Beware of “ESG bubbles,” says the former chairman of the world’s big names …

Beware of “ESG bubbles,” says the former chairman of the world’s big names …


Former president of the world’s largest pension fund said there are signs of a “bubble” in investing in the environment, society and governance, and Japanese funds need to consider how ESG assets contribute to returns. Said.

Eiji Hirano, who was the chairman of the Japanese Government Pension Investment Fund from 2017 to the beginning of this year, presided over a turbulent era as he became a world leader in ESG investment. He said the fund now needs to reassess its approach to ESG.

“GPIF needs to go back to its roots and think about how to analyze whether ESGs are really beneficial and how to evaluate and standardize ESGs,” he said in an interview. “Now it’s a bit like an ESG bubble, so we need to evaluate both the good and the bad.”

The Board of Directors, established in 2017, has a supervisory role and is not a day-to-day operation of the fund, but it oversees matters such as asset allocation and compensation. The 178 trillion yen ($ 1.6 trillion) GPIF will report its results on Friday of the year ending March and announce record earnings.

In an interview last week, Mr. Hirano said the fund may need to revisit its weighting of domestic equities in its next portfolio review, the role of alternative assets, and the choices it faces over investing in China’s sovereign debt. Touched.

Below are some highlights:

ESG investment

GPIF is a pioneer in ESG investment and was welcomed as a fund that aims to “change the world” with a bold approach under former Chief Investment Officer Hiromichi Mizuno and former President Norihiro Takahashi.

The fund is relatively quiet about ESGs under new control. Mr Hirano said it was not so important for GPIF to be at the forefront of ESG cheerleading, and that funds need to consider true returns from fast-growing asset classes.

“Under the leadership of Takahashi and Mizuno, many bold steps have been taken against ESG,” Hirano said. “This is now part of the Corporate Governance Code, and the government is now beginning to flag issues such as climate change. This trend is established even if the GPIF is not in control. “

Next portfolio

GPIF’s major portfolio reviews are held approximately every five years. In 2014, a drastic review moved many of the fund’s assets from fixed income to equities. Last year, we reduced our allocation to domestic debt and instead placed it in foreign bonds.

That is, the fund currently holds approximately 25% of its portfolio in foreign and domestic stocks and liabilities, respectively. The next major review is scheduled for 2025, and Mr. Hirano predicts that the focus will be on the allocation of Japanese equities.

“The weight of Japanese equities in the global market is about 6-7%. From an expert’s point of view, the current 25% weight of Japanese equities is too high,” he said. “It’s not uncommon to have’common things’, but this could be one of the areas of debate in the next medium-term plan to come into force in April 2025.”

“The more cautious about the future, the greater the risk we need to include in our portfolio. This is a paradoxical mechanism,” he added.

GPIF Goals

The main challenge facing the fund is to raise public understanding of its returns, says Hirano. He said the GPIF requires a return on investment of 1.7% above the rise in nominal wages, with the fund aiming for an overall target of about 3%.

“Japan’s interest rates are near zero and are declining globally, so it’s completely impossible to get 3% from the bond market,” Hirano said. “But there are so many Japanese who think investing in stocks is dangerous. It’s really hard to fill that gap.”

Mr Hirano laments that the public is focusing on short-term losses and profits. For a fund that invests over a 100-year period, “it’s nonsense to go back and forth between sadness and joy with quarterly results.”

New CIO

Compared to his candid predecessor Mizuno, Eiji Ueda, the fund’s current chief investment officer, prefers to run in the background. Mr. Ueda has not spoken publicly yet, despite having been in office for over a year. Mr. Hirano revealed how Mr. Ueda, a former bond trader of the Goldman Sachs Group, likes the business.

“Ueda builds on the foundations of its predecessor system and goes one step further to build accurate risk management and elaborate rebalancing strategies,” he said, with Ueda’s main goal being GPIF management. It was how much we could exceed the combined benchmark.

China Bond

GPIF faces a dilemma as to whether to fund China’s sovereign debt as FTSE Russell has been set to add China’s debt to its benchmark global bond index since October.

“This issue can have political implications,” he said. “The GPIF does not anticipate considering the political agenda, it only thinks about risk-weighted returns, but politics can impact the market. The GPIF faces difficult decisions.”

In an era of both false and too much information, Quality journalism is more important than ever.
By subscribing, you can help us understand the story correctly.

Subscribe now

Photo gallery (click to enlarge)

..



Source link

Investors seeking ESG debt can help halve Tokyo’s funding …

Investors seeking ESG debt can help halve Tokyo’s funding …


The Tokyo Metropolitan Government has reduced funding costs due to growing global demand for the first social bonds offered by Japanese local governments.

The 0.005% coupon is half the current level of regular 5-year municipal bonds priced earlier this month. According to Goldman Sachs Group, one of the underwriting banks, the application amount for 5-year bonds exceeded 30 billion yen by about 12 times, and the funding cost could be reduced.

“The 0.01% yield is low enough that major institutional investors initially expressed resistance to even lower returns,” said Hitoshi Kawahito, head of public sector and infrastructure banking at Goldman Sachs in Japan. Satoshi says. Still, he said investors decided to buy bonds shortly after marketing began. “I think there was an ESG premium on this deal.”

The so-called “greenium” (or green premium) underscores the growing investor motivation for securities used to fund socially responsible investment. The funds raised by the Tokyo Metropolitan Government will be used for projects such as employment support for women who have quit their jobs, support for children with disabilities, and support for small and medium-sized enterprises that have been injured in a pandemic.

The city’s bond sales over the past five years and the Green Note, which raised 10 billion yen, were priced at 0.02% on October 16. Since then, yields on bonds, including Muni, have fallen in Japan.

Among other local governments, Shizuoka, Kyoto, Sapporo and Miyagi all set the price of ordinary 5-year bonds at 0.01% earlier this month.

“The demand for this social bond transaction exceeded that of green bonds,” said Hiromi Yoshiura, director of the fixed income division of the Tokyo government. “I think the purpose of the sale has struck a chord with investors.”

According to Kawahito, foreign investors have placed orders of around 10 billion yen, reflecting Japan’s low global interest in local government issues and the surge in demand for bonds to fund sustainable projects. Occupied. According to Bank of Japan data, as of December, local investors had 99% yen municipal bonds.

Earlier this month, Tokyo said it plans to sell more social bonds in the future, perhaps including dollar-denominated bonds, if the project requires a lot of money.

In an era of both false and too much information, Quality journalism is more important than ever.
By subscribing, you can help us understand the story correctly.

Subscribe now

Photo gallery (click to enlarge)

..



Source link

Kathy Matsui, the author of “Womanomics,” has ESG …

Kathy Matsui, the author of “Womanomics,” has ESG …


After spending 30 years in Japan, former Goldman Sachs Vice Chairman Kathy Matsui, known for his research that transformed government policy towards women at work, started a venture fund to help put some of her ideas into practice. I am.

Matsui, who retired from the Goldman Sachs Group at the end of 2020, will work with three other experienced female finance executives in healthcare, fintech, generational work and education, and the environment. Matsui said the MPower Partners Fund, which is rare in Japan as a female leader, secures high profits while at the same time imbuing startups with environmental, social and governance values.

“Our claim is that one of the missing links is actually ESG for Japanese startups to truly expand and scale globally.” “Integrating ESG into business strategy So, I am confident that a good company can become a good company and a company that grows sustainably in the future. “

Known for coining the term “womanomics,” Matsui has published a series of reports over 20 years detailing the economic benefits of women’s empowerment as Japan’s workforce ages and shrinks. .. Former Prime Minister Shinzo Abe supported her idea, but fell short of the goal of having 30% of managers women by 2020, the year he resigned. Japan’s World Economic Forum in 2021 It was ranked 120th in the forum’s Gender Gap Index.

Japan’s venture investment market has expanded rapidly over the last few years, but is still small compared to the United States and China, Matsui said. She added that the new fund aims to invest two-thirds of its capital in growing into late Japanese startups and the remaining one-third in early overseas startups.

The governance part of ESG can be interpreted as including ensuring diversity in the corporate board of directors, which Japanese companies have often struggled to achieve. According to the Organization for Economic Co-operation and Development (OECD), women will account for only 10.7% of the board members of Japan’s largest publicly traded company in 2020, below the OECD average of 26.7%.

According to Matsui, the “gap” in funding during the growth phase could limit Japanese startups’ premature listing on the Mothers section of the Tokyo Stock Exchange. .. Targeting companies at this stage is also an opportunity to influence them even more deeply.

“Our hypothesis is not to try to change the way adults and large corporations are published, but before teens and children are published, ESG principles and values ​​appropriate for these organizations. Let’s incorporate it, “Matsui said. “It should last longer and be ready for deeper integration.”

This launch took place during a period of growth in ESG investment in Japan. According to Esther Tsang, an ESG analyst at Bloomberg Intelligence, assets under management of ESG exchange-traded funds in Japan increased from $ 24 billion in early 2020 to about $ 35 billion.

Yumiko Murakami, a former director of the OECD Tokyo Center, who worked for Goldman Sachs and Credit Suisse for 20 years, is also a partner of the fund. The third partner is Miwa Seki, who has switched to a best-selling translation of college education and business after a career in portfolio management and investment banking. Eriko Suzuki, who was active in Morgan Stanley and UBS Securities, will be the managing director.

The main investors of MPower are Dai-ichi Life Insurance Co., Ltd., SOMPO Holdings Co., Ltd., and Sumitomo Mitsui Trust Group.

Murakami has an entrepreneurial background, like Matsui, the daughter of a Japanese farmer and a successful wholesaler of flowers in California. Her mother started a pharmacy chain in the countryside of Shimane Prefecture at the age of 48, but later sold it to a large company. It has never been so easy for women to get started decades ago.

“My mother was a housewife living in the countryside of Shimane, and no one loaned her. No one,” Murakami said of the venture. “I want to change that with this fund”

In an era of false alarms and information overload Quality journalism is more important than ever.
By subscribing, you can help us understand the story correctly.

Apply now

Photo gallery (click to enlarge)

..



Source link

Powered by WordPress | Designed by Agency Hacker