How GPIF uses active management to achieve ESG goals

The world’s largest pension fund is increasing its use of active managers and publishing reports on their efforts, its CIO tells AsianInvestor.
How GPIF uses active management to achieve ESG goals

Japan’s Government Pension Investment Fund (GPIF) has been proactively publishing analyses and reports on the environmental, social, and governance (ESG) efforts of an increasing number of active equity fund managers who externally manage the pension fund’s portfolio, Eiji Ueda, chief Investment officer and executive managing director at GPIF, told AsianInvestor.

ESG factors have high priority for GPIF, but the world’s largest pension fund is mindful of not influencing markets and investments with an overly assertive model for ensuring an ESG impact.

Eiji Ueda

“We are thinking to disclose much more on how these active fund managers are communicating with the companies they invest in, or maybe communicating with a company they haven't invested in,” Ueda said.

He emphasised that while ESG factors are a central part of GPIF’s investment principles, the main consideration is still to create returns for policyholders.

“We cannot jeopardise the returns to push something else, including ESG factors. That’s very clear. But through the process of getting the return, we consider ESG,” Ueda said.

As of end-2023, GPIF had ¥224.7 trillion ($1.4 trillion) in its portfolio. Of that, 49.79% was invested in equities, split by 24.66% in domestic equities and 25.14% in foreign equities.


GPIF has been looking to increase its active allocation in equities, tapping more fund managers for that specific purpose.

The pension fund has created a portfolio of almost 60 active fund managers who are tasked with consistently outperforming the general equity markets through various index benchmarks, both domestic and overseas.

Within that framework of external managers, the world’s largest pension fund sees an opportunity to signal the impact of ESG and stewardship, Ueda explained.

Also read: Asset owners in push to lift ESG standards in corporate Japan

The CIO has noticed that fund managers put in varying amounts of effort when it comes to pursuing impact on ESG factors.

“There are some funds who don’t do any engagement at all, in my opinion. There are some funds who do it in a certain way, and there are other funds doing it very actively,” Ueda said.

Among the 60 active funds, two are dedicated ESG funds, managed by Impax Asset Management and Osmosis Investment Management. However, their ESG focus was not necessarily the main prerequisite for being chosen.

“Those ESG funds are selected not because they are ESG funds — we believe they are adding value to our returns,” Ueda said.


Ueda sees GPIF’s role in ESG implementation in the asset management industry as disclosing how managers are working, as part of its fiduciary duty to the Japanese public. He believes in an arm’s length approach, where the world’s largest pension fund does not have a direct impact on managers’ business models or operations.

“If we start to change fund managers’ behaviour, it can lead to underperformance against the past performance return of the funds. We don't want them to change their behaviour because we believe what these people have been doing so far is adding value to our returns,” Ueda said.

Also read: How Japan’s GPIF avoids inflated values in alternatives

Still, GPIF has chosen to be very vocal about the comprehensive analyses the pension fund does on managers’ efforts and views on ESG-related matters among investee companies, as shown in the overview regarding the Task Force on Climate-Related Financial Disclosures (TCFD) published in March.

The same goes for its ability to engage with investee companies to address these objectives, as shown in the pension fund’s Stewardship Activities Report 2023-2024, also released in March.

“It is probably an encouragement for stewardship, engagement, and ESG efforts that we disclose what our analyses of our fund managers show,” Ueda said.


For GPIF, ESG factors are weighed in via two different approaches.

One is that ESG should be considered for general investments; the other is ESG-focused investments.

For investments considering ESG, Ueda sees stewardship as a pivotal factor.

“Our current mid-term objectives say that we should encourage ESG, basically saying that when we make an investment, we need to take ESG into account. It also focuses on ESG investments where we continuously need to check that the investment goal matches our mandate,” Ueda said.

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