In recent years, the share of ESG bonds in the bond market has been increasing rapidly with increasing awareness of ESG issues. ESG bonds help to solve social issues if they are social bonds, help to solve environmental issues if they are green bonds, and help to solve both if they are sustainability bonds. From an investor's point of view, ESG bonds have the added incentive of contributing to solving these issues in addition to their marketability as bonds that can earn yields upon scheduled redemption.

As the market for SDGs bonds expands, the importance of engagement between investors and issuers is increasing. Through these discussions, investors and issuers can deepen their understanding of each other's businesses, financing, management, and efforts toward the SDGs. This will help them explore common ground regarding the SDGs and build a sustainable relationship. Last year, Ashiya City purchased a sustainability bond issued by the Japan Railway Construction, Transport and Technology Agency (JRTT), and Ashiya City made an investment declaration.

On June 25, 2024, a meeting was held at Ashiya City Hall between Ashiya City Mayor Masasuke Oshima and Jyunichi Yoneda, a director of JRTT, to exchange views on the SDGs initiatives of Ashiya City and JRTT.

Saiki:

Today, as an engagement conversation, I would like to have a conversation with Mayor Takashima of Ashiya City, an investor, and Director Yoneda of JRTT, the issuer of the bonds. JRTT and Ashiya City have very close ties in ESG investment. I would like to ask you what kind of initiatives you are taking on the theme of ESG/SDGs, and the background that led to the issuance of the sustainability bonds. First of all, could you tell us about the initiatives and overview of Ashiya City?

Mayor Takashima:

Ashiya is a residential city that values nature and has few large companies or factories. The city has been designed as a place for people to live, with strict regulations that prohibit the construction of new factories. One of the most important things to consider is how to make the city a place where people can live in harmony with nature.

Saiki:

Has this atmosphere been around for a long time?

Mayor Takashima:

I think it has been around for a long time. Ashiya is the only "International Cultural and Residential City" in Japan. There is a law called the Ashiya International Cultural and Residential City Construction Law, which obligates the Prime Minister to report to the Diet once a year on the city's development. The reason why this law was created was because the majority of residents voted in favor of it. Many people felt strongly that Ashiya should be promoted as a residential city. I think that the reason why this kind of culture has taken root from the beginning is simply because of the strength of our citizens.

Saiki:

Thank you very much. When I arrived at the station, I sensed that the atmosphere was nice, and your introduction helped me to understand the city’s background very well. Next, could you talk about the initiatives and businesses of JRTT?

At our agency, we are building not only high-speed rail but also city railways. We have been operating regional railways nationwide since the days of the Japan Railway Construction Public Corporation. In Hyogo Prefecture, we have also worked on the Fukuchiyama Line and Chizu Express in the past. As for ships, for those with policy significance, such as the construction of ships with low environmental impact and ships that maintain routes for the remote islands, we provide financing and technical advice to shipping companies under the framework of shared construction. Moreover, we are one of the leading shipowners in Japan.

Both railways and ships are environmentally-friendly means of transportation. Compared to automobiles, CO2 emissions per transport volume are about 1/6 and 1/5, respectively.

Mayor Takashima:

The other day I took the Hokuriku Shinkansen to Komatsu Station. The design of the station was wonderful. Do you also work on the design of station interiors?

Mr. Yoneda:

Yes. When we build stations, we present designs for each station for the public to choose from. We create designs based on local characteristics and use local building materials.

We sometimes compare stations with interchanges on expressways, but shinkansen stations have a tremendous local economic impact. The attractiveness of stations is very important because it also impacts the community’s development. The city of Ashiya mentioned earlier that all citizens should create a good cityscape, but I think it is important for stations to be places for people to interact and to be pleasant spaces for people to use when changing trains. The designs of the Hokkaido Shinkansen station we are currently working on are also being decided by local residents.

Saiki:

Like Ashiya City and JRTT, I feel that there is something in common: we value the voices of the local community and involve them. Mayor Takashima, you are celebrating your first anniversary as mayor, so please tell us what you have been focusing on.

Mayor Takashima:

I keep talking about education. Improving public school education will pave the way for the future of the city. I think education is the most important thing for the future of Ashiya and for the future of Japan as a whole.

Ashiya City is promoting a variety of initiatives under the slogan of "just right learning." Each person has a unique personality, characteristics, interests, and level of understanding. Against this backdrop, I want to create an environment where everyone can learn in a way that is just right for them. It is the same with work, but when you graduate from school, there are more opportunities to choose a way to learn that is just right for you. I want people to know how to learn and understand things that is just right for them.

I think the biggest challenge in the field of education is that children don't understand why they are being taught certain courses, and sometimes teachers don't either. We are not in an age where if you get into a good school and a good company, you will be secure for life. If you can study based on an understanding of how your interests are connected to the classes you are taking, your motivation to learn will increase.

Saiki:

It seems that there are some barriers such as budget, but what do you think?

Mayor Takashima:

I think it would have been impossible 10 years ago, but I think it is possible now. That is because there have been two major changes.

One is that we can now see that teachers are too busy. There has been a movement to reform the way people work, and it has become easier to take certain work away from teachers that can be done by another means. I think that transitioning school extracurricular activities to local communities is an easy-to-understand example of this.

One other example is the rise of technologies that are easy to use, such as generative AI. I feel that the combination of social trends and technology has created an environment that makes generative AI easy to use. Ashiya has long sought to be a city of education. Rather than leaving everything up to the board of education, I would like to create a system where everyone in the city can support each other, and with the involvement of the citizens, I would like to realize an Ashiya capable of providing the highest level of education.

Saiki:

That's wonderful. We have been providing financial and economic education from elementary school to working adults since the 1990s. We publish a textbook called "The T-Shirt Shop," in which children start up a T-Shirt shop and create a stock company. Our employees also conduct on-site classes at elementary and junior high schools throughout Japan. I heard that many companies besides us also offer on-site classes, and I felt that, in addition to supporting teachers, it made sense to be able to take classes that would be useful in society apart from the usual classes.

Mayor Takashima:

It may be true that the introduction of special classes reduces the burden on teachers. At the same time, I think we need to be careful about whether special classes have a connection to the real world and regular classes are then just conducted as usual.

When I visited an elementary school the other day, I spoke with a boy who said he disliked math. He asked me why he needed to learn math, and we started talking about it. So, I asked him what his favorite thing is. He said he liked soccer. It seems that soccer and math are not related, but in fact they are. I told him that the best teams use statistical data to develop tactics, so if you don't know math, you can't have a strategy. He said that in that case he should study math. It may sound far-fetched, but I think this is an important first step. It is very difficult for each teacher to customize their teaching to each student, so I think AI will play a role in that. I believe that if we can create a good combination of teachers and AI, we can achieve "perfect learning."

Mr. Yoneda:

I saw the Ashiya City education curriculum, and I thought it certainly fosters children's inquisitiveness, and it made me think that not only what kids learn, but the way they learn, is very important. I think it would be a waste if there were differences in the way they learn, so I think it would be great if the mayor took the initiative to convince everyone.

Saiki:

Thank you very much talking about this important topic. Next, I would like to ask about the environment. I believe that Ashiya City made its 2050 Zero Carbon City Declaration in June 2021, and that you have also formulated an environmental plan and are working on energy conservation and renewable energy. Could you tell us about your efforts?

Mayor Takashima:

Ashiya has very few large companies and factories, which makes Ashiya City’s operations a big part of the city’s carbon footprint. The main premise is that Ashiya itself should take the lead in what it can do, and we are converting all electricity we use to be sourced from renewable energy. We are also promoting initiatives to go paperless. For example, I was not raised based on a paper culture, so I have asked people to send me copies of explanatory materials for meetings by data in advance, rather than printing them out and bringing them to me. This is a small thing, but we want to start with something tangible. At the same time, the cooperation of citizens is essential. We want to support the efforts of citizens, so we are accelerating efforts to subsidize rooftop solar panels and electric vehicles. Many people in Ashiya City are highly conscious of the environment, so I think it is important to find ways to understand what they want the city to do with respect to the environment.

Saiki:

You are taking measures not unilaterally but thinking about how to support local people's high level of interest.

I would like to ask JRTT about sustainability finance, which led to this meeting. The bonds issued are used for 100% green projects, and there is also a social component, which I think is a key feature. Please tell us about your thoughts with respect to raising funds.

Mr. Yoneda:

Railway construction requires an enormous amount of money, so government funds are received, but we also issue FILP Agency Bonds to raise funds as an independent administrative agency. We issue bonds in the name of JRTT, and Ashiya City has been one of the entities that has purchased these bonds.

As for JRTT's use of these funds, we are audited in terms of which train lines and sections of train lines the funds were used for. The bonds we issue have been verified for "sustainability finance" by DNV, an international third-party evaluation agency. Our bonds are also the first in Asia to receive program certification from the Climate Bonds Initiative (CBI), which sets strict standards for environmental improvement effects, and this allow us to continue to issue bonds after having received certification one time. Green finance and sustainability finance are becoming a topic of interest to various investors because it is sometimes not clear whether the funds are actually allocated to the projects concerned. I think it is important for investors to have confidence that they are providing funds for environmentally friendly activities, albeit indirectly.

JRTT is in direct contact with many private railway companies, national and local governments, etc., but our work and our name are not necessarily known by individuals. However, when we receive an investment declaration like one from Ashiya, and when the citizens become interested in where and how the city's money is invested, they will know about our agency and how the city is investing in green projects. It is also an opportunity to diversify our funding, but I think it is also an opportunity to let people know about our activities through finance. We have received investment declarations from business entities in all prefectures nationwide, and I think this will be great PR for us.

Mayor Takashima:

As you said, it is good to be able to track how the funds are used. As citizens are paying attention to what the city’s money is spent on, it is very helpful to be able to explain the reason for the investment. I believe that investing in entities like JRTT that are both green and beneficial to society is the first step toward improving society.

Mr. Yoneda:

I think it is easy to understand that our business is constructing high-speed rail, but I think it is also important to be able to explain the flow of funds. As you mentioned earlier about financial and economic education, I think it is important to improve financial literacy in terms of helping people understand how money flows. Up until now, the funds raised through bond issues have mainly been used to refinance urban railways that we built in the past. However, this fiscal year, the funds will also be used to fund the construction of the Hokkaido Shinkansen. I think it is very significant that the Hokkaido Shinkansen will be built with the funds from the sustainability finance that many people have invested in. It may be possible to use money more efficiently if money is not completely designated, but I think it is important to clarify the use of money.

Saiki:

The bonds issued by JRTT are certified by the CBI, which is very difficult to obtain certification from. In recent years, investors in Europe and other parts of the world have been intensely scrutinizing how money is used, such as by questioning whether ESG funds are really supporting ESG goals. It seems that you have tried to jump out in front of this. Could you tell us about your recent environmental initiatives, along with the background behind the bond issuance?

Mr. Yoneda:

We have been working on sustainability finance from a very early stage. Our first issuance was in 2017, when the line to eastern Kanagawa was constructed, and it became the first project to create a model for issuing the Ministry of the Environment Green Bonds. Since then, we have raised funds in the form of sustainability finance, based on the fact that the project is not only green but also contributes to society.

When the Hokuriku Shinkansen Line was extended, there was a wetland called Nakaikemi Wetland near Tsuruga Station, which was initially the route for the Shinkansen. However, because this wetland was registered under the Ramsar Convention, we formulated an environmental management plan and implemented measures to avoid and reduce the impact on the environment, such as changing the route. We have been carefully following up and monitoring these measures after they were implemented, and based on the environmental management plan, we investigate whether there are any effects on the pond, such as changes in the ecosystem including insect life.

The fact that we build railways and ships itself makes ours an environmentally friendly business, and our sustainability bonds have been certified. In this way, we consider the environment in the process of implementing projects.

Saiki:

I did not know the details of JRTT’s efforts, but I think it is good that everyone can learn about your initiatives through sustainability finance. Next, please tell us more about the efforts of the Railway Disaster Investigation Team.

Mr. Yoneda:

Last year, we launched the Railway Disaster Investigation Team as a new initiative. Up until then, we had been providing disaster recovery support by making use of our technology, but in order to respond to increasingly severe and frequent natural disasters, we created a new framework called the Railway Disaster Investigation Team, and developed a system that allows us to move quickly when requested by railway operators. Local people really want to restore railways as soon as possible, and we recently dispatched a team to investigate a disaster at the beginning of the year.

In addition to conducting investigations as soon as possible, we also need to consider the most appropriate restoration method for each case. We also need to come up with countermeasures in case a similar disaster occurs again, and I think this is a difficult task, but I hope that people all over Japan will learn about initiatives like the Railway Disaster Investigation Team, which contributes by making use of a wide range of technologies that our agency has cultivated in railway construction.

Saiki:

In January 2025, exactly 30 years will have passed since the Great Hanshin-Awaji Earthquake. I heard that Ashiya City is planning a 30- year anniversary project. Could you tell us about this?

Mayor Takashima:

I was not born at the time of the Great Hanshin-Awaji Earthquake. I heard about it from my parents and people around me, but I don't know anything about that time. Thirty years have passed, and there are fewer and fewer staff members in Ashiya City Hall who know about that time. As the number of people who didn’t experience that earthquake increases, it is important to pass on the stories of those who experienced that time to future generations. The 30-Year Anniversary Project also focuses on how the younger generation, called the "future generation," can connect to these memories and pass them on.

Currently, we are working with students from nearby Konan Women's University on a project to create a public relations program for Ashiya. We will focus on learning about the disaster and communicating it in our own words. In fiscal 2005, Ashiya established the Ashiya Phoenix Fund, which provides grants to students from universities in six prefectures in the Kinki region, as well as Ashiya residents, when they engage in volunteer activities in disaster-stricken areas. We are working with the hope of returning the kindness that Ashiya received from others in terms of disaster prevention, mitigation, and reconstruction. On this anniversary of that earthquake, I would like to work with the citizens to build a disaster-resistant Ashiya.

Saiki:

Listening to both of you, I sense that you have two things in common: you are working on initiatives rooted in the community, and you are contributing to society through your projects and business by listening to the opinions of local people.