As environmental, social and governance (ESG) investments are increasingly gaining prominence among asset managers across the world (particularly in the West), corporations in Asia are considering broader adoption of ESG-focused principles.
Hiromichi Mizuno, chief investment officer at Japan’s $1.4-trillion Government Pension Investment Fund (GPIF), said Asia will be able to catch up and get on the learning curve when it comes to responsible investment.
“I want to see more AI used by the industry. AI will drive humans to focus on more value-added tasks, such as ESG investing, which requires value judgement. Many young people at GPIF now want to work on ESG because they know that it is an area where human wisdom will prevail,” said Mizuno at the recently-held IMAS-Bloomberg Investment Conference in Singapore.
Mizuno, however, laid equal emphasis on artificial intelligence (AI) usage.
“At GPIF, we have a recent research project with Sony Computer Science Labs to study how AI can be leveraged to monitor the trading patterns of asset managers, and its impact on the asset management industry,” he said. “We can learn from the US and Europe but we need to avoid the mistakes made.”
Mizuno joined GPIF as its CIO in January 2015. Prior to that, he was a partner at Coller Capital, a London-based private equity firm.
“First of all, we need to address the monster in the room, which is the ‘fiduciary duty’ of asset managers. The question of ESG and fiduciary duty also depends on the customer’s investment time horizon,” he said.
GPIF’s view of integrating ESG is about making the capital markets more sustainable.
“Failing to integrate ESG factors is against the fiduciary duty, especially for clients who have long-term horizons. The other question is whether making extra returns is the only way to satisfy one’s fiduciary duty,” said Mizuno, adding that climate change is one issue where the world is racing against the clock.
As one of the world’s largest pension funds, GPIF has a headcount of 130 people hence it outsources most of its investments excluding Japanese government bonds to asset managers. Mizuno describes the fund as a cross-generational investor and it has made ESG integration as a prerequisite in its selection of external asset managers since 2015.
“We continue to foster understanding of GPIF’s stewardship principles and proxy voting principles among asset managers, and encourage ESG integration in line with investment styles. ESG needs to be integrated beyond the analysis into investment decisions.
“For active managers, we have introduced performance-based fee structure and multi-year contracts so they have no reason to deliver short-term performance at the expense of longer-term mindset,” he added.