TOKYO: The former head of the board of governors at the world’s largest pension fund said he sees signs of a “bubble” in environmental, social and governance (ESG) investing, and said the Japanese fund needs to consider how much ESG assets contribute to returns.

       Eiji Hirano, who was chairman of the board of governors of Japan’s Government Pension Investment Fund (GPIF) from 2017 until earlier this year, presided over a tumultuous period for the fund as it became a world leader in ESG investments.

       The fund now needs to reassess its approach to ESG, he said.

       “The GPIF needs to go back to its roots, and think about how to analyse if ESG is really profitable, as well as how to evaluate and standardise ESG, ” he said in an interview.

       “It’s a little like an ESG bubble right now, and we should evaluate both the good and the bad.”The board of governors, which was formed in 2017, has a supervisory role and oversees matters such as asset allocation and compensation, though not day-to-day operation of the fund.

       The 178 trillion yen (US$1.6 trillion or RM6.64 trillion) GPIF will report results on Friday for the year ended March, and is expected to announce record-breaking returns.In an interview with Bloomberg News in Tokyo, Hirano touched on subjects including the possibility the fund will need to reconsider the weighting of domestic stocks in its next portfolio review, the role of alternative assets, and the choice it faces over investing in Chinese sovereign debt.

       GPIF was a pioneer of ESG investing in Japan, hailed as a fund that tried to “change the world” through its bold approach under former chief investment officer Hiromichi Mizuno and former president Norihiro Takahashi.

       The fund has gone comparatively quiet on ESG under its new management. Hirano said it’s less vital for the GPIF to be on the forefront of ESG cheerleading, and said the fund should examine the true returns from the burgeoning asset class.

       “Under the leadership of Takahashi and Mizuno, many bold steps were taken on ESG, ” Hirano said.

       “It’s part of the corporate governance code now, and the government has now started to wave the banner on issues like climate change.” — Bloomberg