Nippon Life: Anti-ESG sentiment can be a boon for ESG
Opposition to environmental, social and governance (ESG) factors in the US among institutional investors and asset managers could, paradoxically, end up having a positive effect on the integration of ESG going forward, according to Takeshi Kimura, special advisor to the board at Nippon Life Insurance.
He told delegates at AsianInvestor’s Asia Investment Summit in Hong Kong on May 18 that he was optimistic that anti-ESG sentiments were likely to have a positive impact on the entire landscape of financial stewardship.
“The anti-ESG debate is strengthening the foundation of fiduciary duty," Kimura told delegates. "The scrutiny in the US is forcing financial institutions to be more explicit about their motivations for ESG integration.
“That makes them more prudent and diligent in the context of their fiduciary duties. Therefore, I think anti-ESG may, ironically, have a positive impact on ESG in the long run.”
Nippon Life, Japan’s largest private institutional investor, has around ¥70 trillion ($520 billion) in assets under management (AUM).
Opposition to ESG investments has gained tailwind in conservative states in the US, especially in cases of divestment of fossil fuel-related assets which have been perfoming relatively well in the wake of Russia Ukraine war.
This anti-ESG sentiment - strongest in key conservative states such as Texas and Florida and also Oklahoma - is beginning to influence public pension funds and is also trickling down to the general asset management industry.
Earlier in May, three New York City pension funds were sued for allegedly breaching their fiduciary duty by selling billions of dollars of fossil-fuel assets.
Also read: Will the anti-ESG wave in the US reach Asia?
Republican lawmakers in Indiana and Kansas had approved measures preventing state pension funds from considering ESG factors, but both were narrowed from initial proposals amid concerns that the changes could cause losses to public retirement systems.
Legislators in the Republican-controlled statehouses of Wyoming and North Dakota have either killed or significantly diluted bills that would limit ESG-investing practices or force governments to sever business relationships with asset managers that back the policies.
In Indiana, an anti-ESG bill was dialed back in February after the state’s pension operator estimated it would cost retirees almost $7 billion over the next decade. In Kansas, the chief of its state pension fund said in March a proposal initially under consideration would reduce returns by $3.6 billion.
Nippon Life's Kimura also pointed out that ESG investing has become mainstream over the past few years despite the development in the US. He believes that ESG backing will prevail and gain more traction.
“There is a Japanese proverb saying that a broken bone is stronger when it is well set. It means that adversity strengthens the foundations. I think this proverb will apply to the anti-ESG in the US,” Kimura said.
Kimura is also the Nippon Life’s representative on the board of directors at the United Nations’ Principles for Responsible Investment (PRI).
PRI works to understand the investment implications of ESG factors, and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
“I believe the mainstreaming of ESG investing will continue. But having said that, a prerequisite of the continued mainstreaming is that we will continue to improve our responsible investment practice and progress our investment activities,” Kimura said.
Kimura is elected to the board by other asset owner signatories. As of end-2022, 725 asset owners globally were signatories for PRI. These asset owners represented $121.3 trillion as of end March 2021, according to latest data.
In October 2022, sovereign wealth fund Korea Investment Corporation became another signatory among asset owners based in Asia Pacific
Also read: KIC to ramp up ESG efforts by signing UN-supported framework
These asset owners include several other Japanese life insurers and Australian superannuation funds, New Zealand Super, Japan’s Government Pension Investment Fund, Korea’s National Pension Service as well as Malaysia’s Khazanah Nasional Berhad and KWAP.
Also read: Khazanah, OMERS Asia call for ESG rating improvements