There’s a lot of responsibility that comes with managing a fund with $1.5 trillion in assets—a responsibility that Japan’s Government Pension Investment Fund (GPIF), the largest pension fund in the world, faces every day. We have more than 5,000 stocks and 3,400 bond issuers in our portfolio, and the fund is designed to operate with a 100-year, multi­generational time frame.

Unlike investors with a shorter time horizon, we consider climate change to be a systemic risk affecting the entire range of our investments, one that can’t be eliminated simply through diversification. We could certainly reduce the carbon footprint of our portfolio dramatically if we divested from certain carbon-intensive industries, but this would only result in a transfer of ownership to investors who are not as concerned about climate issues and thus would do little to contribute to a less carbon-intensive world.

Our approach, rather, is to encourage companies with a large carbon footprint to adopt a more sustainable business model. I believe long-term investors have a duty to support corporate leadership that is embarking on a low-carbon transition.

A better way for us to deal with climate change is to integrate environmental, social and governance (ESG) issues throughout our whole investment process. We require all our asset managers to include these criteria in their investment analysis and decisions. Our equity portfolio managers are also obligated to engage with the companies they invest in on critical environmental issues.

Read more @Time