World Bank and $1.4trn GPIF to push sustainability via bond markets

The world’s largest pension fund and the World Bank Group are to work together on initiatives aimed at directing more capital towards sustainable investments, especially in fixed income.

Announcing their partnership today, Japan’s $1.4trn (€1.1trn) Government Pension Investment Fund (GPIF) and the World Bank Group said investors were increasingly looking for opportunities to have a positive impact, but data and standards for incorporating environmental, social and governance (ESG) considerations varied across asset classes.

The link between investment performance and sustainability “considerations” was better developed in relation to equity than for the fixed income market, for example. This is despite the size of the global equity market being dwarfed by that of the global fixed income market.

The World Bank Group and GPIF will develop a joint research programme to explore practical solutions for integrating sustainability considerations into fixed income portfolios, they said.

Potential areas of research include benchmarks, guidelines, rating methodologies, disclosure frameworks, reporting templates and risk correlation.

Hiro Mizuno, GPIF executive managing director and CIO, said: “This is a unique opportunity for GPIF and the World Bank Group to make a valuable contribution towards the Sustainable Development Goals, providing practical solutions to catalyse the development of sustainable fixed income markets.

“This partnership strongly reflects GPIF’s strategic commitment in advancing the integration of environmental, social and governance considerations in all asset classes of its portfolio.”

World Bank Group president Jim Yong Kim described the initiative as being about “transform[ing] the way asset owners and managers see investment opportunities”.

“We can’t achieve the Sustainable Development Goals and meet the world’s rising aspirations without a much bigger contribution from the private sector,” he added.

Nearly half (44%) of GPIF’s assets were allocated to bonds as at the end of June. Its policy mix foresees a maximum bond allocation of 64%, including domestic and foreign bonds.

GPIF is a strong advocate of incorporating ESG issues into investment strategies, and the need to adopt a long-term, holistic perspective. It recently began tracking three ESG indices for around ¥1trn (€7.8bn) of domestic equity investments.

Major investor organisation Principles for Responsible Investment has also been exploring how ESG and sustainability considerations could be applied to fixed income. So far its focus has mainly been on credit rating agencies.