[in Japanese]

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[in Japanese]

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Investment needs for the Sustainable Development Goals (SDGs) are huge. Official resource flows cannot make up the gap, and private market financing is on the rise. SDGs bonds issued by the World Bank, the Hong Kong and Shanghai Banking Corporation (HSBC), and the Australian and New Zealand Banking Group (ANZ) were all oversubscribed, mainly by institutional investors motivated by the SDGs’ promise to save humanity, the planet and ensure global prosperity. As the corporate sector and the financial markets increase their role in SDGs financing, the challenge for the issuers is how to balance financial reward incentives and the necessity to account for sustainable development impact, which is the basic motivation for most SDGs bonds investors. How can SDGs linked bonds indexes and prices be made to respond to SDGs progress? Insights from financial theory suggest that indexes of bonds issued for development purposes should have a strong correlation with an indicator of well-being and economic progress. A cross-sectional regression of the SDGs Index (a measure of SDGs performance) against the Gross National Income per capita (a proxy for well-being), based on a sample of 117 countries, revealed a strong positive correlation between the two aggregates. From this finding, we recommend that SDGs bonds be linked to the SDGs Index; in this way, bond prices and indexes will reflect sustainable development performance. Moreover, since the relevance of the 17 SDGs, their baselines and pace of progress vary from one country or region to the other, we suggest that SDGs bonds target specific countries or regions, and thematic areas of the SDGs.

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The United Nations Sustainable Development Summit 2015 adopted “Transforming our world: the 2030 Agenda for Sustainable Development” at the United Nations Headquarters in New York from September 25-27, 2015. The agenda includes Sustainable Development Goals (SDGs), a set of 17 goals and 169 targets. In order to enhance these SDGs related activities, SDGs Bonds whose payoffs are linked to the stock index composing shares of corporations promoting SDGs were issued by the World Bank and arranged by BNP Paribas. In this paper, we evaluate these SDGs Bonds which can be considered as options on the stock indices associated with the firms promoting SDGs. We find out the value of the 15-year maturity SDGs bond with par value 100 is 91.02 and 20-year maturity SDGs bond with par value 100 is 86.90. The issuer earns the profit from investors. Furthermore, we consider these SDGs bonds are not necessary to induce the SDGs related activities as payoffs of these SDGs bonds are associated with SDGs index consisting of corporations promoting SDGs. We propose Japanese SDGs bonds whose payoffs are associated with the firm performance and the firm’s actual contribution to SDGs.

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Previous empirical research papers suggest that CSR, ESG, and SDGs might have positive impacts on the firm value (Khan, Serafeim, and Yoon 2016 etc.) while a plethora of papers also suggest that some CSR and ESG factors have no or negative impact on the firm value (Kawamura and Nagata 2016 etc.). We analyze the impact of SDGs on the firm value by theoretical analysis distinguishing the firm value as cash-based value which is derived from the Discount Cash Flow method incorporating the magnitude of cash flow, market risk, and life span of the corporation, and recognized value derived by considering the investors’ utility to SDGs contribution in addition to cash-based value. Our analysis suggests that firm’s contribution to SDGs have positive impact on the firm value if it could increase the investor base, that is, SDGs could improve the recognized firm value. However, if the investors and shareholders care both SDGs contribution and the firm value, the cash-based firm value might be compensated. Mixed empirical results are consistent with our models because the positive impact of SDGs on the firm value via increment in investor base might be offset by the destruction of the cash-based firm value by the excessive investment to SDGs. In order to reach conclusion whether SDGs have positive impact on the firm value, we need to conduct more careful analysis constructing the SDGs index associated with the SDGs contribution by the firm. Additionally, our analysis suggests that if we desire to achieve SDGs at higher level, we need to understand the utility of investors and shareholders and consider the scheme providing the incentives for managers in order to make them maximize the utility of shareholders who care both SDGs and the firm value.

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