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Raising The Global Bar On ESG Issues With Stock Indexes

Posted on July 4, 2017 at 2:05 PM

Is the world's largest pension fund leading the way on how to get change on a number of fronts, from gender diversity to sustainability ?

Judging by the recent decisions made by the Government Pension Investment Fund (GPIF) of Japan, it might well be - given its adoption of some core environmental. social and governance (ESG) benchmarks.

As reported here on Board Talk, GPIF - which has over $1.3 trillion in assets, just selected a new index provided by the London Stock Exchange Group's FTSE Russell as a core ESG benchmark.  MSCI has also announced the launch of two new ESG indexes - the MSCI Japan Empowering Women Index (WIN) and the MSCI Japan ESG Select Leaders Index and both have been selected as benchmarks for GPIF's investment strategy.

Institutional investors have become increasingly loud about the need for businesses to champion diversity - see this recent post on Board Talk on Hermes Investment Management and Rio Tinto plc  and much of my writing on Forbes about investors.

Recent research has suggested that greater participation of women in the workforce may have benefits for the Japanese economy. As a result, the Japanese government has set out explicit goals to encourage women’s participation and promotion in the business world. It has set a loose target of “30% female leadership representation in various fields of Japanese society” by the time Tokyo hosts the Olympics in 2020.

The MSCI Japan Empowering Women Index (WIN) is made up of companies whose gender diversity initiatives have been determined by MSCI ESG Research to encourage more women to enter or return to the workforce.

"By allowing investors to express their preference for companies with greater levels of gender diversity in their sector, this index provides an opportunity for investors to participate the progress to women empowerment and its economic value and we need to ensure that we promote that message throughout our marketing" said MSCI.

The index's methodology uses local data points from Japanese companies as well as global data points and MSCI ESG research. This, said MSCI, "offers further incentive to local companies to move towards global ‘norms’ and improve gender diversity in the work place."

The second index, the MSCI Japan ESG Select Leaders Index, targets companies with the best ESG profile relative to their sector peers. This index is designed using MSCI ESG Ratings and targets companies with the highest ESG quality from within its parent index, the MSCI Japan IMI Top 500 Index, offering institutional investors a method to integrate ESG into their investment process.

All these initiatives point to the need to raise the global bar on the issues of stakeholder concern for better run businesses.

GPIF adopted Japan's stewardship code for institutional investors in 2014. It may be leading the way here with its new focus on ESG stocks.

Categories: Investors, ESG, Diversity