employees of Northwestern University who participate in the Northwestern University Retirement Plan, the Northwestern University Voluntary Savings Plan, or both plans. They claim that the plans’ trustees breached their duty of prudence under ERISA by paying excessive recordkeeping fees and offering mutual funds with excessive investment management fees. They also allege that the trustees imprudently forced the plans’ participants to pay excessive recordkeeping fees.

They say that because the plans used multiple recordkeepers—in this case TIAA and Fidelity—they failed to take advantage of economies of scale and paid recordkeeping fees through revenue sharing, instead of a flat per-participant fee, which increased the recordkeeping fees. Additionally, they allege the trustees failed to monitor the plans’ recordkeeping fees to determine whether those amounts were competitive or reasonable for the services provided, failed to use the plans’ size to negotiate lower recordkeeping fees, and failed to solicit bids from competing providers.

The lawsuit also alleges that several imprudent investment options with excessive management fees and weak investment performance were included in the plan, including 129 retail class mutual funds, even though identical institutional class mutual funds were available to the plans based on their size, and “even though those institutional class funds differed only in their lower management fees.”