8 September 2025
When considering the sustainable investment approach of corporate pension schemes in two island nations, both alike in their exposure to climate risks and institutional development, the power of governance to shape progressive investment outcomes is brought into sharp relief.
In the UK, compulsory climate reporting is driving sustainable investment by corporate pension schemes
Since 2021, UK corporate pension schemes (c.340 in total, with AuM of c.£1.8tn, spanning defined benefit schemes, where members are paid according to a contractual promise from retirement, and defined contribution schemes, where members receive back their compounded contributions) have been subject to compulsory reporting consistent with the recommendations of the Taskforce on Climate Related Financial Disclosure (“TCFD”). Despite initial reticence, compliance with this legal requirement (as this obligation is established under primary legislation not just guidance from the UK Pensions Regulator) has been near total, with only one fine for non-compliance levied against the ExxonMobil pension scheme; even then, the fine was for not posting their report on a public website and was swiftly remedied.
This reporting ‘burden’, as it is often called, has in fact spurred a very real change in how sustainable investment is considered by trustees; to take one example, since 2021, the largest schemes in the UK have seen reductions in their emission intensity of between 20% and 50%.
Japanese corporate pension schemes remain outside the realm of public sustainability reporting
Meanwhile, across the world, Japanese corporate pension schemes, with AuM of c.JPY88tr, remain entirely outside the realm of any public sustainability reporting. Their investment philosophy is largely delegated to the main Japanese asset managers. We can contextualise their approach by looking to the most progressive pension scheme in Japan when it comes to sustainability, the Government Pension Investment Fund (“GPIF”). Despite having prepared TCFD reports since 2019, the GPIF has achieved an emission intensity reduction of c.10% since 2021 and is only now seeking additional support with impact investment overlays. While the sheer scale of the GPIF explains some of this slower change, it is notable that the Norwegian Government Pension Fund Global (“GPFG”) managed to reduce its emission intensity 25% over the same period. If the acknowledged most proactive scheme in Japan demonstrates this sort of progress, then the remainder can be thrown into clear relief.
The impact of governance on UK and Japanese reporting approaches
Why this stark difference in approach, when the problems facing these nations are so similar (and possibly more pronounced for Japan given its exposure to higher temperatures and tropical storms)?
Governance lies at the heart of the answer.
UK pension schemes are led by trustees pushing for sustainable investments
Since Robert Maxwell emptied the Mirror pension fund’s coffers in the early 1990s, UK legislation and regulation has continuously raised the bar on what is expected from trustees of pension schemes. They must be independent, dedicated with their time, knowledgeable in respect of investment policies, members’ needs, reporting requirements, hedging, long-term insurance solutions… the list is very long and trustees have been known to decry the amount they are required to understand. However, as a result of this continual rising tide, UK pension schemes are led by a huge number of dedicated retirees, knowledgeable company-nominated-members and professional trustees (more than 350 trustees in the top ten firms alone at the last count).
These trustees, facing reporting obligations and often with a personal interest in a more sustainable world for future generations, have pushed the already competitive UK investment management industry into increasing its dedication to sustainability and the investment solutions it offers. That in turn has driven the asset managers to seek better reporting from investee companies, to streamline portfolios, to improve their screening techniques to ensure they are not excluded by investment managers pledged to reduce their investment portfolio emissions… in short, a positive cycle sprang from reporting needs and a strong governance base. Is that cycle complete? No, and additional support is required to achieve a full transformation of pension scheme investment policies to a more sustainable basis. (This will form the next note in this series.)
The structure of Japanese pension fund governance provides limited support for sustainable investment
In Japan, the situation has traditionally been quite different: while legally independent of their corporate sponsors, corporate pension schemes trustees are often company-nominated with limited time and potentially limited experience; there is no independent pensions regulatory body; trustee are subject to no formal knowledge/qualification requirements; there is a very limited number of professional trustees.
Added to this more limited scope for innovative leadership, there is no requirement for any kind of public reporting by Japanese corporate pension schemes, let alone full TCFD-consistent reports.
What is the upshot of this lack of governance support for sustainable investment? Very limited grass-roots pressure on the investment managers and asset managers in Japan to drive changes to standard practices. To their credit, many Japanese investors are keen to improve the sustainability of their portfolios - but this is driven more by the appreciation of potential losses or missing out on growth opportunities through a badly aligned portfolio than by (real or perceived) pressure from asset owners threatening to move their money to a more progressive manager.
Change in Japan? A new stewardship code and Green Transformation policies
This picture is changing; for example, the Japanese Financial Services Agency has established a stewardship code encouraging pension schemes to engage with investee companies on sustainable growth and there is a general recognition that Japanese pension fund assets have a clear role to play as Japan implements its “GX” (Green Transformation) policies, a national strategy aimed at generating more than JPY130tr in private investment to support the transition to a sustainable economy.
However, while we can hope for a story of less woe, these different experiences demonstrate that without changes in governance structures, this task will remain an uphill struggle.
Michael Bushnell
Michael is a Visiting Fellow at the Centre for Business, Climate Change and Sustainability in the University of Edinburgh Business School