Organisation details

Name: Nippon Life Insurance Company

Signatory type: Asset Owner

HQ country: Japan

Nippon Life Insurance Company (‘Nippon Life’) is the largest private asset owner in total assets in Japan. Nippon Life group operates life insurance and asset management businesses across the US, Europe and Asia-Pacific.

Through its governance structure, Nippon Life aims to ensure appropriate and transparent management, focusing on the long-term responsibilities owed to its policyholders. Nippon Life has implemented a structure to separate sales and investment management functions to ensure independence in investment decisions, including proxy voting.

Covered in this case study

  1. Portfolio-level sustainability goal: General account portfolios will be net-zero by financial year (FY) 2050. In the interim, there is to be at least a 45% reduction compared to FY2010 in total emissions and at least a 49% reduction compared to FY2020 in intensity by FY2030.
  2. Motivations for setting and pursuing the goal: Climate change has short-term and long-term impacts on society, the economy and investors’ portfolios. Addressing it is also aligned with beneficiaries’ values.
  3. Actions taken and outcomes to date: Specific targets will be set for decarbonisation, engagement with investee companies, policymakers, and ultimate beneficiaries (policyholders), and involvement in industry initiatives.
  4. Assess progress: Progress will be assessed through CVaR (‘Climate Value at Risk’), the measurement and disclosure of investee companies’ emissions, and defined milestones. 

How can investors pursue real-world sustainability goals in their decision-making?

In 2021, Freshfields Bruckhaus Deringer published ‘A Legal Framework for Impact’, a groundbreaking legal analysis on exactly that topic.

Commissioned by the PRI, UNEP FI and the Generation Foundation, the report found that investors in all 11 jurisdictions covered by the analysis should consider the systemic risks material to their investments.

It also found that most of the 11 likely have a legal duty to pursue sustainability outcomes when those outcomes could affect financial returns.

Investing for Sustainability Impact

The key concept laid out in the report was ‘Investing for Sustainability Impact’ (IFSI). IFSI is not a legally defined expression but rather a concept which describes any activities that involve an investor intentionally attempting (through investment decisions, stewardship or engagement with policy makers) to bring about assessable behavioural changes – among investee companies, policy makers or other third parties – that are aligned with positive sustainability outcomes.

A Legal Framework for Impact identifies two approaches to IFSI:

  • Instrumental: Where achieving the relevant sustainability impact goal is ‘instrumental’ in realising the investor’s financial return goals.
  • Ultimate Ends: Where achieving the relevant sustainability impact goal and the associated overarching sustainability outcome is a distinct goal pursued alongside the investor’s financial return goals, but not wholly as a means to achieving them.

The PRI, UNEP FI and the Generation Foundation have together prepared a series of case studies to demonstrate IFSI in practice– particular case study is in collaboration with Nippon Life.

Overview of Nippon Life’s framework

Given the extended period of low growth that followed the collapse of the Japanese economic bubble in the late 1980s and early 1990s, Nippon Life deeply understands the importance of addressing systemic risk to preserve capital and achieving stable financial returns. Nippon Life invests in over 1,400 Japanese corporates and, as such, considers itself a universal owner in Japan. Seeking only investment alpha is not effective, given its diversified investment strategy.

Nippon Life aims to stabilise investment returns by contributing to shape sustainability outcomes through Investing for Sustainability Impact (IFSI) to mitigate systemic risk while creating a long-term flow of funds from policyholders to investee companies so that our policyholders can live a prosperous life in a sustainable society. In short, improving long-term investment returns, whilst enabling policyholders’ sustainable growth. As an institutional investor, Nippon Life believes that the first step to creating this flow is understanding the sustainability preference of beneficiaries, given the wide range of environmental and social issues.

In 2023, Nippon Life conducted its most recent policyholder survey to understand the sustainability preferences of its policyholders. Of the approximately 19,000 respondents, 65.3% expected Nippon Life to consider the achievement of SDGs through its investment as long as this results in improved long-term financial returns. Another 13.5% preferred Nippon Life to pursue the achievement of SDGs regardless of the effect on financial returns. The policyholders’ most preferred sustainability issue was to address climate change.

Nippon Life reports these results publicly, in the Meeting of Representatives (Sodaikai) and in the Nissay Konwakai Meetings, the most important governance body and policyholders dialogue meetings for a Japanese mutual company, to align its beneficiary preference to its responsible investment strategy.

Case study on Nippon Life’s actions to address climate change

Given the importance of beneficiary input and the result of the recent policyholder survey highlighting policyholders’ preferred investment area, Nippon Life has pursued actions and set goals to address climate change.

Nippon Life’s actions contain elements of instrumental IFSI, including an objective (improving investment returns through shaping sustainability outcomes), a commitment (net-zero commitment in the general account portfolios through the Net-Zero Asset Owner Alliance (NZAOA)) and targets (net-zero by 2050, with a more than or equal to 45% total emissions reduction target and a more than or equal to 49% intensity reduction target by 2030).

In the following sections, Nippon Life explains its approach in more detail.

Investment beliefs, strategies and policies

Nippon Life promotes transparency and discloses its investment beliefs, strategy, and policies regarding ESG issues and sustainability outcomes through its Responsible Investment Guidelines. Its approach is founded upon the key principles of ‘co-existence, co-prosperity and mutualism’. Its key sustainability priorities can be categorised into people, community and environment.

For this case study, Nippon Life has referred to its Sustainability Report, ESG Investment and Finance Report, sustainability priorities, sustainability management, enhancement of ESG investment and finance initiatives, and information on its involvement with the NZAOA steering group. As outlined in its document, ‘Enhancing ESG Investment and Finance’, its approaches to meeting its sustainability targets include:

  • Strengthening ESG integration
  • Promoting themed investment and finance
  • Strengthening stewardship activity
  • Implementing four-stage milestones in bilateral engagement with companies.

Goal setting (investment approach)

Nippon Life has set several commitments and targets, including an overarching, portfolio-level impact goal:

  • Greenhouse gas emissions: Aiming for net-zero by FY2050 in general account portfolios, as well as a more than or equal to 45% reduction compared to FY2010 in total emissions and more than or equal to 49% reduction compared to FY2020 in intensity by FY2030.

This impact goal is supported by the following targets:

  • Themed investment and finance targeting: Aiming for ¥5 trillion (~31.5bn USD) by FY2030 for themed investment and finance with a focus on outcomes and a sub-target of ¥3 trillion for financing real-world decarbonisation.
  • Engaging high-emitting investee companies: In the near term, the top 75 GHG emitters (Scope 1+2) create and disclose a net-zero by 2050 emissions roadmap and the top 41 Scope 3 emitters disclose strategies to reduce emissions.

In support of the impact goal, Nippon Life also integrates ESG issues as follows:

  • ESG investment for sustainable returns: Aiming to secure stable investment returns by helping companies address environmental and social issues to support reliable payment of insurance claims and policyholder dividends. Nippon Life ensures that the combined market value of investments with higher ESG ratings exceeds a set percentage of the overall portfolio.

Actions taken (investment process):  Nippon Life has undertaken a range of actions to meet its impact goal of net-zero and interim emissions reductions, including:

  • Engaged policyholders to understand the sustainability preference of its beneficiaries.
  • Participated as a Steering Group member in the NZAOA to encourage public and private sector decarbonisation.
  • Engaged with approximately 70 high-emitting companies, equating to roughly 80% of emissions of investee companies. Nippon Life also implemented the four-stage milestone system to measure the progress of bilateral engagement activity.
  • Invested in the Nissay Capital Sustainability Solutions Fund No. 1, which aims to promote innovation in relation to SDG themes such as decarbonisation.
  • Implemented negative screening and has since expanded its criteria to exclude investments in certain sectors or companies where engagement is not an effective solution and exclusion is the sole option. This includes specific prohibitions against new investments in fossil fuel-related projects which do not align with the 1.5-degree pathway.

In alignment with an ESG integration approach, Nippon Life has:

  • Integrated ESG factors, including climate-related considerations, across all asset classes by assigning proprietary ESG ratings to major securities assets and increasing those with higher ESG scores to influence investment decisions towards more sustainable options.

Actions in support of both impact goal and ESG integration approach:

  • Joined the Partnership for Carbon Accounting Financials (PCAF) in 2021 and Climate Action 100+ (CA100+) in 2022 to support the standardisation of emissions reporting and facilitate investee company dialogue.
  • Contributed to the development of a report issued by the Life Insurance Association of Japan that advocated for collaborative efforts across various ministries to promote the disclosure of companies’ ESG data, investment and financing, as well as policy support for carbon neutrality.

The actions support the goals, commitments and targets focusing on real-world decarbonisation.

Evaluation, reporting and goal revision (where applicable): investment outcomes

Nippon Life has undertaken a range of actions to evaluate and report on its goals and commitments. In relation to its impact goal, these actions include:

  • Publicly sharing updates on policy engagement and advocacy efforts related to climate change and environmental sustainability.
  • Measuring and disclosing the emissions of identified high-emitting investee companies, tracking progress towards emission reduction goals.
  • Tracking the amount of greenhouse gas emissions reduced through financed projects and the impact on essential services like water supply through environmental projects.
  • Employing a structured approach to manage changes in corporate conduct related to key environmental themes, including climate change, through defined milestones in the engagement process and continuing the engagement into the medium and long term.

In alignment with an ESG integration approach, Nippon Life has:

  • Undertaken ongoing assessments of the investment portfolio to ensure alignment with climate change goals, ESG criteria and negative screening policies. To achieve this, Nippon Life ensures that the combined market value of its investments with ESG ratings of 1 and 2 exceeds a set percentage of the overall portfolio.
  • Conducted quantitative analysis of climate change risks, using tools like the CVaR to measure policy risks, technology opportunities, and physical risks under multiple climate scenarios for various assets, to inform investment decision-making.
  • Published an annual TCFD/TNFD report and an annual ESG Investment and Finance Report, including regular progress updates.

Key takeaways

Nippon Life’s portfolio-level goal is for its general account portfolios to be net-zero by FY2050, and they believe this goal remains achievable through the actions detailed in this case study, alongside the tracking and reporting methods outlined.

Nippon Life believes maximising influence to achieve real-world decarbonisation objectives to mitigate the systemic risk of climate change is aligned with Nippon Life’s long-term business strategy. In this way, Nippon Life’s actions to address climate change represent elements of instrumental IFSI, meaning its decarbonisation objectives are relevant to meeting its long-term financial return goals to an extent.

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