Japanese insurance behemoth Nippon Life is ramping up efforts to improve sustainability outcomes among companies in its portfolio.
The initial approach will be to try a dialogue-based “carrot” approach: Nippon Life will engage with the companies to identify positive and negative outcomes and introduce milestone management to track progress towards those targets.
However, if efforts and results are not seen, the insurer will be ready to move to a “stick” approach, according to Takeshi Kimura, special advisor to the board at Nippon Life Insurance.
“We will regularly check to see whether, and to what extent, these investee companies have actually developed and implemented strategies to reduce negative outcomes or produce positive outcomes,” Kimura told delegates at AsianInvestor’s Asia Investment Summit in Hong Kong in May.
“If progress is not being made, we escalate the issues to the exercise of voting rights.”
To make sure the message resonates, the investee companies will in future be subject to Nippon Life’s increased transparency about pushing the sustainability agenda in its investment portfolio.
“We plan to enhance the disclosure of such stewardship activities,” Kimura added.
Nippon Life, Japan’s largest private institutional investor, has around ¥70 trillion ($520 billion) in assets under management (AUM).
The insurer has pressed the importance of sustainability outcomes in its insurance business and healthcare business domains. To ensure consistency across business domains, Kimura said it is “only natural” for Nippon Life to focus on sustainability outcomes in the asset management business as well.
“The sustainability outcomes that our company brings to the real world can be a proxy variable for the ESG risks and opportunities it faces in the future,” he explained.
A BIGGER TREND
Nippon Life’s stance seems shared among global peers. Kimura is also Nippon Life’s representative on the board of directors at the United Nations’ Principles for Responsible Investment (PRI).
A PRI survey among member investors shows that the percentage of investors who focus only on managing ESG risks is expected to decline from 30% today to about 12% in the future, Kimura revealed. The number of investors taking action on actual sustainability outcomes will increase from the current 41% to 63%.
“Many investors have a high level of aspiration to recreate responsible investments [via] taking action on real-world sustainable outcomes,” Kimura said.
The message of increased sustainability engagement with investee companies resonated with Dr. Louis Cheng, professor of banking and finance and director of the research centre for ESG and the research institute for business at the Hang Seng University of Hong Kong.
If the companies pay attention to ESG viewpoints, it can also mitigate how to react to future issues, Cheng argued.
“Companies need to listen to stakeholders to do well on ESG and engage in technology to capture ESG intelligence, so that they understand what stakeholders really want,” Cheng told the delegates.