Hiro Mizuno, formerly Chief Investment Officer of the world’s largest pension fund, Japan’s Government Investment Pension Fund (GIPF), in conversation with Dr Mary Johnstone-Louis , Programme Director, The Ownership Project at the University of Oxford’s Saïd Business School. GIPF manages funds of $1.6 trillion.
Oxford, 17 January 2020
The public equity market model doesn't seem to function because nobody feels responsible.
Mary Johnstone-Louis (MJL): From your perspective, what does responsible ownership mean?
Hiro Mizuno (HM): First of all, I always question what ownership means. In my opinion, there is a misperception, particularly within public companies: shareholders claim they are owners, but they don't act or think like owners because they want to keep the option to buy or sell. My view is that the owner should be the one to feel the pain, if you will. To feel responsible for what's happening at the corporate level.
There are different types of ownership: in a public market, you have a group of owners, but you have no idea who they are, and you have no idea how long they will be owners. You have family owners, where the ownership is very clear. And you have private equity which is an institutional owner, but in my experience, it actually does often have a sense of ownership. I think the public equity market model doesn't seem to function because nobody feels responsible.
Responsible ownership means you act like an owner, you feel you are a part of that business, not that you are the investor who can make a 'take it or leave it' decision at any time. So, I think for the ultimate owners of capital, we need to understand different types of ownership in order to make that ownership responsible. We need to make the effort to make public equity ownership more responsible.
MJL: You've been very outspoken on Environmental, Social and Governance (ESG) issues. Why is this so important for a pension fund?
HM: The difference between a pension fund and other investors is the investment timeframe, and who we serve. We tend to have a longer investment time horizon. Because of this, my view is that a pension fund is the one who should make sure to preserve the value of a company over a long time. In most cases, we have a multigenerational responsibility.
Why have I been so focused on trying to make the public market function better? Because it’s the best way to create wealth for a wide range of people in society. To invest in private equity or to be a family owner is not accessible to wide participation. We have seen that returns on capital have outpaced increases in wages. A public pension fund is one way to bridge that gap. Public markets are the most widely accessible. We don’t want them to become dysfunctional. We are doing a lot to ensure public markets remain healthy.
We don't want AI to decide what's the best solution for us, for the planet, what's the best solution for society. We want to make that judgement.
MJL: Are there specific ESG issues that are of particular importance for pension fund owners at this stage?
HM: Climate change is relevant, and it’s up to people like us to step up and promote that message. If somebody owns a company for six months, it’s easy to say climate doesn't matter to that owner. But if you're going to own for twenty years, it’s a different story. We also need to make sure that the Board will commit on issues like climate because a CEO’s term is too short to be responsible for such long-term outcomes. It’s difficult to ask a CEO to pay attention to something beyond their term. It’s our responsibility to make sure that Directors and other long-term asset owners commit on long-term issues.
Breaking apart ESG, Governance (G) is a bit different because G is not a goal or target as such, but Environmental (E) and Social (S) are outcomes. Governance is important because it’s a means to ensure the company looks after E and S which only affect the company in the long term. Hence, we don't like to detach any part of the ESG alphabet. You can look at the environment and look at gender diversity, but at the end of the day, those E and S issues won’t necessarily affect the corporate bottom line in the short term. We need G to make sure they are dealt with in the long term. Asset owners should affect companies’ long-term decisions and investment through the G in ESG.
MJL: What advice would you give to MBA students who want to turn their career into positive impact?
HM: First of all, think very hard about what it means to work for or found a company. What’s the purpose of it? And they are going to face the biggest question, which is who owns your business? Shareholders or other stakeholders? MBAs today are entering a world where they need to address that question. I have one hundred percent confidence leaders will do a better job managing these issues than will machines. That’s actually one reason I really push my team to do ESG. The more we work on Artificial Intelligence (AI), the more popular ESG becomes among my team. Because we don't want AI to decide what's the best solution for us, for the planet, what's the best solution for society. We have a sense that we humans want to make that judgement. The more my team understands this, the more interested they become in ESG issues.
Investors have to pay attention to the whole system
The GPIF CIO tells an Oxford Saïd audience why the conventional wisdom of asset management is no longer enough.
