Ethics in Business: In Their Own Words, with GPIF's Hiro Mizuno
Now they're still questioning whether, ethics, should be a part of our job but I really, cannot think of any job. Should. Be performed. Without ethics. Hello. I'm magalie laguerre-wilkinson. Welcome. To ethics and business in, their own words. ACCA. The, Association. Of Chartered Certified, Accountants. Has, teamed up with Carnegie, Council, and CFA. Institute to. Produce this interview, series launched, in 2018 for, global ethics day the. Series features global, business leaders exploring. How businesses, are preparing for. An ethical, future, in the face of challenges, presented by globalization. Technology. And human, psychology. Today. We're talking to Hiro Mizuno, executive. Managing, director, and chief investment officer. Of GPI, F the. Government, pension investment, fund or GPI, F manages. The reserve fund of the Japanese, public pension system as one, of the largest pension, funds in the world, GPI. F is the largest public fund investor, in Japan by assets, and has, a highly diversified and, long term portfolio, to. Make its return sustainable. For its beneficiaries, GPI. F takes initiatives, to promote so-called, ESG. Investing. Integrating. Environment, social and governance, factors into. Its investments. What. Role does. GPI, F play in the community. Well. We are managing the other the fund which, has. Its, beneficiary. Basically. Every single Japanese, over. The next, several. Generations. So, our, major role, in a community, is to secure, their retirement. Life so, you're saying the fund this, is not any fund, this. Is explain, a little bit what this fund is it's the largest fund in the world so, did you tell me a little bit how it got to that well, GPS manage the the public pension reserve, fund and. We are sole manager, of Japanese, public pension. Fund and at. The moment we have 1.5. Trillion, dollars, under management, and then. We, have. A globally, diverse by portfolio. It's. Pretty impressive by. Size yes. You. Were awarded the. Outstanding individual. Contribution. In our, I innovation, and Industry leadership, 2017. Can, you tell us a little bit about about. That award and, what did it mean to you to receive this, to. Be honest I really don't know why, I received, that award. But. If. I can. Think of something I, have. Done also GPF done to. Make. The change to the industry, was, we. Actually challenged, the other conventional business, model of asset. Management and, then. When. We started. The hour ESG campaign. You. Know the most, commonly asked question was it. Is, your. Job to. You. Know save the planet or, to make, the society better or, do anything other than making, a better return than the market but. We really. Challenged that business model was saying you, know GP who owns about eight to ten percent which open its equity market and we own about you know probably just shy of one percent of the global you, know equity index and then, I started. Questioning you. Know the traditional. Evaluation. Model, of the asset manager, is like how you beat. The market but. We, thought beating. The market meaning, beating ourselves because. We're the biggest owner of it and also. We. Realized. That according. To the, consultant, a certain. Manager never read, the market for like a ten years in a row so. We, started questioning whether, the business model is service right and then. We. Came up with the concept. Of like a universal ownership, we own the universe so if we own the universe we cannot beat the universe so, we should pay more attention to, contribute. To make the other universe more sustainable, so, I think that's probably the reason why. We. Became. One of the opinion leader in this, market. And then. You. Know I think we I was, regarded as a leader Oh like I you know do open. Your leader in that shift. Of the you, know the approach. You. Know I really don't know exactly but you. Know I just thought the other GP who need a little bit more like international, recognition so, we received it with with pleasure. That's. What I thought and based. On the model that's that's, clearly so successful. And. Maybe. You. Were maybe. It's the humility also in which you don't seem to boast about this too much but clearly it's, very successful, how. How. Do other. Global. Powers look to you do they look to you for advice in. That. In that regard. You mean the global. Asset management powerhouse, for. Unstirred my peer, asset owners I. Try. To communicate with them trying to get. Them. Sort. Of make. Them join or a campaign, to. Challenge. The other conventional. Business. Model, and even. Before, we started this, you know the movement, or initiative, there's. A mock you know market level consensus, amongst, all like a consensus. Among the after owner what. The.
Biggest Problem in today's capital market is a short termism. Right. But I thought. That nobody's. Actually walking the talk they talks about that against short-termism but, the way they built that business model is promoting. Virtual tourism so. What. We have done is like you know the introducing, like a multi-year, contract or, asset manager contract, and that's, the the other the, concrete. Action, to get. Rid of short-termism, froma, investment, chain and those. Kind of things I think we still started, getting a lot of you, know the. Support. From our PR as their owners and then. Also the. Concept of universal ownership. According. To the Harvard Business School professor we. Are the first one who took that concept, out of rusty, textbook. And. You, know the use, data into practice, so, Universal. Ownership we are getting a lot of support, and I. Noticed, even attending a lot of different conferences, other, asset owners started using Universal, ownership to. Convey their message and, then. The, other things, we are started. I think getting, traction is like, you. Know. We started using a long term investment. As a acronym to a short term investment. But. We. Came to realize long. Term everybody, has a different definition. Right. So. Actually. When I made. A speech at the CFA, you know Institute of conference in Hong Kong I asked the audience and, other panelists, what's, your definition of a long term and. As somebody says three months and. The other said 30 years so, of course we cannot agree on things if you have that kind of different you know time frame in mind so, we. Started, using a cross generational. Or, intergenerational. Investment, and. That's. Actually, exactly. Reflect. The GP mandate but. That's actually resonate, well with what. People, mean particular. Like a because I don't mean by long-term. Investment, it's being a responsible, investor. An ethical. Decision how. Can you help investors, make those. Decisions. That's, one of the most interesting. Characteristics. Of, this. Industry you know, the wind, started our ESD, campaign. The. Most. Commonly asked question is whether. It's against my future duty to. Consider. ESG. And also. Ethics, and then. No. ESG, after, three years of debate and the actual work by GPI, f we. Started getting very little pushback from asset managers. But. Our, question is well how they're integrating. That into their business is actually they're still questionable, when. You come to the FX I think. That's. Really. Interesting, to. Hear, after the monitor or even my team questions. Me whether. We, should have. Any ethics in doing. Our job I think. It has such a you. Know in. Question to ask the. Reason why is, you, know if, a thorough, monitor govt, to evaluate, and meet, the CEO of the companies right if, they let's. Say he or she CEO. Tell the other manager. He. Has no ethics in his job. Do. You think it's acceptable, and. I don't think it's acceptable nobody, would say it's acceptable, but. On. One hand we all agree, all, the business leader and even just a profit one profession, I have to have a walk SX but. On the asset management side we are questioning, whether. We should consider ethics, when we do a job I really. Don't understand where this discrepancy comes, from where does it come from I have no idea because that probably. May. Be a negative a legacy of like a social response for investment, because, in the past people just, become so carried, away by like a social, responsibility, and they, actually made a lot of financial loss and that.
They Came to realize you know the putting, social responsibility. In. Front of financial, return is probably. No you, know they're serving their, purpose, of existence which is to make money or, their, you. Know the clients, but. I think. That kind of the sometimes, you know people learn, from the other pass wrongly and, that is probably I think it's a probably the people learned, are wrongly and now, they're still questioning whether, ethics, should be a part of our job but I really, cannot think of any job. Should. Be performed. Without ethics. This is my personal opinion this is not the institution of view but I strongly believe, that no. Jobs should exist without ethics how. Do you implement that in, GP, if' what. Are is there an ethical standard, to, be a part of this well. We have a code of conduct but. Ethics, is something is not written. To be honest you, know the I. Think. When you talk to the other corporate, executives. You, actually take it for granted right he, or she have ethics, right. And so. I'll. Do the same to our, own, investment, team. And. Also they are external money managers, I just take it for granted you have ethics, right. And, probably. Only the grey. Zone is. Whether. You, want. To use the investment. To. Affect. Somebody else ethics, that's probably only the gray gray zone but. I'm, really, telling I'm tired of the people start keep asking, whether we should take ethics, into account when we do you. Know do investment, so that's. What I do but, you. Know a lot of people still struggle, with that the other server, classic. Concept, of video duty and. My. Conclusion is, if. You have a video story of. Generations. You. Have a different view and, then. I, actually. Made a speech at the airplane Osiris, at the investor forum and I talked about ethics, and I, actually share the other quotes from, 90s. And 19th, century Japanese philosopher. Ninomiya, suntico he. Said like you know. Economics, without ethics is a crime. And ethics. Without economics. Is a fantasy, I. Really. Believe in that and I. Think. The Japanese you know the society, always had that kind of value embedded. In our culture so, I really, don't think it should be difficult for Japanese company, people to you. Know have. That kind of the other work ethic and, that's. How we were. Brought up here, how. Is, gpiof. Helping. With retraining. Management. Employees and providers, to help them adjust to, an increasingly, automated world, now we're going into that realm. Of mmm. Technology. Well. I like. Talking about AI and then. I, think, the whoa, to be honest over the last three years I mean or four years I've been always frustrated. Distr. In this industry particularly, too. Slow to adopt AI, because. If you think about it you, know the answer, to management. Should. Get. More. Benefit, by. Using AI. Than, some, other industries, so. I, keep asking other managers how you are using you, know the AI and, then. More. You know. Still. Very you, know the few. Positive. Feedback. We, received from asset manager they, still talking about oh well you, know the a I still cannot do this and you know the human, judgment. Is required. But. I said. Come on you know the if, you think about what you're doing you, know the only daily basis, right it, should be replaced by AI, but.
Last Year we did, started, the other joint research program with the Sony Computer Science Laboratory. To. Find out how we can use AI, to. Monitor. Our asset. Managers, the, activities. And, just. After six months we made fascinating. Findings. How. You. Know the AI can help us you, know we collect the all the big data from a set of managers on a daily basis but nobody has really. Used it but. Now AI can actually monitor how they you know the are you know the anomalies are actually trading so, how did it help how did you what are the differences, that you saw well we, we saw we, observed a lot of a discrepancy like, I know as a manager food says you know we a long-term investor, we are average holding period of five years but. Actually they trade very frequently, one. Of the hidden agenda of that day I project is that I wanted to persuade, my team. That. We should focus. Our effort, on something, not to be replaced. By, AI so. I have a strong belief daily. Monitoring of trading. Or, like even a monitoring, as the managers, you know the investment. Will. Be done by AI they. Would do much better job well, at least they can help us, but. That. Might frighten some people well. Them. May, but, my. Otherwise. Do my own team is you. Know when. You aware. You become aware of that via the potential, future, what. You should focus. For. Your remaining, career, and that. Actually I use it to persuade my team that the AIG is one of the ESG, is one of a few areas that the human can prevail you know. We, are, the biggest owner of Japanese equity market as I said but. Inconvenient, Truth of the ownership is we. Have no say in today's trading price because. We don't participate, in trades trading because most of the other equitable, you own almost, perpetually, so. Inconvenient. Truths of capital market is good, owner has, no say in today's trading price, the. Food has a say. Which. Is the person, food trade the most today right and. According. To some statistics, which, I don't know what I is exact. Or not but in. Like. A New York Stock Exchange 7080, percent of daily trading volume is now made by machine, I and. Those. People, has no. Opinion.
Or No. View. On, what. Kind of the society. We want to leave what. Kind of environment, you won't want to keep for our future generation, machines. Don't care about it and, then. Also. They. Pro even know what, the each company is doing right. So we, have, to face that situation I mean on one hand we are talking about long-term investment. You, know we want to get rid of short-termism, but. You, know if there's 7080 percent of daily trading body was made by machines, who don't care don't have the long-term perspective. What. The humans should do and I have. A strong belief that humans. Should focus on something either. Involve, long-term. Perspective. Well, the second is involved a value judgment and, then. I think, you know the our, team started getting persuaded. You. Know my vision, was right because then now they know the, AI is potential, and. So. I don't think it's why it should scare some people but. On. The other hand it actually just a streamline, that the what the people should focus. On how. Is your company managing. Its impact, on the environment. Environment. Is. The. First. Letter. Of ESG. Right. So we basically tell all our other managers, to integrate. ESG into their analysis and the. Second we also, ask, our after monitors, to, select. Critical. ESG, issues and. Engage. With their portfolio, company on those. Issues, of their selection so, I, would be very surprised, the any of our cassette manager says like you know the environment is not a critical, ESG, issues so if they, say yes. Environment. Is a critical. ESG issues we, demand, them to engage with a company yes, G is. The Ark is ii-in what, does it stand for Eva environment. Is for social G for governance right so, as. We. House. Was 1% of our equity portfolio. We. Basically communicated. With the portfolio company through our asset manager and then, our ceremonies, are required. By GP, I have to stay as our you, know a thorough manager, to engage, the company on ESG. Issues over. Their choosing and. My. Assumption, is, pretty. Much most of the our asset managers should choose the environmental. Issue as the, critical ESG issues so we, are expecting. Them, to engage with a company to improve. Environment. Impact of that portfolio company for. GPF as the what we can do more directly, we. Started, using the, ESG. Index. To. Improve, the ESG quality, of our portfolio, and, several. Months ago we introduced, the global. Environmental, index. Together. With SMP so, it's the SMP. Carbon efficient index, so. That's the other index. Created. To. Promote, the company has. Higher, carbon, efficiency and. Discouraged, the company who has the lower component, you know efficiency, so. We, have invested, more, than 10 billion dollars behind, that index so, that's our direct, impact, on the environment I would say so I would say that's a pretty active the good thing about index, they're using index is that the we, can actually affect the market we send out the message throughout the market because, by, selecting, you know the company by company or, asking. Asset manager, to actively. Pick and choose the other, environmentally. Friendly company it, wouldn't affect the market because that's again coming back to the other my earlier, point of you, can beat the market by picking a good one but, to.
Affect. The other make the systemic. Effect. Index. Is actually has better you, know the market, wide effect so. We, have. Really, have a you know the strong. Focus on the other using. Environment. And social and governance the, weighted. Index. -. You know shift of portfolio, and the. Last one is the we. Recent. Released our first ESG. Activity. Report, and in. The report we, try to disclose. The, other you know the carbon efficiency of our global portfolio which. Healthy has such a difficult, work to do because. You know that we are sitting, on the top of the food chain and so, the for us is the collecting information also. The manager have to disclose the carbon like a carbon footprint or like environmental, quality, of their portfolio, and for, them to do it the underlying portfolio, company has to do it so we. Just cannot, create their categorical. Report. Of, the. Environmental, impact but by. Our. Doing, it we are sending a stronger message to. The arsenal', managers and also, to, the other portfolio, companies what, is the greatest and, we're coming back full circle but what is the greatest ethical challenge, facing. GPI, f and and the industry, your industry in general. Well. There's. No one particular ethical. Challenge. Facing. Our industry. But. And. Also I believe, every. Individual. Has. Proper. Ethics. But. For, some reasons, we. Create the market. Custom, like. You know the emails like a sort of our market. Standard. Not. To talk about ethics. Or not, to take. Ethics, into their daily, you, know the job, that's. Probably, the. Biggest challenge and I. Really don't think when you ask the other. You know the CFA, you know the Institute, of members. Do. You have ethics, menu to the job and what kind of ethics do you have I think, I still, believe that everybody, has one but. For. Some, reason we created. The other industry, custom, not, to talk about it the, other challenge, we, are facing is. That. This. Industry, people. Is very smart and that. They are trying, to their job. Very. Precisely, and technically, right, but. Ethics. Is not technicality. They. Just need to have a over a concept, of ethics over, a concept, of like a morale, and. This. Industry we actually trying to insulate, ourselves from, those. Kind of like in on the high, level concept, when we do the job but, I still, believe that the although. They don't talk about it they have one but. When, you, know why they cannot openly talk about it that's my biggest question, and then. You. Know one of the good example, is you. Know the I, heard, from the other somebody, from the CFA, you know the Institute. That. Fiduciary duty, and all those like you know rules this. Industry, may need a regulatory, intervention, to change the behavior. That's. One of the most you, know. Disappointing. Comments. Because, you, know this industry is. One of the highest industry and has. Been recruiting, most. Intelligent. Students. From the University, and also MBA, business schools, for the last decade and. Do. We need to have the regulatory, intervention to change the error you know behavior, that's, very questionable, right.
So, I was told, several times that if we want to do ESG. Integration or, ESG promotion, more we. Should work with the regulator, to change the regulation, and the. -. That I just cannot agree and, that's. Probably the biggest challenge of the other for the industry it's not about the whether they have xx or the particular ethics. Ethical. The. Issue. We. Face it, but it's more about, the the. Sort. Of holistically. Thanking, of the ethics, and moral under the professional. Like, you know expertise, is something, we just need to work out so. To wrap. It up but as someone with. A great, career in finance, and an, investment, and now you're. Essentially in government in some, way as to what. Does ethical. Behavior, personally, mean to, you, well. In. A way it doesn't mean much I think or. Anybody's, do perform you, know your job you. Shouldn't be it shouldn't need. To ask. Ethics. On a daily basis, right. It. This this is exactly I was trying to you know they're trying to there's a persuader my, people like if you have to question. Or discuss, about ethics, on a daily, basis. There's something wrong with that business. You.