Interview: ESG investment in Japan and the world
“We expect a further fundamental shift in ESG-investment in Japan.”
Speaker: Anthony Tursich
Portfolio 21 Global Equity Fund, Trillium Asset Management
Interviewee: Takeshi Nozawa
Since Principles for Responsible Investment (UNPRI) which encourages investors to focus on ESG was launched in 2006, ESG-focused investment has expanded in Europe and the United States. Institutional investors in those countries started pursuing active dialogue with companies in order to support their sustainable financial performance over the long-term.
In Japan, Financial Service Agency of Japan unveiled Japan’s Stewardship Code in 2014 and institutional investors inside and outside the country expressed their acceptance of the code. Therefore, it is expected that the interest on social responsible/ESG investing becomes increasingly powerful also in Japan.
Under these circumstances, Portfolio 21 Global Equity Fund Team of Trillium Asset Management visited Japan to have direct meetings with Japanese companies in March 2017.
Trillium Asset Management is the investment advisor exclusively focused on the investment integrating Environmental, Social and Governance (ESG) factors into the investment processes as a way to identify the companies best positioned to deliver strong long-term performance since its establishment in 1982.
EcoNetworks supported to coordinate these meetings on behalf of Trillium Asset Management. Here is an interview of Portfolio 21 Global Equity Fund team on ESG investment and Japanese companies.
With Portfolio 21 Global Equity Fund team
(From left) Anthony Tursich, Takeshi Nozawa, Emily Lethenstrom, James Madden
Tell us about Portfolio 21 Global Equity Fund.
Portfolio 21 Global Equity Fund is a 430 million USD fund investing in a hundred global companies. Japanese companies account for around 6% of total assets. Based in Portland, our team is under the Trillium Asset Management but we take on our own strategy.
Our selection criteria is focused on companies that meets positive thresholds of performance for ESG issues in addition to strong financial performance. We do not invest in companies that directly handle fossil fuels, nuclear, tobacco and weapons.
We travel around the world two or three times a year and visit companies for interviews to catch the latest information and to confirm whether our strategy is in good line, which are the reasons why we visited Japan this time. Meeting with 14 companies from various sectors in a week was tough, but the visit was really productive.
What is your approach to ESG?
Bigger focus on “E,” and moderate focus on “S” and “G.” We acknowledge the importance of environmental impacts that affect hugely on business and society. It is now imperative for companies to mitigate negative impacts and maximize positive impacts through their businesses.
Trillium Asset Management approaches companies by holding stocks while strongly engaging for changes. Our team try to find exceptional companies in terms of high-quality growth with positive ESG. Once invested, we try to hold the stocks for a long time and follow their sustainable growth.
How do you evaluate ESG performance?
We have our original criteria to evaluate a company’s performance.
To gather necessary information, we benchmark MSCI All Country World Index and its ESG reports. In addition, related data is collected through CDP as well as annual and sustainability reports of each company.
However, we acknowledge the difficulties such as the existence of the language barrier for Japanese companies, and the reliability of information we collect is not always correct or updated sometimes. We found that one of the companies we visited this time had such a case. The measures they took already for the negative event had been released in Japanese but not in English, which led to the situation that the information on the MSCI report was not updated.
A direct meeting is important in this sense not only for us but also for companies. For our side, it helps to obtain the correct information and share it with asset owners. For companies’ side, it assists them to understand which information need to be released in English.
How do you see Japanese companies in terms of ESG?
Government Pension Investment Fund (GPIF)’s commitment to PRI brought big changes to ESG-investment environment in Japan, and we expect a further fundamental shift in the coming years.
Although we understand the mentality of Japanese culture, we hope Japanese companies to become more open for dialogues with shareholders. We are not always seeking a perfect answer. We just would like to have the better understanding of the company, for example, the company’s strategies, problems, barriers to solve them, and future expect. Dialogue is a process for a mutual understanding and change. We are happy to engage with more and more companies.
At last we would like to express our gratitude to companies who welcomed us this time. Thank you.