Introduction

This report presents the Government Pension Investment Fund (GPIF) Evaluation Project on the Effects of Engagement, undertaken with the University of Tokyo Economic Consulting Inc. It assesses how engagement activities by GPIF’s external asset managers have influenced investee companies’ corporate value, governance, and ESG outcomes between FY2017 and FY2022.

Chapter 1: Project Overview

1-1 Objectives of this project

As GPIF invests through external managers, it relies on them to engage with investee companies. This project aimed to evaluate whether such engagements contribute to improved corporate performance and ESG practices. The analysis used causal inference techniques—including Propensity Score Matching and Difference-in-Differences—to quantify impacts on key indicators such as Tobin’s q, Price-to-Book Ratio (PBR), Return on Equity (ROE), Total Shareholder Return, and FTSE ESG scores.

1-2 Details of engagement-related data

The analysis covered 26,792 engagements conducted by 21 active and passive GPIF external managers over FY2017–2022. Engagements were categorised into 38 themes, and when multiple themes were discussed in one session, the total count reached 48,077. Dialogue volumes rose annually, peaking at 6,274 in FY2022. Engagement topics most frequently addressed were Board Structure and Self-evaluation (6,960 dialogues), Management and Business Strategies (6,725), and Climate Change (4,566).

1-3 Previous study

This project builds on GPIF’s prior evaluation in 2019, which examined engagement practices qualitatively. The current study advances that work through quantitative causal analysis, focusing on how engagement leads to measurable financial and ESG improvements.

Chapter 2: Descriptive Analysis of Engagements

2-1 Number of dialogues held by asset managers

Engagement numbers grew steadily across the review period. The number of funds participating also increased, reflecting GPIF’s strengthened emphasis on stewardship.

2-2 Dialogue themes by asset managers

Of 38 themes, corporate governance and ESG integration dominated discussions. Key focus areas were management strategy, board structure, climate change, and capital efficiency.

2-3 “Critical ESG issues” mentioned by GPIF’s asset managers and their dialogue themes

Asset managers prioritised climate change, diversity, human rights, and supply chain issues as critical ESG topics, aligning with GPIF’s stewardship priorities.

2-4 Investee companies engaged by asset managers through dialogue

Engagements primarily involved large-cap Japanese companies in the TOPIX index. Small and mid-cap firms were also engaged, though at lower frequencies.

2-5 Dialogue attendees from investee companies

Most dialogues included senior executives, with a growing share involving outside directors—indicating improved governance awareness among companies.

2-6 Selection of investee companies to engage through dialogue (Probit analysis)

Engagements were more likely with firms demonstrating higher ESG risks or weaker governance. The selection model confirmed that asset managers targeted companies where engagement could meaningfully influence corporate behaviour.

Chapter 3: Causal Analysis of the Effects of Engagement

3-1 Details of analysis method

The study applied causal inference models to estimate engagement effects. Intervention and control groups were identified, and pre-trends were checked to ensure robustness. Analyses were stratified by company size to capture differential effects.

3-2 Items subject to causal analysis

Ten themes were chosen for causal analysis, including Management and Business Strategies, Financial Strategies, Climate Change, Board Structure and Self-evaluation, Capital Efficiency, Cross-shareholdings, Human Rights, Diversity, and ESG Disclosure. KPIs included Tobin’s q, PBR, ROE, Equity Spread, and FTSE ESG scores.

3-3 Assumptions and points to note regarding the analysis

Results were interpreted only where pre-engagement and post-engagement differences met statistical significance thresholds, ensuring the effects reflected engagement rather than external market changes.

3-4 Interpretation of analysis results

Positive effects were seen where engagements aligned with strategic and governance reforms. Improvements in corporate value metrics and ESG scores suggest that engagement facilitated meaningful behavioural change in investee companies.

3-5 Analysis results

Causal results showed significant positive impacts. For Climate Change and Board Structure themes, Tobin’s q improved by +0.07 and PBR by +0.11 (both at 1% significance). Cross-shareholding engagements reduced related ratios, indicating improved governance. Smaller firms showed greater improvements in market capitalisation (+0.13) and shareholder returns (+8.3%), while large firms improved in ROE (+2.0%) and equity spread (+2.2%).

Chapter 4: Summary of Causal Analysis and Future Challenges

4-1 Implications drawn from analysis results

Engagement by GPIF’s asset managers has contributed to measurable improvements in corporate value, ESG performance, and governance. These results support the view that long-term stewardship enhances both financial and non-financial outcomes, helping firms advance decarbonisation and diversity goals.

4-2 Issues to consider in the future

The report highlights the need for continuous methodological refinement and expansion to other engagement themes. Future research should improve data granularity and track longer-term effects to better understand sustained impacts of engagement on corporate performance.