Nippon Life Insurance’s recent senior appointment to the United Nation’s Principles for Responsible Investing (PRI) is set to boost Japanese life insurers’ net zero progress.
The country’s largest life insurance and private institutional investor announced on July 19 that its special advisor to the board, Takeshi Kimura, who was with Bank of Japan for over 30 years, was elected as a board member to the influential nongovernmental organisation in global ESG development. He will retain the position until the end of 2023.
This is the first time that a PRI board member has been elected from an insurance company. Kimura is also the only board member from Asia among the 13-strong global board.
“This is going to be really valuable, to have the insights that Takeshi-san will be able to bring to our strategy, and to aid our understanding in how insurers implement responsible investment and how that differs to other types of investors,” said Matthew McAdam, PRI’s director of Asia-Pacific.
“Stewardship is very sophisticated in the listed equity space, but it's less advanced in fixed income,” McAdam told AsianInvestor. He believes Nippon Life’s presence on the board will be an opportunity for the insurance sector to improve stewardship in the fixed income space.
“Insurers tend to hold heavy allocations to fixed income assets because they have very long-term liabilities,” he explained.
“Going forward, through participation in the PRI board, Nippon Life will contribute to PRI initiatives to promote and expand ESG investments and finance globally,” the life insurer said in the announcement.
LEADING THE WAY
PRI has over 4,000 signatories across the globe, with combined assets under management (AUM) exceeding $121 trillion as of March 31, 2021. It is viewed globally as one of the most important initiatives in ESG investment and finance.
The $675 billion Nippon Life became a PRI signatory in 2017. In its annual assessment in 2020, Nippon Life received the highest assessment grade of A+ for the second consecutive year, in the four modules of strategy and governance; listed equity-incorporation; listed equity-active ownership; and property.
In March, Nippon Life established the ESG Investment Strategy Office and later began to incorporate ESG factors into all of its investing processes across its 74 trillion yen ($675 billion) portfolio. As of the end of March, its ESG-themed investments and loans had surpassed 1 trillion yen ($9 billion).
“Nippon Life has set the direction for other life insurers in Japan to join the PRI, allocate capital, and engage with portfolio holdings to deliver more sustainable outcomes and risk-adjusted returns to their beneficiaries,” said Nathalie Wallace, head of ESG strategy and development at Mirova, a Natixis Investment Managers group company.
Having an insurer as a board member will impact the regional and global asset management industry working directly with Japanese life insurers, as seen in the European asset management industry market five years ago, she told AsianInvestor.
“Many large insurers in Japan are actively putting ESG investing in their agenda. We believe other mid- to small-sized insurers will follow the leaders,” said Kaoru Kobu, Japan’s head of ESG with Invesco.
While major insurers have been proactive in ESG, especially on governance issues, their focus is now shifting to climate change. “Their attitude to their holding stocks should become much stricter,” Kobu told AsianInvestor.
So far, PRI has 96 signatories in Japan, consisting mostly of life insurers and asset managers.
AN AMBITIOUS MOVE
Kimura joined Nippon Life last year after retiring from Bank of Japan. His last title with the central bank was director-general of the Payment and Settlement Systems Department.
“Given some of his experience with BOJ, I think he's going to be able to help us bridge the gap between investors and policymakers on climate risk and opportunity in particular, because this is an area where Nippon Life has really sought to demonstrate leadership by being the first Japanese investor to officially adopt a net zero commitment,” McAdam said.
Unlike in Europe, ESG-compliant investment is still not a legal requirement for Japanese investors. “We'd like to see that strengthened,” McAdam noted.
Earlier this year, Nippon Life pledged to achieve net zero in its stock and bond portfolios by 2050 – the same timeline as the Japanese government’s target. While France’s AXA and Germany’s Allianz have made similar commitments, Nippon Life is the first institutional investor in Japan to do so.
In Kimura’s candidate statement submitted to PRI, he said: “I would like to contribute to this work [of promoting Japan’s sustainable financial system], by leveraging my central bank career of over 30 years and my current position at Nippon Life Insurance, Japan’s largest private institutional investor.”
Kimura’s PRI appointment followed the departure of Government Pension Investment Fund’s former chief investment officer Hiromichi Mizuno in March.
“ESG investing has become mainstream in Japan over the last several years, largely due to the actions by GPIF and asset managers,” said Masato Takebayashi, associate director for Asia-Pacific Research of Sustainalytics. The company’s Chief Executive Officer, Michael Jantzi, is also an incumbent PRI board member.
“The recent appointment of Kimura-san to the PRI Board is meaningful for Japan to maintain its presence in the international ESG investment community, and emboldens other Japanese insurance companies to take more responsibility to promote ESG considerations across the entire investment value chain,” Takebayashi told AsianInvestor.
PRI has only a few pension funds as signatories in Japan, including the $1.7 trillion GPIF, and it is striving to attract more to its fold.
Teruki Morinaga, director of insurance with Fitch Ratings Japan, believes that with Kimura’s deep understanding of Japan’s financial industry and his close connections to BOJ, his role with PRI could help establish more consistent ESG standards, not only among life insurers, but also among pension funds and other asset owners in Japan.