Japan Post Insurance is shifting its approach to sustainable investing by picking companies with a technological edge for solving global problems, its investment chief said, in a move away from typical ESG selection criteria.
With total assets of ¥74.5 trillion ($670 billion), the life insurer also known as Kampo is one of Japan’s biggest institutional investors and a major player in the world’s third-largest stock market.
The firm plans to triple the portion of environmental, social and governance (ESG) investments in its domestic stock portfolio to around ¥100 billion over the next couple of fiscal years, starting in April, Chief Investment Officer Atsushi Tachibana said.
Kampo is taking a radically different approach compared with conventional ESG investments, he said.
In recent years many ESG investors have focused on “somewhat superficial criteria,” such as the percentage of female managers, the average rate of paid leave taken by employees, or a company’s carbon emissions, he said.
Kampo tries to identify companies it believes have a technological edge to solve global ESG issues and meet U.N. sustainable development goals (SDGs), a set of 17 goals and 169 targets aimed at resolving social, economic and environmental problems troubling the world.
“We look to what extent companies’ exposure to businesses or products that will contribute to solving ESG challenges are driving their growth,” Tachibana said.
“That’s not something you can find in their public disclosure. We try to get an estimate through the 300 to 400 meetings and factory visits our analysts have with companies annually,” he added.
Based on that strategy, Kampo’s ESG portfolio looks very different from other ESG funds, he said.
The top 10 holdings in Kampo’s ESG-focused growth stock fund include FP Corp., a leader in manufacturing and recycling disposable food containers used in supermarkets, and Koito Manufacturing Co., which makes LED headlights for cars.
The fund does not include common ESG names such as Toyota Motor Corp., Sony Corp. and KDDI Corp., which have heavy weightings in ESG indices such as MSCI Japan ESG Select Leaders and FTSE Blossom Japan.
Since its launch last April, the returns for Kampo’s ESG fund have beaten the benchmark Topix by 2.5 percentage points, MSCI Japan ESG by 0.5 percentage points and FTSE Blossom by 2.7 percentage points, as of March 8, Tachibana said.
Kampo is the insurance arm of former state-owned conglomerate Japan Post Holdings. The insurer has increased investment in riskier assets since it was partially privatized in 2015.
Previously, the firm has relied heavily on outside asset managers to oversee its mostly-passive stock portfolio, which rose in value to ¥2.118 trillion by last September from ¥997 billion in March 2015.
It plans to double its in-house actively managed portion of the portfolio — which includes the ESG-focused growth fund and a high-dividend fund — to about 20 percent of total stock holdings, or about ¥400 billion, in the near future, he said.
As for Japan’s stock market, he remains cautious despite a recovery since January.
“We expect the global economic slowdown to continue a bit more, so we don’t plan to increase our domestic stock portfolio in the near term,” Tachibana said. “That said, their valuation is cheap and I think they can be good investments in the longer term.”