The Government Pension Investment Fund (GPIF) in Japan is the largest in the world, with $1.3 trillion. On Friday last week it started accepting ideas for stock indexes that take into account environmental, social and corporate governance (ESG) factors, according to a report by the Wall Street Journal.

This comes after years of deliberation about the integration of ESG into investment decision-making, and against the background of Japan’s efforts – some of the strongest seen in Asia – to hold listed businesses to account on their standards.

Corporate governance has been at the center of Prime Minister Shinzo Abe’s drive for economic reform. It is one of the “three arrows” of the plan that has come to be called ‘Abenomics.’ The Tokyo Stock Exchange adopted its first corporate governance code just over a year ago, and in 2014, Japan’s Financial Services Agency introduced a “stewardship code” setting out best practice for asset managers and trustees in engaging with companies.

But despite government efforts for reform, there has been a widespread sense that Japan’s companies are largely giving token regard to what is required of them, without pressure from investors. While across the globe, institutional investors have been getting more and more interested in the role ESG issues play in business, and assessing investment risk. 

In the United States, the Department of Labor marked a sea change of attitude towards ESG last year when it included such factors in a clarifying bulletin, “that fiduciaries should appropriately consider factors that potentially influence risk and return.” 

It has been 10 years now since an OECD Working Paper on Finance, Insurance, and Private Pensions first called on GPIF to integrate ESG factors in its policies and decision-making processes.

It encouraged the GPIF to become a signatory of the then just launched United Nations-supported Principles of Responsible Investment (UNPRI), in line with the practices of reserve funds in other countries such as Canada, France, Norway, and Sweden. 

Last year GPIF became one of the signatories to PRI’s Six Principles For Responsible Investment in September. This year, on its 10th anniversary, PRI is celebrating with its first conference in Asia since 2008 – in Singapore next month, as it turns its focus increasingly to that market.

Japan’s GPIF will now accept suggestions for stock indexes until the end of September, according to the WSJ report. “Examples of factors that could be taken into account in the passively managed indexes are energy efficiency and employee diversity,” it said.

GPIF’s fortunes have not always been smooth, and as the world’s largest pension fund, it has attracted scrutiny. In March 2016, it appointed a new president, Norihiro Takahashi — a career executive at the Norinchukin agricultural bank, which is an unlisted business.

“After the GPIF itself, Norinchukin is one of the country’s largest institutional investors whose decades of overseas investment and speculation on Wall Street have caused many to refer to it as ‘Japan’s largest hedge fund’,” said the Financial Times at the time of his appointment.

Under Mr. Takahashi’s leadership, last month GPIF sued electronics group Toshiba (TYO:6502) for $9m in damages over losses linked to its $1.3 billion accounting scandal.

It also announced in March that it would, for the first time, disclose the assets it holds, including individual stocks. It has never done this before, due to concerns that it would have too much of an impact on the market. The disclosure is expected this week, on July 29, when GPIF reports investment results for fiscal 2015.

Investors will be watching closely to see what the world’s biggest investor does next on ESG. Other global public pension funds have been co-developing indexes for their needs – in January this year the Canada Pension Plan Investment Board (CPPIB) launched the S&P Long-Term Value Creation (LTVC) Global Index, designed to measure companies that have the potential to create long-term value based on sustainability criteria and financial quality.

Six of the world’s largest institutional investors quickly voiced their support for the index as a powerful catalyst to influence corporate and investor behavior. A number of these investors committed to initially allocate approximately $2 billion to funds tracking it.

Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com