Japan’s Government Pension Investment Fund (GPIF) is looking beyond ESG index-based investing as it seeks to improve long-term investment performance and achieve market-average returns, according to its newly released sustainability report for fiscal 2025.
In the fiscal year ended March 2026, GPIF revamped its framework for incorporating environmental, social and governance (ESG) considerations into investment decisions and began investing in new ESG funds for the first time. The pension fund also expanded its stewardship activities and sustainability-related risk analysis as part of a broader effort to integrate ESG considerations into its investment approach.
As a result, ESG index-based investments declined to 10.6% for domestic equities and 6.5% for foreign equities at the end of March 2026.
“Engagement by institutional investors will assume even greater importance going forward,” GPIF said in the report, adding that enhancement in corporate value would contribute to “the long-term objectives of GPIF as an asset owner.”
GPIF’s sustainability initiatives also extend to its alternative investment portfolio, where the fund reported progress across real estate, private equity and infrastructure.
In real estate, 87% of managers had set net-zero targets, up from 76% in 2024. GPIF’s private equity portfolio recorded lower negative climate value-at-risk exposure than foreign equities, supported by investments in lower-emission sectors such as information technology and healthcare.
In infrastructure, electricity generated by domestic renewable energy projects through infrastructure funds rose 30%, while the theoretical amount of emissions avoided through the substitution of renewable energy increased 24% in 2025.
GPIF’s alternative investments totalled 5.2 trillion yen ($33 billion) at the end of fiscal 2025, representing 1.74% of the pension reserve fund’s total value. The fund has invested with managers including StepStone, Pantheon, Brookfield, EQT, TA Associates, Hg and Blackstone.
Alternative investments remain below GPIF’s 5% allocation ceiling, while the local government has called for pension funds to invest more in private assets.
Expanding allocations, however, requires specialised investment expertise and risk management frameworks tailored to the characteristics of alternative assets. GPIF said it intends to strengthen its ability to identify and select high-quality funds, monitor managers after investment and enhance its risk management practices.
It remains bullish on the long-term value of alternative investments. Its alternative portfolio generated an internal rate of return (IRR) of 10.83% in yen terms from inception through March 2026, highlighting the long-term return potential of the asset class.
The fund’s cumulative investment returns across all asset classes reached 196.9 trillion yen by the end of fiscal 2025. The annualised rate of return since inception was 4.67%, while return for fiscal 2025 was 16.47%.