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In Focus: OECD recommends ESG integration in Japan’s GPIF

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    New OECD paper recommends ESG integration in Japan’s GPIF

In Focus

New OECD paper recommends ESG integration in Japan’s GPIF

Responsible Investor reports that the latest OECD Working Paper on Finance, Insurance, and Private Pensions released in December 2010 calls on Japan’s Government Pension Investment Fund (GPIF) to integrate ESG factors in its policies and decision-making processes.

The “Options to Improve the Governance and Investment of Japan’s Government Pension Investment Fund” paper encourages the GPIF to become a signatory of the United Nations Principles of Responsible Investment (UNPRI), in line with the practices of reserve funds in  other countries such as Canada, France, Norway, and Sweden. The report goes on further to state that adapting a SRI-inclined approach could also help GPIF in meeting its long-term targets for increased overseas investment.

The working paper also notes that the GPIF’s current governance structure does not meet several criteria listed within OECD guidance or “international good practice”. The authors cited the pension fund’s lack of transparency in election processes and public disclosure, as well as lack of a clear separation of oversight and executive powers, as indicators of a deficient governance system. In light of this information, the paper recommends opening up board composition to labour and employer associations.

The governance of GPIF, the world’s largest pool of pension assets, has been an existing point of interest in the global labour movement for a number of years now. In October 2009, following the revision of the “OECD Guidelines for Pension Fund Governance”, the Trade Union Advisory Committee (TUAC) and Japanese Trade Union Confederation (JTUC-RENGO) sought a formal opinion from the OECD Secretariat on the application of the guidelines to government reserve funds such as the GPIF.

Pierre Habbard, policy advisor at TUAC, clarified that the OECD Secretariat  responded that although the OECD Guidelines did not directly address public pension reserve funds, they were designed with all pension funds in mind. As such, the OECD encouraged that the guidelines be used as a reference in evaluating the governance structure of government reserve funds such as the GPIF.

Hitoshi Takezume, Assistant Director of JTUC-RENGO’s Welfare Policy Division, said the OECD office in Japan has already translated the working paper. So far, however, the Japanese government has not released any formal opinion in regards to the report. Nonetheless, Mr. Takezume was optimistic, citing the “Study Panel on the Management of the Government Pension Investment Fund” that was established by the Japanese Ministry of Health, Labour, and Welfare in November 2009 as a positive indication of support for improved governance measures and inclusion of ESG criteria in the management of the GPIF. “The final report [of the government panel], which was published in December 2010,” he said, “reflected for the first time the opinion that ‘SRI should be considered for the management of the GPIF’.”

Read the “Options to Improve the Governance and Investment of Japan’s Government Pension Investment Fund” working paper

Read the OECD Guidelines for Pension Fund Governance (revised June 2009)

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