Major ESG Investment and Finance Methods

Under its ESG Investment and Finance Policy, Nippon Life aims both to ensure profitability and to realize a sustainable society while encouraging corporate growth, thereby increasing customer returns by employing various methods instead of relying on a single approach according to the unique characteristics of different assets and regions.

Aiming Both to Contribute to the Realization of a Sustainable Society and Improve Investiment Returns

Integration

Nippon Life implements "integration," a method which incorporates ESG factors in our investment and financing processes for all asset classes. Specifically, the ESG initiatives of investee companies are evaluated in an appropriate manner to their asset characteristics, and investment and finance decisions are made by incorporating these evaluations in terms of their impact on corporate value and creditworthiness into traditional analyses such as financial analysis.

When conducting ESG evaluations for investments in stocks and corporate bonds, for example, we use a well-balanced variety of information from different sources, including information obtained through engagement with companies, information from Nissay Asset Management, a group company that has been conducting ESG evaluations for more than 10 years, information disclosed in integrated reports and other documents, and information from ESG data providers.

For important issues identified through the ESG evaluations, we confirm the situation and encourage the investee to take measures through dialogue. In this way, we aim to reduce portfolio risks and improve returns through the enhancement of investees' corporate value by linking "integration" and "engagement."

Stocks

Nippon Life evaluates the ESG activities of investee companies based on factors such as information obtained from dialogue with investee companies and information from ESG ratings agencies.

Nippon Life makes investment decisions by factoring ESG evaluations into qualitative evaluations of corporate analysis based on whether they will impact the corporate value of investee companies, together with performing quantitative evaluations of earnings projections and valuations.

Finance

Nippon Life evaluates the ESG activities of borrower companies based on factors such as information obtained through on-site company visits of borrowers.

Nippon Life conducts credit assessments of projects by factoring ESG evaluations into qualitative evaluations of corporate analysis based on whether they will impact the creditworthiness of borrower companies, together with performing quantitative evaluations of financial analysis and other factors.

In project finance, Nippon Life will conduct credit assessments of projects considering factors such as environmental and social risks and refer to standards such as the Equator Principles. Nippon Life will also consider ESG factors in the credit assessments of individual projects, in addition to assigning internal ratings based on ESG factors.

Sovereign Bonds

Nippon Life evaluates the ESG activities of investees based on international statistics, information from ESG ratings agencies, and other data.

Nippon Life makes investment decisions by factoring ESG evaluations into qualitative evaluations of the analysis of investment targets, based on whether they will impact the creditworthiness of investees, together with performing quantitative evaluations of economic and financial analyses, interest rate levels and other factors.

Corporate Bonds

Nippon Life evaluates the ESG activities of investee companies based on factors such as information obtained from dialogue with investee companies.

Nippon Life factors ESG evaluations into qualitative evaluations of corporate analysis based on whether they will impact the repayment ability of investees, together with performing quantitative evaluations of financial analysis, interest rate levels and other factors.

Real Estate

Nippon Life proactively acquires environmental and social certifications for investment property by setting environmentally friendly building standards, along with pushing ahead with the introduction of equipment to conserve energy and reduce CO2 emissions.

In the process of selecting real estate contractors, Nippon Life will confirm the status of their environmental and social activities in construction work and the procurement of materials.

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    With regard to indirect investment, we confirm external managers' policies on ESG and the status of activities such as ESG integration, while considering investment strategies and asset characteristics. We take these factors into account when making investment decisions.

ESG-Themed Investment and Finance

The 2015 United Nations Summit adopted the Sustainable Development Goals (SDGs) as international goals to solve global social issues and realize a sustainable world, and 17 goals and 169 targets were set with 2030 as the deadline for their achievement. Companies around the world are integrating the SDGs into their management and working toward common goals to be achieved by 2030. In our asset management activities, we aim to help bring about sustainable societies by supporting corporate initiatives through funding and other means.

Accordingly, we have set a target of 5 trillion yen for ESG-Themed Investment and Finance (FY 2017-2030) where the use of funds is linked to SDG-themes. As of the end of June 2023, the cumulative amount of investment and finance has exceeded 2.12 trillion yen.

In addition, we established a decarbonization financing facility (3 trillion yen for FY2017-FY2030) to cover transition and innovation as a supplement to our existing green finance endeavors.

We will continue identifying investment and finance projects that both help resolve social issues and improve asset management risk/return, and pursuing ESG-themed investment and finance initiatives.

Progress on the 5 trillion yen target in ESG-Themed Investment and Finance

Cumulative total of ESG-Themed Investment and Finance by asset and segment as of the end of June 2023

Examples of outcomes shaped through ESG-Themed Investment and Finance

"Outcomes" means results or effects that indicate the creation of positive impacts or the reduction of negative impacts on the real world. They are also known as sustainability outcomes. Outcomes shaped by Nippon Life are calculated based on information provided by investee and borrower companies, taking into account our share of the investment and finance amount.

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    The number of people supplied is calculated on an annual basis by dividing the capacity for provision of water for daily life such as desalination plants by average annual water usage per person.
  • *2
    The number of people supplied is calculated on a yearly basis based on the number of patients per day.

Impact Investment

An impact investment is an investment that meets the following three criteria: (1) the investment is intended to create environmental and social impacts, (2) the investment is aimed at earning an economic return, and (3) the investment is accompanied by impact measurement and reporting. In identifying impacts, it is necessary to evaluate and measure both the positive impacts to be created by the investment and the negative impacts to be mitigated and managed.

Nippon Life began impact investment with an investment in a fund managed by an affiliate of TPG Capital L.P. in July 2020 and, as of the end of September 2022, Nippon Life had built up approximately 154 billion yen* in investment.

Nippon Life receives reports from investee funds on the outcomes generated by their investees as well as on their returns, and Nippon Life monitors them regularly to absorb their knowledge and expertise on impacts.

  • *
    Impact Funds, Sustainability Linked Bonds/Loans, and Positive Impact Finance Loans.
  • *
    Private equity funds are calculated based on the amount of investment commitment.

Negative Screening

In light of the mission and public nature of the life insurance business, Nippon Life prohibits investing in and financing companies that manufacture cluster munitions, biological weapons, anti-personnel landmines, chemical weapons and nuclear weapons. We also prohibit investing in palm oil-related companies* and tobacco-related companies from the perspective of strengthening our response to important social challenges.

In addition, there has been rapidly growing international interest in climate change in response to initiatives such as the SDGs and Paris Agreement adopted by the United Nations. With this in mind, Nippon Life has embraced a policy, not to engage in new investment and financing in coal-related projects (excluding brownfield projects aligned with 1.5℃ pathways), and oil and gas-related projects which are 1) greenfield exploration projects and 2) related projects except resource explorations (excluding gas-related projects aligned with 1.5℃ pathways)

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    Excluding companies which are 100% RSPO certified

Engagement

As an institutional investor that makes long-term investments, Nippon Life conducts constructive dialogue with investee companies in its stock and bond portfolio as part of its stewardship activities. By doing so, Nippon Life encourages medium- to long-term improvement in corporate value and seeks to derive benefits in the form of shareholder returns, stock price appreciation and stable repayment of principal and interest on corporate bonds, thereby paving the way for growth in investment returns, along with aiming to realize a "safe, secure and sustainable society." In addition, to support the growth of sustainable companies even more than before, Nippon Life is promoting dialogue activities focused on the core theme of ESG.

We have placed emphasis on governance (G) in dialogue with investee companies, along with shareholder returns and profitability since before the establishment of the Japan's Stewardship Code in fiscal 2013. In addition, as companies and investors become more aware of the themes of the environment (E) and society (S), we have enhanced dialogue on themes related to the E and S from fiscal 2017, and have gradually expanded important themes for dialogue from the perspective of enhancing corporate value.

When deciding whether to vote for or against proposals, Nippon Life does not make sweeping decisions based on quantitative standards, but rather engages in dialogue to make detailed judgments based on factors such as its understanding of the individual status of each company and its initiatives for improvement.

In bond investments, Nippon Life conducts dialogue focused on the theme of ESG issues. In addition, Nippon Life encourages issuers to issue ESG bonds and so forth to spur the creation of investment opportunities.

Other

Financial Assistant Program for Promoting Transition to Achieve Carbon Neutrality (Interest Subsidy Programs, etc.)

Nippon Life is the first life insurance company to be designated as a financial institution under the "Financial Assistant Program for Promoting Transition to Achieve Carbon Neutrality".

The program is a performance-linked interest subsidy program which is subject to loans to companies that have established a 10-year or longer plan to steadily reduce CO2 emissions toward achieving carbon neutrality by 2050 (transition), and that have been certified by the minister having jurisdiction over the business. Through this program, Nippon Life will support corporate transitions and contribute to the realization of a sustainable society.

CSR Loans

Nippon Life supports CSR loans by offering preferential interest rates for loans to individuals and companies that are engaging in activities that take into consideration the global environment, and for loans to corporate customers that are actively engaged in providing child-rearing support.

Environmentally-Friendly Real Estate Investment

Nippon Life conducts environmentally-friendly real estate investment by, for example, actively introducing highly energy-efficient equipment when constructing new buildings and updating facilities. Furthermore, Nippon Life acquires third-party certifications, such as BELS*, as part of efforts to visualize the energy-saving performance of buildings.

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    Based on the guidelines summarized by the Ministry of Land, Infrastructure, Transport and Tourism and abbreviated as Building an Energy-efficient Labeling System, third-party organizations objectively evaluate and display the energy consumption data related to buildings such as offices.

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