The Post-Coronavirus World and the New SDG Era

image: The Post-Coronavirus World and the New SDG Era

An SDG bond* is a bond used to finance projects that aim to achieve the objectives of certain sustainable development goals (SDGs), such as addressing climate change or social issues. The SDG bond market has been growing with each passing year.
On July 30, 2020, Nomura Group held an online SDGs seminar about the special features of SDG bonds and the outlook for SDG bonds in the post-coronavirus world in order to expand Japan’s SDG bond market.

A term covering green bonds, which are a means to combat environmental problems, social bonds which address social issues, and sustainable bonds which possess the qualities of both green bonds and social bonds.

Program

[Special Lecture] The “Decade of Action” on SDGs After the Coronavirus Pandemic

Norichika Kanie

Professor, Graduate School of Media and Governance, Keio University

[Lecture] The Coronavirus Crisis and the Growth of the GSS Bond Markets

Akane Enatsu

Head of Nomura Research Center of Sustainability

Nomura Institute of Capital Markets Research

[Panel Discussion] SDG Bond Initiatives and Expectations for the Post-Coronavirus Era

[Special Lecture] The “Decade of Action” on SDGs After the Coronavirus Pandemic

Norichika Kanie
Professor, Graduate School of Media and Governance,
Keio University

Regaining the momentum towards a sustainable society that stopped due to the coronavirus crisis

There many aspects of the current coronavirus crisis and the post-coronavirus world that we cannot foresee. However, despite all of the uncertainties, I believe that the SDGs will without a doubt become even more important in the future. I feel that the coronavirus pandemic has placed a spotlight on social issues that have been put off until now, and has made us realize that we are living in an “unsustainable” society.

When it comes to the most recent developments related to the SDGs, four key points stand out. The first is that following a period of growing awareness about the SDGs, we have finally entered the “Decade of Action.” Second, the evaluation of progress is becoming a key topic. The third is the localization of the SDGs. In Japan, for example, the “Regional Revitalization SDGs Financial Framework” has begun. Under this framework, regional financial institutions invest in and lend to companies working on sustainability initiatives. The fourth key development is the full-scale ramping up of efforts by companies.

The SDGs are what the world will ideally look like in 2030. In order for companies to begin their activities in earnest, it is important for them to envision what they want the world to look like in 2030, and reflect this vision in their business plans and other strategies. Addressing the risks associated with the SDGs is also essential. In addition, the SDGs are extremely important in corporate financing, as evidenced by the fact that sustainable investment has taken off in recent years and this trend has continued amid the coronavirus pandemic. I believe that connecting companies working on the SDGs with investors interested in ESG is a great way to help to regain the momentum towards a sustainable society that was stopped by the coronavirus pandemic.

The SDGs comprise 169 targets based on 17 goals. However, the SDGs do not say anything about how those goals should be reached. In other words, there are no rules, and companies are working independently SDGs-related initiatives. Therefore, it is easy for companies to differentiate themselves from others. In the coming era, it will be important for companies to distinguish themselves from their peers.

[Lecture] The Coronavirus Crisis and the Growth of the GSS Bond Markets

Akane Enatsu
Head of Nomura Research Center of Sustainability
Nomura Institute of Capital Markets Research

Attention is being focused on the “impact” of positive effects on the environment and society

We assume that the growth trend in the Green, Social and Sustainability (GSS) bond markets will remain unchanged even during the coronavirus crisis pandemic. However, we have recently started to see some changes in makeup of the market. To date, green bonds had accounted for about 80% of the global GSS bond markets. However, looking at the issuance amount in the first half of 2020, social bonds rapidly grew to account for nearly 30% of the total. In the first half of 2020, social bonds gained a larger presence in Japan as well.

I believe that in addition to “social,” the term “impact” may become a keyword in the 2020 GSS bond markets. As interest rates remain low, investors are becoming more selective for GSS bonds. The year 2020 is expected to be a very fluid year, but we expect that attention will focus on the “impacts” that are generated and have clear benefits for the environment and society.

Global Issuance of GSS Bonds

Issurance Amount by Type

Breakdown of Outstanding Amount by Type

Issuance amount (as of the end of June 2020) is based on green bonds, social bonds and sustainability bonds defined by Bloomberg. Value is on a US dollar basis. Data excludes municipal bonds in the United States and securitization.

Bloomberg, Nomura Institute of Capital Markets Research

GSS Bonds Issuance by Japanese Issuers

Issuance Amount by Type

Breakdown of Outstanding Amount by Type

Issuance amount (as of the end of June 2020) is based on green bonds, social bonds and sustainability bonds defined by Bloomberg. Value is on a US dollar basis.

Bloomberg, Nomura Institute of Capital Markets Research

[Panel Discussion] SDG Bond Initiatives and Expectations for the Post-Coronavirus Era

We held a panel discussion with representatives from SDG bond issuers as well as investors. The panel members participated in a discussion targeting further development of the SDG bond market. Topics included the changes they sensed through the issuance of SDG bonds, what investors expect from issuers, and investment in SDG bonds in the post-coronavirus world.

image: [Panel Discussion]SDG Bond Initiatives and Expectations for the Post-Coronavirus Era

Panelists

Hiraku Matsumoto
  Manager, Corporate Finance Department, Corporate Finance, Asahi Kasei Corporation

Isamu Uehashi
  Special Project Director, Finance and Fund Planning Department, Japan Railway Construction, Transport and Technology Agency*

Yoshihiro Ikeda
  Deputy Executive Director, Finance Department, Japan Student Services Organization

Taro Nagao
  Senior Investment Officer, Fixed Income, Investment Department, Nomura Asset Management

Joined online from the Japan Railway Construction, Transport and Technology Agency’s head office

Moderator

Kazuyuki Aihara
  Head of Sustainable Finance Section, Debt Capital Markets Department, Nomura Securities

Spread Information about Initiatives to Address Sustainability Issues, and Discover New Investors

Matsumoto, Asahi Kasei

Asahi Kasei has three business segments: Materials, Homes, and Health Care. Some of our well-known brands include “Hebel Haus” and “Saran Wrap.”

In June 2020, we issued our first green bond. The funds are being used to renovate hydroelectric plants we own. In issuing this green bond, we had two main objectives. The first was to retain investors and discover new investors. Despite this being our first green bond, we received the declaration of investment from 24 investors, which exceeded our expectations. Our second hope was that this green bond would shine a spotlight on our efforts to address sustainability l issues, both internally and externally. With regard to this aim, we were able to promote our efforts through IR with investors as well as through media exposure.

I get the sense that the coronavirus crisis has actually boosted investors’ interest in SDG bonds. For this bond, I spoke directly with investors through IR activities, and I was struck by how many questions related to the SDGs they had, including the relationship between our core business activities and the SDGs. In the future, I imagine that the sentiment among investors to invest in businesses and companies that contribute to achieving the SDGs will only grow stronger. I sensed a strong demand for continued issuance of SDG bonds. Going forward, we continue to look into issuing SDG bonds.

We Will Issue High-Quality, CBI-Certified SDG Bonds on an Ongoing Basis

Uehashi, JRTT

Japan Railway Construction, Transport and Technology Agency’s (JRTT) is an independent administrative agency that comprehensively supports the development of transportation networks by domestic railways and ships. The establishment of public transportation infrastructure has led to more efficient movement of people and goods, reductions of CO2 emissions, and a curtailment of environmental impacts.

JRTT began issuing green bonds, started our first SDG bond issued in 2017. Many investors have asked us to continue issuing these bonds, and since May 2019 we have been issuing sustainability bonds each quarter. These sustainability bonds are certified by the CBI*, which sets strict international standards, and we became the first entity in Asia to issue CBI-certified bonds. The sustainability bonds we issue by have a wide range of maturities, including medium-term, long-term, and ultra-long-term, and we currently have investment commitments from 113 investors. In addition, our investor base is quite diverse, and includes foundations, public interest foundations, educational institutions, and regional financial institutions.

I believe that the coronavirus pandemic will change they way people live going forward. However, the importance of the transportation networks supported by JRTT will remain unchanged. We will continue to issue high-quality SDG bonds unique to JRTT in order to further increase JRTT’s corporate value and to contribute to the development of the SDG bond market.

Climate Bonds Initiative: An international NGO that promotes large-scale investment targeting a low-carbon economy. CBI has established a stringent standard for the environmental benefits of assets and projects.

Issuing Social Bonds to Support Equal Opportunity for Education in Japan

Ikeda, JASSO

Japan Student Services Organization (JASSO) is an independent administrative agency that systematically supports equal opportunities for education in Japan and provides an educational safety net. Our main program is our scholarship program. One of every 2.7 students in Japan utilizes JASSO scholarships (FY2018).

Since September 2018, JASSO has been issuing social bonds that have obtained a second opinion from an ESG evaluation organization. The proceeds from these social bonds are used for Category 2 loans with interest. Recently, interest in JASSO’s social bonds has increased, and many investors are willing to invest regardless of yield. It is gratifying to hear investors say that they want to contribute to scholarships that support equal opportunities for education and the development of the next generation of personnel in Japan.

The coronavirus pandemic had an impact on the bond we issued in June, but we were able to issue the bond the same terms as the bond we issued in February prior to the crisis, and we even saw investment commitments from new investors this time. This shows just how much focus is being placed on SDG bonds and how social bonds an effective means for stable funding. We will continue to issue social bonds and contribute to the growth of SDG bonds as well as the achievement of the SDGs.

As a Responsible Investor, We Will Contribute to the Achievement of the SDGs

Nagao, NAM

Nomura Asset Management is an asset management firm in Nomura Group, and we have approximately 50 trillion yen in assets under management from investors both in Japan and overseas. In fixed income management, we place the utmost priority on controlling downside risk, and we have proprietarily developed an ESG valuation model that specializes in bonds to use in making investment decisions. Another feature of Nomura Asset Management is our global investment system.

From an investor’s point of view, there are two important things when it comes to SDG bonds. The first is that we want issuers to continue to issue SDG bonds as much as possible. The other is information disclosure. In order to evaluate SDG bonds and make accurate investment decisions, we need to start by having sufficient disclosure of information.

This March, global financial markets fell into a state of turmoil due to the coronavirus pandemic. At that time, we analyzed corporate bonds of European and American companies, and what we found was very interesting. Companies that are serious about addressing ESG issues tended to see a relatively mild price declines. Efforts concerning the SDGs is a very important factor that is directly linked to the credit risk of issuers. We would like to contribute to the achievement of the SDGs by society as a whole by advancing investment from this perspective.

Nomura Group’s Sustainable Finance Vision

Nomura Group acts as a bridge between the demand for funds to combat climate change and solve social issues, and investors who want to contribute to society through investment. Based on our management vision of “Realizing sustainable growth by solving social issues,” we support efforts to achieve the SDGs and develop the SDG bond market, and we work with stakeholders to help enrich society.

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