Former leader of the largest pension fund alerts about ‘ESG bubble’

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(Bloomberg) – The former chairman of the board of governors of the world’s largest pension fund said he sees signs of a “bubble” in environmental, social and corporate governance (ESG) investment. He also indicated that the Japanese fund should consider how much ESG assets contribute to returns.

Eiji Hirano, who chaired the board of governors of the Government of Japan Pension Investment Fund (GPIF) from 2017 to early this year, led through a tumultuous period for the fund, which became a leader world in ESG investments. The fund now needs to reassess its focus on this segment, he said.

“The GPIF needs to go back to its roots and think about how to analyze whether ESG investments are really profitable, and also how to evaluate and standardize them,” he said in an interview. “There is a small ESG bubble right now, and we should assess both the good and the bad.”

The board of governors, created in 2017, has an oversight role and monitors issues such as asset allocation and compensation, but not the day-to-day running of the fund. The GPIF, which manages 178 trillion yen (US $ 1.6 trillion), will report the results on July 2 for the year that ended in March, and the expectation is that there will be record returns.

In an interview with Bloomberg News in Tokyo on June 23, Hirano addressed topics including the possibility that the fund should reconsider the weighting of domestic stocks in its next portfolio review, the role of alternative assets, and the option it faces. on investing in Chinese sovereign debt.

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ESG investment

The GPIF pioneered ESG investing in Japan, hailed as a fund that tried to “change the world” through its bold approach under former chief investment officer Hiromichi Mizuno and former president Norihiro Takahashi.

The fund has been relatively wary of anything labeled ESG under its new management. Hirano says it is less vital for GPIF to be at the forefront of ESG investments, and said the fund should examine the true returns of this expanding asset class.

“Under the leadership of Takahashi and Mizuno, many bold steps were taken at ASG,” said Hirano. “It is now part of the corporate governance code and the Government began to wave the flag on issues such as climate change. The trend is set, although the GPIF is not leading the charge. “

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