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Hiro Mizuno: ‘Investors have to pay attention to the whole system’

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The GPIF CIO tells an Oxford Saïd audience why the conventional wisdom of asset management is no longer enough

‘Multi-generational investment’, ‘universal ownership’ and reframing the Sustainable Development Goals as risk factors: these are three key ideas that can help create more sustainable capital markets, said Hiro Mizuno, Chief Investment Officer and Executive Managing Director of Japan’s Government Pension Investment Fund (GPIF), at an event at Saïd Business School on 17 January 2020.

As the steward of the world’s largest pension fund (GPIF has approximately $1.6 trillion of assets under management), Mizuno is a high-profile proponent of the principles of responsible investment and adopting Environmental, Social, and Governance (ESG) considerations. He regards encouraging long-term thinking as particularly important, reminding the Oxford Saïd audience that, even after the 2008 collapse of Lehman Brothers and the subsequent financial crisis, short termism remained the default position in capital markets.

However, attitudes are changing. Mizuno said that investing to achieve ESG targets had the effect of killing two birds with one stone as ‘they only make sense if you have a long-term perspective;' and the asset managers for GPIF now believe that ‘ESG is the most important factor’ when it comes to investing. He has also adopted the phrase ‘multi-generational investing’ to encourage a longer-term horizon.

His next ambition is to incorporate the Sustainable Development Goals (SDGs) into portfolio management. These, he thinks, are typically viewed positively as opportunities to create shared value. But ‘If we can interpret the SDGs as a risk factor, we might be able to push the investment industry much faster,’ he said: ‘What if we fail to achieve the SDGs? If people don’t have access to education, clean water, or energy, what sort of system will take its place?’

Conventional wisdom … ignores the fact that when a company makes a profit at the expense of the environment, for example, that cost still has to be incurred somehow, somewhere, some time

This, however, will require asset managers to think about what is happening in the world outside their portfolios. ‘Conventional wisdom … ignores the fact that when a company makes a profit at the expense of the environment, for example, that cost still has to be incurred somehow, somewhere, some time,’ said Mizuno. ‘When I started arguing that we had to make capital markets as a whole more sustainable, I struggled to convey that message, until I came across the concept of universal ownership.’

Large institutional investors such as GPIF are effectively universal owners, because their portfolios are highly diverse – they have taken a slice through the whole economy and market. The environmental costs incurred by some companies in their portfolios will have an impact on companies elsewhere in the portfolio. This means that asset managers must develop investment strategies that contribute to making the whole system more sustainable.

‘Conventional wisdom – beat the market, beat the benchmark, beat the competitor – is not going to help us,’ said Mizuno. ‘We have to pay attention to the whole system.’