PRI in Person: investors urged to give net zero allocations a capital injection

No words, but deeds. No pledges, but allocations. No promises, but investments. 

That was very much the key takeaway from day 1 at PRI in Person, the annual conference of the Principles for Responsible Investment that kicked off in Tokyo earlier today.

The calls come amid much debate at the event about the strong anti-ESG sentiments around the world, which is clearly a concern for many asset owners and managers alike.

Held in Tokyo this week, Net Zero Investor was present as David Atkin, the chief executive of the PRI, the UN-backed network of ESG-focused players in the global finance community, told a packed conference hall with more than 1,500 delegates from all corners of the world that "the theme of PRI in Person this year is moving from commitments to action. This is the number one takeaway for investors across the responsible investment ecosystem." 

He added that "to achieve the goals of the Paris Agreement, action is imperative across the board. We are encouraged by the terrific momentum in sustainable investing, but we need to realise a whole-of-economy response to address the climate emergency."

Atkin went on to address investors directly. He told pension funds, insurance firms and other asset owners that "if you do leave this event this week with just one thing, I hope it's conviction. Conviction that you stand on the right side of history. Conviction that what you are doing is the changing the way finance supports the prosperity of people, and conviction that you are serving your beneficiaries as you translate your commitments into meaningful action."

He added: "We need more ambition, we need more action, and we need it now."

Japanese PM hints at reforms

Echoing Atkin's sentiment was current prime minister of Japan, Fumio Kishida, leader of the country's government since 2021 and one of the keynote speakers today.

Taking the stage, Kishida told attendees that pension funds should "unlock" trillions of yen in potential investment.

"This is not just about Japan, this is not just an event for Asia, this is greater than any nation state," the political veteran stressed. Governments and regulators play their part, now investors should step up."

And Kishida did not stop there.

Under loud applause, Japan's leader announced that seven of Japan's pension funds, collectively managing more than 90 trillion yen, or around $600 billion, will soon sign up to the PRI network. He did not specify which retirement vehicles he was referring to.

“Our objective is that public pension funds reinforce their work on sustainable finance and spread the movement to the whole financial market,” he said.

“Supporting and investing in innovation, encompassing transition finance and impact investing, is no longer a mere ideal but a necessity. These endeavours drive both problem-solving and growth," Kishida added.

He also commented on the significance of incorporating sustainability outcomes, stating that "finally, strengthening the functioning of finance that encourages sustainability outcomes." 

Kishida pointed out that Japan has more than 2,100 trillion yen, or $14 trillion, in household financial assets, of which about 530 trillion yen, $3.6 trillion, is largely managed by asset managers and asset owners as insurance and pensions. 

“The initiative enables asset managers and owners to engage in dialogues with companies and promote growth and sustainability outcomes,” he continued, stressing that he expected more pensions to join in future.

Of the PRI’s 5,300 global members, only 125 are so far based in Japan.

However, Japan’s Government Pension Investment Fund, the world’s largest retirement fund with just under 220 trillion yen in assets under management, did sign up some years ago.

In addition, Kishida called for structural reforms in Japan's asset management sector as part of new economic and fiscal policy plans, although he did not detail any specifics or details.

The overlapping calls by Atkin and Kishida seemed to resonate well with managers present at the event. Some believe that asset owners could go much further, take more risk and could up their allocations.

A Europe-based manager shared with Net Zero Investor: "You see some reluctance among pension funds to go big. This is partly because of the current market conditions, but also this habit not to take too much risk."

He added: "If pensions are serious, they would allocate more to their sustainable portfolios. The numbers would be bigger. It's not like they don't have the money."

The CEO of one of Japan's largest owners, Nippon Life Insurance, shared this view. 

The industry should be prepared to accept reforms as Hiroshi Shimizu indicated pension funds, insurance firms and other investors could be subject to stricter regulation that forces them to invest more in green assets, in order to accelerate the decarbonisation drive.

Shimizu, since 2018 the CEO of the $270 billion investment giant, said asset owners have a responsibility to act.

"We have to fulfil our responsibility simply by using ESG information and data to assess the climate risks in our portfolios, and our exposures," he told delegates today.

Shimizu stressed that "it is essential for stakeholders and others to deepen their understanding of the different risks and our environmental surroundings, particularly in emerging economies, including Asia."

His call came only a few weeks after his company banned investments in nuclear weapon firms and tobacco.

"I am not here to promote our insurance products, so please come to our stand, say hello, let's start this dialogue," Shimizu concluded.

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