THE GREEN BOND
MARKET IN THE
NORDICS 2018

A USD 19bn
Nordic Green
Bond Market

Prepared by the Climate Bonds Initiative
The Green Bond market in the Nordics Climate Bonds Initiative

Commissioned by Handelsbanken
1Global Market Snapshot
The labelled green bond market has been growing in leaps andbounds, roughly doubling in size in 2016 and 2017.
While 2017 was a positive year, for global finance and its actors to be
making a substantial impact on climate targets, we estimate that thegreen bond market needs to reach USD1tn by 20201.

Green bonds

The labelled Green Bond market is growing rapidly

Green bonds are issued in order to raisefinance for climate change solutions.
They can be issued by governments,
banks, municipalities or corporations.
The green bond label can be applied
to any bond format, including private
placement, securitisation, covered bond,sukuk and others. The key is for theproceeds to be applied to “green” assets.

160

120

80

ABS

Local government

Financial corporate

Government-backed entity

Non-financial corporate

Loan

Development bankSovereign

Understanding
green and climate
bonds

USD Billions

Green definitions
The concept of being green differs
around the world. At the Climate Bonds
Initiative, we approve green bonds
according to a sectoral taxonomy.

40

0
2012

2013

2014

2015

2016

2017

Renewable Energy going strong but Low Carbon Buildings/Energy
Efficiency post record growth
Renewable Energy

Low Carbon Buildings & Energy Efficiency

Sustainable Waste Management

Sustainable Land Use & Forestry

Sustainable Water Management

Adaptation$2bn 2%

Clean Transport

$12bn
14%

2016
$87.2bn

$13bn
15%

$33bn
38%

$20bn
13%
$24bn
15%

$19bn
21%

Inclusion in the Climate Bonds
Initiative’s database
Only bonds with at least 95% ofproceeds dedicated to green projects
that are aligned with the Climate Bonds
taxonomy are included in our figures.
For example, sustainability bonds witha wider use of proceeds or bonds whichfund large amounts of working capitalwould be excluded.

$4bn 3%$5bn 3%$6bn 4%$4bn$5bn 5%
5%Issuers can also certify their issuanceaccording to the Climate Bonds
Standards. The stringent verification
process ensures that the use ofproceeds comply with the objective of
capping global warming at 2˚C.

$51bn
33%
2017
$155.5bn

If issuers do not provide sufficient
information on the use of proceeds,
the bonds are tagged as “pending”.
If and when satisfactory additional
information becomes available, theClimate Bonds Initiative may include
them in its database of labelled bonds.

$45bn
29%
Abbreviations used in the report:

Our forecast for 2018 is USD250-300bn
Key trends to watch include increased sovereign and sub-sovereignissuance across the world, progress on common international
standards and definitions, pressure on the banking sector to embracegreen lending and increased linkages between green bonds, green
finance and Sustainable Development Goals2 6, 7, 9, 11, 13 and 15.
The Green Bond market in the Nordics Climate Bonds Initiative

LGFA – Local government funding agency
GBE – Government-backed entity.
This includes municipally owned
companies and state-owned
enterprises. LGFAs are GBEs.

2

Nordics at the forefront of sustainability
Government focus onsustainability

Investor support

The Nordic countries lead by example.
The Nordic Model of governance and public
service delivery is all about sustainability andsocial cohesion. On the environmental side,2009 was an important year:• The Swedish Association of Local
Authorities and Regions issued a position
paper outlining their priorities for energy
and climate policy.
• The Norwegian government implemented
guidelines for addressing climatechange at the local government level
through an amendment to The Planningand Building Act.
From 2010, Norwegian municipalities andcounties have been required to draw up energy
and climate plans as part of their annual
budgets. More recently, Norway adopted the2017 building code which features even more
stringent energy efficiency requirements forall building types and renovations.
In December, the Finnish Ministry of theEnvironment published a guide for low
carbon public buildings and life cycle
analysis, featuring measures to support
sustainable construction3. On 1 January
2018, Sweden’s Climate Act4came into force.
The focus on sustainability is pervasive.

In another notable development, in November
2017, Norway’s USD1tn sovereign wealthfund announced its intention to divest fossil
fuel investments. The news reverberated
across the asset management community as
a rallying call to re-assess portfolios and alignto the climate imperative. In a similar vein,earlier in the year, Swedish pension fund AP7
sold its investments in six energy companies
it said violate the Paris climate agreement.
More broadly, pension funds from the region
have largely integrated the sustainability agenda
in their investment strategies. Most are now
focusing on engagement and supporting thetransition to a low carbon economy.

Proactive and engaged green
bond issuers
Nordic issuers embraced the green bondmarket when it was still in its infancy. The
Nordic Investment Bank, a multilateral
institution owned by the Nordic and Baltic
states, and Norwegian state bank KBN
Kommunalbanken started issuing green
bonds in 2010. The first corporate green
bond and the first City bond were bothissued in Sweden in 2013. In 2016, property
company Fabege (Sweden) was the firstto create and label a bespoke Green MTN
corporate bond program.

The Nordics account for 6.7% of global
issuance, including the supranational Nordic
Investment Bank, and 18.5% of European
issuance. Sweden is the sixth largest sourceof labelled green bond issuance; Norway,
Denmark and Finland5 are in the Top 20, but
Iceland has yet to record a green bond issue.
By and large, the story of the Nordic green
bond market is about many small and many
repeat issuers creating a big impact. The
Nordic Investment Bank and Nordic Local
Government Funding Agencies (LGFAs)
have added significantly to issue volumes.
The reality is, that even if not labelled, banks
in the region fund many sustainable assets
via loans. Bank issuance and/or green loanlabelling can help showcase this.

Promoting market integrity
Nordic players are also at the forefront inpromoting market integrity: demonstrating bestpractice in external reviews, pushing investor
standards and leading the international dialogue.

This is our first report tofocus on the Nordic market,
covering Denmark, Finland,
Iceland, Norway and Sweden.
The report was commissioned
by Handelsbanken.

Overview of the Nordic green bond market
Country

Global ranking,excludingsupranational

Amount issued(Outstanding)Issuers

Inaugural issuer
Date of issuance

Largest issuer(Issued, bonds)% green bonds
with external
review

Sweden6th

EUR10.2bn(EUR9.7bn)

36

City of Gothenburg
October 2013

Kommuninvest(EUR1.5bn, 3)>99%

Norway16th

EUR2.7bn(EUR2.2bn)

11

Kommunalbanken
May 2010

Kommunalbanken(EUR1.6bn, 13)6

95%

Denmark

17th

EUR2.3bn(EUR2.3bn)

4

VestasMarch 2015Ørsted(EUR1.3bn, 2)

100%

Finland

20th

EUR1.0bn(EUR1.01bn)

2

MuniFin
October 2016

MuniFin(EUR0.9bn, 3)

100%

The Green Bond market in the Nordics Climate Bonds Initiative3

Nordic issues may be often small but …
Nordic institutions have made BIG contributions to the green bond market
Nordic green bond issuance hasrecorded many global and European
firsts. With its 2010 debut green bond,state-owned municipality funding agency

KBN Kommunalbanken became one ofthe pioneers in green bond issuance.
The City of Gothenburg made history in2013 when it became the first city issuer

globally and has become a posterchildissuer for C40 cities engaged insustainable urban development.

Global green bond firsts by Nordic issuers
Sector in which firstGreen bond Issuer

Issuer domicile

First issue date

Size

European state-owned BankKBN Kommunalbanken AS

NorwayMay-2010

two bonds in AUD and ZAR
totalling EUR 85m

City

City of Gothenburg

SwedenOct-2013

SEK 500m (EUR 57m)

Corporate & Real Estate

Vasakronan AB

SwedenNov-2013

SEK 1.3bn (EUR 145m)

Forestry & Paper

Svenska Cellulosa AB

SwedenMar-2014

SEK 1.5bn (EUR 170m)

Wind Energy

Arise AB

SwedenApr-2014

SEK 1.1bn (EUR 121m)

Municipal Housing

Fastighets AB Förvaltaren

SwedenOct-2014

SEK 400m (EUR 43m)

European Municipal Energy

BKK AS

NorwayOct-2014

NOK 1.1bn (EUR 131m)

Green MTN program

FabegeSwedenMay-2016

SEK 600m (EUR 64m)

A notable runner-up is the Nordic
Investment Bank, headquartered in Finland.
It entered the then nascent green bondmarket in February 2010 as the second
European supranational bank after theEuropean Investment Bank. It has sinceissued a total of EUR3bn in 16 issues.
LGFA’s are also repeat issuers: three ofthe financial institutions with a specificmandate to provide funding to the public
sector, namely KBN Kommunalbanken(Norway), Kommuninvest i Sverige(Sweden) and Municipality Finance(Finland). Together with KommuneKredit(Denmark), which issued its debut green
bond in June 2017, these specialist lenders
account for EUR4.5bn of green bondissuance to date or 23% of the Nordics totalof EUR19.2bn. We expect to see continued
issuance from LGFAs.
Local governments issue green bonds
directly, notwithstanding the aggregation

benefits offered by LGFAs. In fact, Swedish
local government deals totalling EUR2.3bn
account for 41% of European local
government green bond issuance, ranking it
second after France.
The City of Gothenburg and Stockholms
Läns Landsting have issued 13 green
bonds between them, raising EUR1.3bn.
Promisingly, the number of issuers keeps
growing with clear prospects for repeat
issuance, including internationally for thelarger cities and municipalities. For instance,
Swedish local government issuers havegreen bonds quoted on the London Stock
Exchange’s Green Bond List.
Another sector with prolific issuance is
Low Carbon Buildings. As of year-end 2017,
Vasakronan had placed 23 bonds totalling
SEK11.4bn (EUR1.2bn). SFF – a funding
platform for five related property companies– and one of its five owners, Fabege, haveraised SEK8.3bn (EUR864m) from 21

Firsts, which aid green bond market growth, transparency
and integrity
2015: Oslo Børs and Nasdaq Stockholm
were the first stock exchanges to launch agreen or sustainable bonds list.

2017: Local government issuers were thefirst to publish a multi-national public sector
guide for Green Bond Impact Reporting.7

The Green Bond market in the Nordics Climate Bonds Initiative

green bonds. Housing company Rikshem
has issued 10 bonds totalling SEK2.75bn(EUR289m). SBAB, a government-owned
property lender, has also tapped the green
bond market four times. A constant streamof new entrants and repeat issuance has
propelled Sweden to third spot globally in
the Low Carbon Buildings/Energy Efficiency
sector, after the USA and France.
The Fabege Green MTN also introduced
risk factors to the bond documentation
to specifcally highlight risks associatedwith climate change, building certification
requirements and non-compliance with theprovisions of their Green Bond Framework.
These risk factors have been emulated in
documentation by subsequent EMTN bondissuers. Standardisation of provisions acrossprograms is key to investor understanding
and acceptance of green bonds.
A full list of Nordic green bond issuers isprovided in the Appendix.
Throughout this report deal sizes areprovided in the bond’s denomination
currency and EUR. Totals are in EUR.
Currencies are converted to EUR at theReuters rate on the 15th of the month ofissue, or the closest business day.

4

Nordic contributions to green bond market development
Use of external reviews• When the World Bank issued its firstgreen bond in 2008, it was also thefirst to use a green bond external
review. This was provided by Oslobased CICERO.
• Nordic issuers are leaders in the useof external reviews. Practically all
outstanding bonds benefit from asecond party opinion (SPO) which
confirms compliance with ICMA’s
Green Bond Principles and reviews
the climate credentials of proposed
investments. Only a handful of NIB’s
early issues prior to September 2014
do not.
• External review has gained in
acceptance over the years. In 2017,75% of global issuance received an
external review. As an SPO provider,
CICERO has been at the forefront
in providing reviews and developing
new methodology.

Best practice for green
property bonds
In 2013 Vasakronan made history as
the first corporate and the first realestate company to debut on the green
bond market. It is the second largest
green bond issuer in Sweden after LGFA
Kommuninvest.
• More broadly, Swedish property
companies have helped to push bestpractice by using high standards
in LEED certification, providing abenchmark for other issuers.
• Sweden leads by example and en
masse: a constant stream of new
entrants and repeat issuers haspropelled the country to third spot
globally in the Low Carbon Buildings
sector after the USA and France. The
US leads thanks to multiple issues
from agency Fannie Mae as well as
bonds from universities, municipal
housing, healthcare and for energy
efficiency ABS.

Green bond impact reporting
In October 2017, Nordic public sector
issuers8 published a Position Paperon Green Bond Impact Reporting. It
is intended as a practical guide forpublic sector green bond issuers andis informed by the IFI Harmonized
Framework for Impact Reporting9.

Contributing to market’s
foundation
When the World Bank developed theGreen Bond10 concept in 2007/08 as“an investment vehicle that integrates thefiduciary element of Fixed Income productswith climate mitigation and adaptation
awareness, giving mainstream investors
access to climate-related investment
opportunities”11, one of the key players
in making this happen was Nordic bank
SEB as lead underwriter on the initialdeal. SEB has played an important rolein the region and globally.

See Financing Low Carbon Buildings,
page 14.

Poster child for city green
bonds
Not only was the City of Gothenburg thefirst city issuer worldwide, it remains a
prolific one. It provided early examples ofthe scope and range of projects that canbe financed by local governments, paving
the way for USA municipal issuers.
Swedish city and municipal bonds accountfor 41% of European local governmentissuance: no mean feat given Sweden’s
relative size!
See Public Sector Issuance, page 11.

Use of aggregation platforms

Stock exchanges

Nordic Local Government Funding
Agencies have been instrumental
in giving cities, municipalities andgovernment-backed entities accessto competitive funding rates frombond placements with a wide range ofdomestic and international investors.
LGFAs fund a variety of projects which
support their countries’ climate priorities.

In January 2015, Oslo Børs became thefirst stock exchange in the world witha separate list for green bonds. In June
2015, Nasdaq Stockholm launched asustainable bond segment.

In the private sector, Sweden’s SFF
provides a similar example. The issuer
is a financing vehicle for five property
companies, allowing them access tothe bond market even for smaller ticket
sizes. SFF is a repeat green bond issuer.

Nasdaq First North Bond Market, analternative marketplace which offers
issuers more flexible admission
requirements than the RegulatedMarkets, is well suited for smaller
issuers, private placements and retailbonds. This enhances market access.
We hope to see green bond segments
launched in Finland and Denmark, aswell as on Nasdaq First North.

See Financial Institutions Issuance,
page 12.

The Green Bond market in the Nordics Climate Bonds Initiative

5

Market evolution
Sweden dominates overall but Denmark grew the most in 2017
8
FinlandFinland5%
Denmark
12%

6

Denmark
Norway4

Sweden
53%

NIB
16%

NIB
Sweden2
EUR Billions

Norway14%0
2013

Until 2013, issuance was dominated by
the Nordic Investment Bank, a multilateralbank owned by Denmark, Estonia, Finland,
Iceland, Latvia, Lithuania, Norway andSweden, and state-owned bank KBN
Kommunalbanken (Norway).
In 2013, the City of Gothenburg and Swedish
corporates entered the market and have notlooked back. Neither have local government
funding agencies which followed KBN’s lead.
There has been a steady growth in theNordic green bond markets since 2014.
2017 was another record-breaking year withissuance 64% higher than in 2016 and 10.5
times the 2013 total.
NIB is the biggest issuer in the region with
EUR3bn of green bonds issued as of year-end
2017. The bank funds the public and private
sector in the Nordics and Baltics. Country
statistics throughout this report exclude
supranational NIB.

Sweden has dominated the green bondregional country rankings since 2014. It
retains its top spot for yet another year, aposition in line with the relative size of its
overall bond market.

2014

2015

2016

2017

market. There has been but one green bondissue from local government: the City of
Oslo.

In 2017, Denmark pulled ahead in thegreen bond rankings significantly
when Ørsted (previously DONG Energy)
issued EUR1.25bn in November to fundwind energy investments. The green
bond represents 20% of the company’s
outstanding bonds. It marks a new chapter
in the newly listed and rebranded entity’s
evolution as it establishes itself as arenewable energy and grid company.
Denmark’s bond market ranks second after
Sweden, for corporate and sovereign issuers,
but has very little municipal issuance. It
remains to be seen if green bond issuance
will dovetail with the size of its bond market.
Ørsted is providing impetus in the corporate
space. KommuneKredit’s debut in the green
bond market is also highly significant as the
LGFA provides 98% of funding to the Danish
public sector, and is in prime position tochannel their funding needs.

Also absent from the green bond roster are
vanilla bond issuers such as large energy
companies and NSB, the railway operator.

Finland saw its first green bond issuanceonly in 2016. MuniFin’s bond, listed on the
London Stock Exchange, was followed by two
more bonds from the LGFA in 2017.
The only other green bond issuer so far isFingrid, which debuted in 2017. The deal willfund the connection of renewable energy
generation to the grid and grid efficiency
improvements.
FSC forestry, banking, property, cities have
all yet to issue green bonds.

Iceland has not issued a green bond yet.

Among the Nordic countries Sweden has thelargest corporate bond market and by far thelargest local government market.

Among Nordic countries, Norway took thefirst step in 2010, but has seen muted green
bond issuance in recent years. Issuance from
KBN also declined in 2017.

Repeat green bond issuers are also active
vanilla bond issuers. As green bonds represent
only a small part of their overall issuance, there
is further green bond market growth potential.

The local vanilla bond market is dominatedby mortgage companies. Municipalities andcities are also active domestic issuers. This
is not yet feeding through in the green bond

The Green Bond market in the Nordics Climate Bonds Initiative

Corporate bond issuance is dominant
in Iceland. The largest issuer is the
Housing Finance Fund, which issues
domestically. The national powercompany, Landsvirkjun, issues primarily
internationally and is a green bond candidatefor geothermal power. Municipality Credit
Iceland, an LGFA, has issued five bonds andis well placed as an aggregator to becomea green bond issuer.
6

Growth to date is great, but there is still plenty of headroom: green bond issuance remains a small part ofeach country’s bond market, both in terms of number of bonds and issuance volume.
Plenty of growth potential for green bonds across the Nordics
Outstanding Amount (LHS)

Outstanding Bonds (RHS)

Norway

1175

1500

300

1500

200

1000

1000

200

500

100
81

115

Sovereign Municipal Corporate

Green
Bonds

38

0

11

500

138

18

Sovereign Municipal Corporate

Finland

0

Green
Bonds

Denmark
2000

400

300

1500

300

1500

200

1000

100

500

1000

789

100
0

500
31

18

4

Sovereign Municipal Corporate

Green
Bonds

0

Number of bonds

400

200
EUR Billions

100
0

2000

1666

0

2000

1754

6

4

Sovereign Municipal Corporate

Green
Bonds

12

0

Number of bonds

0

EUR Billions

EUR Billions

400

EUR Billions

300

2000

Number of bonds

400

Number of bonds

SwedenSource – bond issuance: cbonds.com, as of 4 January 2018. Corporate and Municipal adjusted down to account for Green bonds tally.
Source – green bonds: Climate Bond Initiative, as of 31 December 20172018 has started off well. First out
are the 24th green bond from Swedish
property company Vasakronan andyet another Nordic first: the firstresidential green covered bond. The
EUR1bn deal from Norway’s SpareBank
1 Boligkreditt has the potential to spur
similar issuance from the multitudeof mortgage banks and covered bondissuers in the region.
These deals are not reflected in reportstatistics as they occurred after the
year-end cut-off date. However, they
are both significant in their own right.
Vasakronan’s bond reflects continued
appetite from repeat issuers. The
Norwegian bond could well turn out tobe the harbinger for increased issuancefrom Norway.

Investors
As the saying goes, it takes two to tango!
Investors who subscribe to the Socially
Responsible Investment agenda, havebeen active buyers of green bonds andthe number of dedicated green bond funds
keeps increasing.
Examples of green bond funds from theregion include SEB’s Green Bond Fund,which launched in early 2015, and SPP’s
Green Bond Fund, which had SEK3bn(EUR300m) assets under management
when SPP/Storebrand (Norway),12
committed to the Green Bond Principles in
September 2017 in support of transparency
and market integrity.13
This process of embedding green bonds into
investment strategies is backed by large
pension funds who select fund managers

The Green Bond market in the Nordics Climate Bonds Initiativethat share their sustainability views.
Institutional investors from the Nordic
region have achieved this by investing ingreen bond funds, asking asset managers
to create bespoke SRI portfolios for them,
integrating climate-friendly screening
criteria in their general investment decisionmaking and supporting companies that do
business sustainably.
An example of integrating criteria isprovided by Öhman Fonder, a Swedish fundmanagement and discretionary portfolio
management firm, which has partnered up
with Sustainalytics for in-depth researchand sustainability ratings to inform theirinvestment decisions.

7Issuer sectors and new issuers in 2017
There were 15 new green bond issuers in
2017. Swedish property company Atrium
Ljungberg has even become a repeat issuer
over the course of the year. As the market
has grown, so has the range of issuer sectors.
Financial institutions - state banks, LGFAs,
NIB and commercial banks - account for 51%
of total issuance to date. Other big sectors
are property and municipal housing, clean
energy and local government.
LGFAs, local government and governmentbacked entities account for 47% of Nordic
green bond issuance and over 40% of theirbonds, by value, were issued last year. NIB,
state-owned SBAB (Sweden) and Swedish
Export Credit account for a further 20% of
issuance. The private sector accounts for athird of green bond issuance to date.
At a third of issuance, the private sector
is relatively small and there is certainly
room for growth, particularly for financial
institutions. Issuance from banks can act
as a catalyst, because banks aggregate
issuance from smaller borrowers, for whom
direct access to the bond market may beeconomically inefficient.
Sectors where we see potential forgreen bond issuance include property,
forestry & paper industry, rail transport,
water and wastewater treatment, as wellas certain renewable energy sectors suchas hydropower, biomass/biogas andelectricity grids.

Government related issuers account for two-thirds of Nordic issuanceNon-financial
Corporate
25%

State/Development Banks
20%
Governmentbacked entities
13%
Corporate
33%

Local
Government
11%
LGFAs
23%

Financial Corporate 8%

New Issuers in 2017
SwedenNorwayDenmark

Finland

New Issuers

9

3

2

1

Sectors

3 banks

2 energy*

1 LGFA

1 energy

3 property

1 property

1 energy

EUR 256m

EUR 1,750m

2 local government*
1 transport
Issue volume

EUR 2,286m

EUR 1,750m* Plus one pending

The Nordics feature a highly diversified issuer universe
8000

6000

4000

Forestry
Forestry GBE
Bank - Commercial
Bank - Multilateral
LGFA
Bank - State
EnergyEngery GBE

Housing
Housing GBE
Local GovernmentNon-bank Lender
Real Estate
Real Estate GBE
Transport

EUR Millions

2000

0
2013

2014

The Green Bond market in the Nordics Climate Bonds Initiative

2015

2016

2017
8

Green Bond Deal Features
Deal size
The largest placement to date is Ørsted’s
EUR1.25bn deal, issued in two tranches. The
smallest is a EUR2m bond issued in BRL by
NIB in February 2017.
Banks have typically gone for benchmark
deals of 500m EUR or USD, except forsome KBN and NIB issues. The 20 bonds of
USD500m or more account for EUR9.7bn or
51% of total issuance. Listing venues include
the London Stock Exchange, the Luxembourg
Green Exchange and German exchanges.
The average deal size for the remaining 158
bonds is EUR60m. Deals of this size are notthat well suited to international issuance andtend to be listed locally and in local currency.
However, this is not always the case.
For example, Swedish local governmentissuance and Fingrid’s EUR100m green
bond are well below benchmark size. Yet
the strength of the issuers – sub-sovereigns
respectively state-owned enterprise – and,perhaps more importantly, their strategy
to access international investors and awider socially responsible investor base has
seen City of Gothenburg, City of Malmö,
Stockholms Läns Landsting and Fingrid liston the London Stock Exchange.

Bond currency
At 28% of outstanding amount, EUR
denominated green bonds are popularamong Nordic issuers. However, there are
local differences: e.g. in Sweden, issuersrarely issue in anything other than local
currency so SEK bonds account for 45% of
the outstanding Nordics total.
US dollars round off the popular denomination
currencies. Historically, KBN has issued
in a wider range of currencies. MuniFin’s
private placement was issued in Australian
dollars. In general, LGFAs have long sought
diversification in their bond investor base andhave issued in currencies to match.

long term because of a Danish bond market
convention that does not permit perpetuals.
However, its 12-year bond also extends thematurity curve for corporate green bonds.
Only KBN, an LGFA, and NIB, a supranational,
have issued longer dated bonds at 15 and 20
year tenors. Long-dated bonds are key for
local government and corporates in funding
long-term green infrastructure.

Type of instruments
Globally, the range of green instruments
has become increasingly extensive. Nordic
issuers, however, have used a more limited
number of bond structures. Municipality

Finance is, to date, the only Nordic issuer
to have raised green debt through a private
placement, for instance.
There is a diversification opportunity.
A prime example are green coveredbonds given the dominance of mortgage
backed bonds in local bond markets.
The first green covered bond only cameto market in January 2018: SpareBank 1
Boligkreditt’s dual recourse bond links
to a pool of mortgages secured onenergy efficient residential housing.
More banks are expected to follow suit.
Mortgage backed securities may be an
option, too.

SEK issuance dominates for outstanding green bonds
EUR Billions
0

2.0

4.0

6.0

8.0

10.0

1-3Y

3-5Y

5-7Y

7-10Y
Finland

10-15Y

Denmark
NorwayOver
50Y

SwedenTenors of 3-5 years dominate among outstanding green bonds
EUR Billions
0

2.0

4.0

6.0

8.0

10.0

SwedenBond tenor
High volumes of Swedish issuance also
influence tenor distribution. The volume
weighted average tenor for Sweden is 4.5
years, whereas for Norway it is 6.3 years andfor Finland 7.7 years. Ørsted’s 12- and 1,000year bonds increase Danish and overall
averages. All-in-all, the most common tenors
are in the 3-5 year range.

Denmark
SEK
NorwayEUR
USD

FinlandNOK
AUDØrsted’s 1,000-year bond is effectively aperpetuity: it is issued with an extremely

The Green Bond market in the Nordics Climate Bonds Initiative

9

Use of proceeds
For some issuers, the allocation of bondproceeds is aligned to the issuer’s businesssector: e.g. transport in the case of
Volvofinans, which debuted in 2017 with a
SEK700m green bond (EUR72m). It is the
only issuer from the transport sector, but low
carbon transport is also financed by banks
and local government, i.e. indirectly. The
direct and indirect allocations to sectors arecaptured in our use of proceeds analysis.
Diversity in the use of proceeds has
increased over time, in line with the global

trend. However, property funding is much
more heavily represented due to strong
issuance in Sweden. In 2013 nearly 75% ofraised funds were allocated to low carbon
buildings and transport. An ever-increasing
number of commercial real estate andhousing company green bond issuers means
investment in energy efficient property
remains high on the agenda: 31% in 2017,34% overall to date. Renewable energy
allocations - 28% overall, 31% in 2017
– benefit from the emergence of district

heating companies in Norway and Sweden
as green bond issuers, as well as the more
typical solar (e.g. Scatec, Norway) and windenergy (e.g. Ørsted and Vestas, Denmark).
The highest diversity of funded sectors isobserved in Sweden, the largest market witha mix of public and private sector issuers.
At the other end of the spectrum, Danish
issuance is dominated by the EUR1.25bnØrsted deal.

Low Carbon Buildings and Renewable Energy dominate Use of Proceeds
Renewable energy

Low carbon buildings

Low carbon transport

Sustainable land use

Water & wastewater

Adaptation

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

Waste management

0%
2010

2011

2013

2014

2015

2016

2017

Denmark

Finland

NorwaySwedenNote: Overall issuance does not include supranational NIB

External reviews and reporting
Nordic countries were early adoptersof external reviews and over 98% of
outstanding bonds benefit from a second
party opinion (SPO). The exceptions relate
to NIB bonds issued prior to Q3 2014.
CICERO is the dominant reviewer for
Nordic issuance and, by value, has provided
over 80% of external reviews including for
NIB and government-backed entities. DNV
GL is the second largest reviewer (10%).
Sustainalytics has a smaller share but isgaining ground with Swedish municipal,
MOC and SOE issuers. Oekom debuted in
the Nordics with an SPO for Nordea’s firstgreen bond placed in June 2017.

In our study published in June 2017, Post
Issuance Reporting in the Green Bond MarketTrends & Best Practice, we highlighted bestpractice examples from public sector
issuers, Kommuninvest (Sweden) being oneof them. For instance, its reporting shows
how much it has committed to its overall
green bond programme, the amount issued
to date and what is still outstanding. In
terms of cities, Gothenburg got a mention
for its reports, which feature charts on
how proceeds are allocated across broad
projects types as well as a distinction
between mitigation, adaptation and generalenvironment projects.

The Green Bond market in the Nordics Climate Bonds Initiative

One key Nordic contribution to thedevelopment of the green bond market isthe publication of a guide7 to green bond
impact reporting for local government,
created and to be implemented bymunicipalities and financial institutions
across the region. Not only is the scaleof cooperation impressive, but the speedof putting together the guide – a coupleof months – suggests a high degree ofalignment of views around climate topics.

10

Public Sector Issuance
LGFAs dominate public sector issuance14

Norway was first; Sweden is No. 1 on volume

4.0

4.0
Local Government

Denmark

GBE

3.0

Norway3.0

Sweden
2.0

1.0

1.0

EUR Billions

EUR Billions

LGFA
2.0

0
2013

2014

2015

The Nordic Model – as it has evolved in
Denmark, Finland and Sweden – is based on
decentralisation and cooperation between
regions and municipalities to deliver an
extremely wide range of services to the people
they serve. A lot of fiscal responsibility rests
with local and regional governments. Many
services including health care, education,
housing, energy generation and heating aremanaged by local governments but may bedelivered by municipally owned companies.
In Norway there is greater state involvement
because the government retains taxation
powers. In general, state-owned enterprises
play a more significant role in Norway and
Finland where state ownership is higher.
A high volume of public sector issuance14
is not surprising against the backdrop of theNordic Model. Green bonds from issuers in
the following categories account for almost
half the Nordic green bond issuance:• Local government – municipalities, cities,
counties, regions;2016

Finland

0

2017

2013

2014

• Government-backed entities –companies which are majority owned
by municipalities and/or the state, i.e.
municipally owned companies (MOCs)
and state-owned enterprises (SOEs);15 and• LGFAs – three of the public sector financing
institutions are owned by member
municipalities, one is state-owned
The 68 bonds the 28 public sector issuers
have issued total EUR9bn and account for
47% of Nordic green bond issuance.
LGFAs play a vital role in financing local
government and related entities. In
Denmark, KommuneKredit accounts for
98% of public sector borrowing. In Finland,
MuniFin accounts for about 60%. In Norway
and Sweden, KBN and Kommuninvest
provide 45-50% of financing.
However, local government andgovernment-backed companies are
increasingly accessing the debt capital
market in their own right, particularly in
Sweden and Norway.

2015

2016

2017

Green bond issuance from the public
sector is being channelled primarily towards
renewable energy, low carbon transport, lowcarbon buildings and energy efficiency. As
Denmark and Norway deliver on their plans
to upgrade rolling stock and rail transport
in general, we would expect an increase infunding for the Low Carbon Transport sector.
Nordic local governments and LGFAs havefairly similar distributions overall. Given
their relative size, this drives the sector’s
use of proceeds profile. However, two thirdsof government-backed issuers use bonds
to fund renewable energy, with property
companies a distant second.
In Norway and Sweden, in particular, thereis scope for increased local governmentissuance given the much wider number of
local government vanilla bond issuers andthe sustainability obligations incorporated
in public-sector budgets. Reykjavik, too, has
ambitious plans16, particularly in rail and otherpublic transport, which lends itself well togreen bond financing.

Renewable Energy is top category overall, but particularly for Government-backed Entities
Renewable energy
29%

Low carbon buildings& energy efficiency
20%

Water &
wastewater
12%

5

Land
Use
5%

4.5bn
4

3

The Green Bond market in the Nordics Climate Bonds Initiative

2.1bn

Waste
management
9%

EUR Billions

2
Adaptation 5%

Low carbon Transport
20%

2.8bn

1

0
LGFAs

Loc Govt MOCs & SOEs
11

Financial Institutions Issuance

Development banks. NIB was one of the first
Nordic green bond issuers. Its 16 green bondissues to date total EUR3bn, making it thelargest Nordic issuer. The bank has funded
private and public sector entities primarily in
the Nordics: 95% for the 2011-2017 period,
according to data provided by the bank.
Loans for energy efficiency improvements
and green buildings account for 30% of
allocations, with another 29% going to
renewable energy and 24% to wastewater
treatment. Public transport and waste
management make up the remaining 17%,
according to NIB data.17
Sweden Export Credit provides an example
of issuance, which supports international
trade and emerging markets development.
There are similar institutions in the region
that have yet to issue green bonds. They
are potential issuers insofar as they fundprojects that lend themselves to green
financing. These include:

Finland’s export credit agency Finnvera anddevelopment finance fund Finnfund: both arerepeat issuers in the vanilla bond market

In Norway there are three candidates. Export
credit agency Eksportkreditt Norge can follow
in the footsteps of Swedish Export Credit.
Sustainable development fund Norfund, which,among other things, finances clean energy indeveloping countries and the Rainforest Fund,which funds programs and investments that
protect rainforests may also have suitable
programs and/or assets.
Commercial banks. Nordic banks havebeen active underwriters and promoters ofgreen bonds, but issuance from commercial
banks has been limited. Norway’s DNB
was the first bank to take advantage of thegreen bond market in early 2015. In 2017
three more large institutions debuted –SEB, Nordea and Swedbank – more thanoffsetting somewhat lower annual issuancefrom LGFAs.

DNB raised its bond specifically for a windproject, but the Swedish banks’ green bondframeworks feature almost the full range:
renewable energy, green buildings/ energy
efficiency, low carbon transport, water andwaste management and forestry/sustainable
land use. Given the dominance of mortgagebacked bonds in local bond markets,
however, particularly relevant categories toconsider for green bond issuance are:Financial institutions finance all
sectors
Low carbon buildings& energy efficiency
24%
Low
CarbonTransport
22%

Renewable
Energy23%

Water &
Waste Wastewater
management 14%
10%

Raising green funds to offer energy efficiency
loan programs to property landlords andmultifamily housing landlords, including
cities, municipalities and cooperatives.

Sustainable land use 4%
Adaption 3%

Most commercial banks debuted
in 2017Mortgage-backed issuance such as coveredbonds (like BerlinHyp’s green Pfandbrief),
mortgage backed securities (like Obvion’s
Green Storm RMBS) and green bonds
with proceeds tagged for energy efficiency
residential mortgages (like Barclay’s and ABN
AMRO’s green senior unsecured bonds).

4.0

Mortgage banks play a vital role insupporting the housing market and property
lending more broadly. They are among thelargest bond issuers. In Denmark, mortgagecredit bond issues represented 78% of all
bonds outstanding as of 30 September 2017,
according to official statistics. In Norway– 41% as of 30 June, and in Sweden – 28%
as of 31 October. All are sizeable market
segments for bond issuance!

2.0

Sweden’s property bank SBAB has issued
four green bonds, but given the size of themortgage credit market, this is a drop in theocean. Even if we add in the recently closed
EUR1bn residential green covered bondfrom SpareBank 1 Boligkreditt (Norway), weare barely scratching the surface of what
could be.
Consequently, we expect to see more issuancefrom SBAB and other big property lenders
among commercial banks. But we also
suspect we could see deals from SBAB’s
covered bond subsidiary Swedish Covered
Bond Corporation and Stadshypotek AB.

The Green Bond market in the Nordics Climate Bonds Initiative

3.0

Bank-Municipal
Bank-Multilateral
Bank-Commercial
Bank-State
Non-bank Lender*

1.0
EUR Billions

Financial sector issuers include developmentbanks Nordic Investment Bank and Sweden
Export Credit, state bank SBAB, a stateowned Swedish specialist property lender,
the LGFAs and four commercial banks.

Growth Opportunity02013 2014 2015 2016 2017

* Non-bank Lender: SFF (Sweden) is a funding platform for fiveproperty companies. It on-lends the bond proceeds to thesecompanies. The vehicle has a SEK12bn secured European Medium
Term Note (EMTN) program. Its bonds are secured by loan
receivables, and the loans are secured on the property that is being
financed. The structure allows for both green and vanilla bondissuance, but recent issues have been almost all green, i.e. secured
on low carbon buildings.

Covered bonds from other mortgage banks
and subsidiaries are also likely. In Finland,these could come from covered bond issuerssuch as OP Mortgage Bank (OP Financial
Group) or cooperative bank Ålandsbanken.
Among LGFAs, a good candicate is KLP
Boligkreditt, which is part ofpart of KLP
group (Norway).

12

LGFAs enjoy dominant position as lender to local government
Municipality
Finance

KommuneKredit

Kommuninvest

Kommunalbanken

Municipality Credit

Country

FinlandDenmark

SwedenNorwayIcelandEstablished1989 / 1993

1899

1986

1926

1967

Owner

51% municipalities
31% Keva
18% state

Membermunicipalities

Membermunicipalities

100% state

Membermunicipalities

Guarantee
structure

Municipalities
on a joint basis
via Municipal
Guarantee Board

Joint and several
liability fromlocal and regional
governments

Joint and several
liability fromlocal and regional
governments

100% state-owned
since 2009. Letter of
support from owner

Municipalities andState Treasury for
MOC & SOE loans

S&P / MDY ratinga

AA+ / Aa1

AAA / Aaa

AAA / Aaa

AAA / Aaa

NR / NR

Market share

About 60%

98% (prev. 95%)

48% (prev. 46%)

45% (prev. 50%)

25% in 2012cb

Sources: S&P Ratings Direct, Municipality Finance PLC, December 2016. (a) Most recent credit reports from Moody’s and S&P. (b) Company annual accounts 2016, except for MuniFin (sourced from S&P report) and MCI(sourced from corporate website). (c) Lastest available on corporate website

Local Government Funding Agencies(LGFAs) are prevalent in the region as apooled funding model for the public sector.
They are well-established institutions
set up with a specific mandate to financemunicipalities, cities, counties, regions,
government-backed companies and agencies.

are passed on to their member municipalities
in the form of attractive loan interest rates.
Although certain LGFAs have seen theirmarket share decline as some public sector
entities have started tapping bond markets
directly, they remain the most viable funding
source for smaller cities, municipalities,municipality- and state-owned companies.

LGFAs are owned by member municipalities,
except for KBN, which is state owned.
Municipalities are not required to join, but
most have. The ownership structure issimilar to credit unions: the owners and theborrowers are the same entities.

KBN Kommunalbanken, Kommuninvest,
MuniFin and KommuneKredit are at theforefront of green bond issuance not just due
to volume but also in terms of defining thefeatures of appropriate investment projects
and developing best practice.

The key advantage of LGFAs is aggregation.
The LGFA can raise funding in large amounts,
including benchmark bond deals, and uses
the proceeds to lend to even the smallest of
public sector entities. LGFA’s sovereign credit
ratings and larger deal sizes allow them toachieve good bond pricing and the benefits

However, their green bonds represent
only 1.6% to 3.3% of their total bonds
outstanding against a backdrop of balance
sheets which feature a variety of climatefriendly lending. There is also scope for other
LGFAs to enter the market, namely KLP in
Norway and MCI in Iceland.

We have high expectations
for further green bondissuance from LGFAs – both
locally and internationally– as they channel local
governments’ funding
requirements to meet theircountries’ environmental andclimate priorities.

These four LGFAs have issued 20 labelledgreen bonds altogether. Their outstanding
green bonds are generally benchmark
size, and are listed on the LSE and/or the
Luxembourg Stock Exchange.

2017

2016

2017

2016

2015

2017

0

2014

400

2012

800
2013

EUR Millions

1200

2017

2016

Green bond issuance from municipal banks has high growth potential

KBN Kommunalbanken
NorwayKommuninvest
SwedenMuniFinFinlandKommuneKredit
Denmark

1034

1511

907

500

4

3

3

1

1.6%

3.3%

2.4%

2%

Outstanding green bonds
EURm issued
NumberGreen bond share of totalbonds outstanding18

The Green Bond market in the Nordics Climate Bonds Initiative

13

Financing Low Carbon Buildings
Investment in low carbon buildings has
been funded largely directly by property
companies and by specialised property
lender SBAB for a total of EUR3.9bn.
A further EUR1.6bn has been allocated tothe sector from funds raised by banks andlocal government.
Sweden has a particularly active real estate
sector, so it is not surprising to see a lot ofgreen bond issuance emerging from there.
In 2016, there were two new private sector
issuers: Castellum and Fabege, the latter
under a labelled Green MTN program – thefirst of its kind. In 2017, there were two more:
Humlegården and Atrium Ljungberg, whichis already a repeat issuer!

Private sector. We fully expect theprivate sector to continue to tap the debt
capital market for growth and property
improvements. Two examples of potential
issuers are Wallenstam and Citicon Oy.
Wallenstam (Sweden), which has issued two
green bonds through its Svensk NaturEnergi
subsidiary to fund renewable energy,
may also be able to source assets for Low
Carbon Buildings and energy efficiency
improvements. Wallenstam is already avanilla bond issuer, i.e. known to investors.
Citycon Oy (Finland), which has a large
shopping centre portfolio across the Nordics

and the Baltics could follow in the footstepsof shopping centre giant Unibail-Rodamco,
which issued its first green bonds in 2014.
Citycon is also a vanilla bond issuer.
However, we also see opportunities
in housing and specialised real estate,especially given that many landlords in these
sectors are government-backed entities.

Housing companies have the potential to
become green bond issuers. Issuance to datefeatures only five Swedish companies – a
surprisingly low number, given the high levelof local government ownership of housing.
Housing associations in big urban centres
such as Helsinki should be able to follow
Sweden’s lead. Even in Sweden, there arelarge municipal housing companies larger
than the three green bond issuers who may
be able to identify appropriate Low Carbon
Buildings pools or fund energy efficiency
improvements through green bonds.

Specialised real estate companies which
own and manage public buildings (e.g. carehomes, schools, student facilities) are agreat way to combine the environmental andsocial agenda.

There have been green bond issues fromthree such companies, and all could be repeat
issuers. Privately owned Entra (Norway)
manages a large portfolio of government
offices. Specialfastigheter (Sweden) has awide range of assets under management
including courts, police stations andinstitutional care facilities. Hemsö (Sweden)
owns and manages primarily education andhealthcare facilities.
What has been achieved so far is impressive.
Still, given the high level of involvement oflocal government in the provision of public
services, there is scope to scale up andexpand issuance across the region.
An example of an existing vanilla bondissuer that could potentially fit the bill
is Akademiska Hus AB, a state-owned
Swedish company that owns and manages
the research and university property,
including student accommodation. In theUS, for example, State Universities havebeen quite successful in raising funding
in the green bond market to improve theirbuilt environment.

Public infrastructure such as railway
stations and other urban spaces that
promote less travel, or travelling by train
rather than by car. An example is Jernhusen(Sweden) which develops and manages
railway stations and city neighborhoods.

Over 90% of green bonds issued by property companies and lenders were originated in Sweden

2.0

3.0

1.0

2.0

0.5

1.0
EUR Billions

EUR Billions

1.5

4.0
State Bank
Housing
Housing GBE
Non-bank Lender
Real Estate
Real Estate GBE

0
2013

2014

2015

The Green Bond market in the Nordics Climate Bonds Initiative

2016

2017

Housing
Housing GBE
Real Estate
Real Estate GBE

0
NorwaySweden14

Financing Renewable Energy

The first issuers in the sector were Sweden’s
Arise and Aligera who entered the green
bond market in early 2014. The largest is
Denmark’s Ørsted due to its EUR1.25bn issue
from November 2017. Finland has negligible
presence with just one recent issuer: stateowned grid company Fingrid.
There is clear potential given the prevalenceof district heating in the Nordics, combinedwith strong investment in renewable energy
sources, as well as grid improvements tohandle variable flow from renewable energy.

Municipal energy companies dominate
1600
Energy1200

Energy GBE

800

EUR Millions

Raising funds for investment in renewableenergy is a key use of proceeds in theNordics. Energy companies account for
EUR3.1bn of issuance. A further EUR1.4bn isallocated to the sector from funds raised bybanks and local government.

400

0
2014

2015

2016

2017

2016

2017

Denmark is No. 1 thanks to Ørsted
1600

1200

Similar to Fingrid, Norway’s electricity gridcompany Statnett could be a potential green
bond issuer not just vanilla bond issuer.

Denmark

SwedenNorwayFinland800

In Norway, there are over a dozen
government-backed energy companies –primarily involved in district heating – thathave outstanding bonds sized at NOK500m
or more and listed on the Oslo Stock
Exchange. Only five have issued in the green
bond market.
Financing district heating from renewableenergy and waste management is not uniqueto Norway. There are over 460 municipal
district heating companies in Denmark. In
Sweden, only Fortum Värme has issued agreen bond.
Given that the vast majority of housing
is heated centrally and the energy mix
is skewed in favour of renewable energy,
there must be suitable projects, albeit
some smaller issuers may need theassistance of an aggregator, e.g. an LGFA.

EUR Millions

400

0
2014

2015

In Finland, an example would be Vapo Oy,an energy company, which among otherbusiness areas provides district heating andfuel solutions to industry.
In Iceland, it could be companies
which provide heating generated fromgeothermal sources.

The Green Bond market in the Nordics Climate Bonds Initiative

While the Climate Bonds Initiative isselective around hydropower, there are many
companies in the Nordics that could begreen bond issuers given the right project interms of climate impact. Some of them areexisting bond issuers such as Kemijoki Oy(Finland) and Statkraft AS (Norway).

15

Further sector opportunities for green bonds
Smaller sectors for green bondissuance include Low Carbon Transportand Sustainable Land Use. Both havegrowth potential.
To date the only green
bond issuance from atransport company has
been the SEK700m(EUR72m) debut green
bond from Volvofinans.
Low carbon transport is primarily financed
through banks and municipalities.
However, both Norway and Denmark
have railway investment plansincorporated in their state budgets
and transport strategies that could
potentially be funded by green bonds.
Both Norges Statsbaner and Danske
Statsbaner are existing bond issuers.

There are three
Sustainable Land Use
green bond issuers, allfrom Sweden: Svenska
Cellulosa Aktiebolaget,
Södra Skogsägarna
and state-owned Sveaskog. Forestry is an
important economic sector within the region
and FSC-related assets would be suitablefor green bonds. Based on business activity
Norske Skogindustrier (Norway), for instance,
may be able to create a green asset pool.
Sectors which are funded only indirectly,
i.e. by banks and local government, include
water and waste water treatment, waste
management and adaptation. While loans
may be most suitable for borrowers withsmall funding requirements, there are somelarge companies across the region who havealready issued vanilla bonds to finance theirinvestment programs and assets, so are but
a step away from green bond issuance. Some
examples include:
Käppalaförbundet(Sweden) is a wastewater
management company,
which serves elevenmunicipalities.
Gasum Corporation(Finland), for instance,
is a leading producerof biogas frombiodegradable waste.
Climate measures suchas Sweden targeting 50% use of biofuel forvehicles by 2030 could spur production fromcompanies such as Gasum.

Country opportunities
More volume expected fromcountries of green bond issuance
In Norway, municipalities
are often repeat issuers on
the local market, albeit manyof them only issue very small bonds. The
biggest issuer is City of Oslo, which has
issued one green bond but has another 50
bonds outstanding. There are also multiple
companies, particularly municipal energy
companies, that have taken advantage ofthe vanilla bond market. Simply based on
the volume of bond issuance from the public
sector, there is high potential to convert at
least part of that into green bonds, backed bysuitable assets.
Then there is the private sector, whichis largely absent from the green bondroster. Energy and railway companies
are well placed to issue given continued
investments. We expect growth in
Renewable Energy, Low Carbon Transportand Low Carbon Buildings.
Denmark made a splash whenØrsted issued its debut bond.
At EUR1.25bn it represents
20% of the company’s total outstanding
bonds. However, a notable void is visible
in property-backed issuance, especiallygiven that mortgage credit bonds
represent almost 80% of all Danish bonds
outstanding.

Finland has taken the firststeps, primarily throughMuniFin issues. While theinstitution has the intention and asset baseto continue down the green bond path,
sectors such as forestry, housing, energy
generation and district heating, as well
as low carbon transport come to mind as
potential sources of green bond assets/
projects. Covered bond issuers such as OP
Mortgage Bank can add to the mix.
Compared to its neighbours, Finland isunderrepresented in all of these as well as inmunicipal issuance. Stockholms Läns Landsting,
Gothenburg, Oslo, Malmö have issued green
bonds. Helsinki is a notable exception!
Sweden has been forging
the green bond path, but is
not resting on its laurels. We
certainly expect to see more from existingand new issuers, including in the property,
energy and local government sectors. But“new” sectors such as water and waste
management, adaptation and low carbon
transport should be considered in earnest.
The government has extensive investment
plans in the climate sector for the 20182020 budget period. Expectations that
Sweden will issue a sovereign green
bond have risen as a government inquiry
commissioned by Per Bolund, Minister for
Financial Markets and Consumer Affairs, wasrecommended by government recently.19

The Green Bond market in the Nordics Climate Bonds Initiative

The case for Iceland
Iceland benefits fromsubstantial geothermal energy
resources. Geothermal power
generation for electricity and heating
lends itself well to green bond issuance. A
possible issuer is Landsvirkjin, the national
power company which has already issued
international vanilla bonds.
Reykjavik’s Municipal Plan 2010-2030
and Climate Policy 2020 feature a rangeof measures in respect of public transport,
electric vehicles and low carbon buildings.
Local government has experience with bondissuance, albeit domestically. Direct issuancecould be an option for Reykjavik, given thecomparatively bigger investment plans forthe capital including improved rail transport
links and the creation of a public transport
corridor as part of its plans to reduce GHG
emissions from automotive travel and public
transport to zero by 2040.
The largest domestic bond issuer, theHousing Financing Fund, may also be able toraise green bond funding for energy efficienthousing or upgrades.
Alternatively, LGFA MCI could act as a debt
aggregator to scale up funding for others. It
is already a domestic vanilla bond issuer.
A sovereign issue is also an option as a way
to fund a variety of projects.

16Drumming up even more support for the Green Bond Market
Investor engagement in sustainable
investment is increasing, particularly fromthe large pension funds in the region. Assetmanagers further underpin demand for green
bonds and increase liquidity.
Over the course of 2017, Sweden’s AP7 and
Norway’s USD1tn sovereign wealth fund haveclearly signalled that they are and will divestof fossil fuel investments. More explicit
support for climate-aligned investmentsfrom pension funds and their asset mangers,
would provide a further vote of support for
the green bond market.
Stock exchanges. The creation of a green
bond list on stock exchanges provides
visibility and discoverability of green bondissuance. Oslo Stock Exchange and Nasdaq
Stockhom have had green/sustainability

bond segments since 2015. Hopefully,
Finland and Denmark will follow.
The extension of the First North listingvenue to green/sustainable bond issuers
will provide easier market access tosmaller issuers and for private placement,
coupled with greater visibility for the SRI
investor base.
Facilitating market access for smaller
issuers. Finding ways to decrease green
bond issuance costs would certainly
help smaller issuers. Pooling funding
requirements and issuing through a common
funding vehicle is one way to achievethis. Alternatively, Nordic governments
could consider targeted incentives such as
covering external review costs for certain
issuers (similar to Singapore) or providing

tax deductibility for issuance costs (similar
to Malaysia). This could be similar to tax
incentives for electric vehicles, which wereintroduced in Iceland recently.
The use of LGFAs as aggregators is a bestpractice example of scaling up financing for
public sector investments. Alternatively, theuse of a joint funding platform is a structurethat can be deployed for any sector, any
type of issuer and in any market – given
the will to cooperate! It can provide bondmarket access to a wide range of issuers that
may lack size to make direct bond issuanceeconomically viable.
In Finland, for example, six cities20 haveagreed to cooperate on innovation – in asimilar vein, they could pool resources toissue green bonds.

Conclusions
The Nordic countries are at the forefront ofdefining “green”. Their green bond markets
have evolved in the context of the Nordic
Model, which relies strongly on consensus
and cooperation to achieve equitable
and sustainable social development.
Environmental and wider sustainability
targets are integrated into local and central
government budgeting and in key laws
such as building codes. All of this provides

for wide support of related initiatives andclimate-aligned investments.
This has resulted in the growth of the Nordic
green bond market. Underwriting banks andissuers have sought access to the market toshowcase sustainability aspirations. The very
high use of external reviews and the new
focus on impact reporting across the region
contribute to improving market integrity andare setting standards for others to emulate.
Increasing support for the market throughinvestors, stock exchanges, cost-focused
incentives for smaller issuers and thecontinued use of aggregation to pool funding
requirements should help the Nordic markets
to continue to grow and innovate.
Last, but not least, sovereign issuance from theregion would further support climate action.

Endnotes
1. For more information on Mission 2020, visit http://www.mission2020.global/milestones/finance/
2. For more information on the Sustainable Development Goals, see
http://www.undp.org/content/undp/en/home/sustainable-development-goals.html
3. Green public building procurement guide, Environmental
Guide 2017, Ministry of the Environment, Department of the Built
Environment
4. For more information on Sweden’s new Climate Act, see http://
www.government.se/press-releases/2018/01/as-of-today-swedenhas-a-new-climate-act/
5. Finland figures throughout this report excluding issuance fromthe supranational Nordic Investment Bank, headquartered in Helsinki, as the institution is jointly owned by the states of Denmark,Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden.
6. Some of this issuer’s bonds have now matured.
7. The Position Paper on Green Bond Impart Reporting can be
retrieved here https://www.munifin.fi/recents/news/2017/10/24/
nordic-issuers-release-guide-on-green-bonds-impact-reporting
8. Participants: City of Göteborg (SE), Kommunalbanken (NO),Kommuninvest (SE), Municipality Finance (FI), Municipality of
Norrköping (SE), Municipality of Örebro (SE), Stockholm County
Council (SE), Swedish Export Credit Corporation (SE). Kommunekredit (DK) has participated in the group as an observer, with
the intention to comply with the positions of this paper at a laterstage. In addition, Municipality of Borås and Swedish Associationof Local Authorities and Regions (SALAR) have participated in thedevelopment work, as representatives of the Kommuninvest Green
Bonds Environmental Committee
9. International Financial Institutions (IFIs): Green Bonds, Working
Towards a Harmonized Framework for Impact Reporting, Dec 2015
10. The European Investment Bank issued its first sustainability
bond focused on climate change in June 2007, but the term “Green
Bond” was coined for the World Bank’s 2008 issue
11. https://sebgroup.com/large-corporates-and-institutions/our-services/markets/fixed-income/green-bonds
12. For more information, see https://www.storebrand.no/en/
sustainability/climate-strategy
13. Source: http://nordsip.com/2017/09/05/sppstorebrand-signsgreen-bond-principles/
14. Public sector for this report includes local government, LGFAs
and government-backed entities, but does not include state banks(other than KBN as an LGFA) and NIB
15 The MOC and SOE category includes companies which are atleast 50% owned by local or central government. So Ørsted (prev.
DONG Energy) is included since the Danish state holds a 50.1%
share, but Entra AS is not because the Norwegian government
holds a 33.4% share.
16. For more on Reykjavik’s Municipal Plan 2010-2030 and Climate
Policy 2020, see http://reykjavik.is/en/reykjavik-and-climate
17. Data provided by NIB’s Head of Funding and Investment
Relations

The Green Bond market in the Nordics Climate Bonds Initiative

18. Total outstanding bonds as per Thomson Reuters Eikon. Greenbond issue amount and number of bonds as per the Climate Bond
Initiative’s labelled green bonds database.
19. For press coverage, see https://www.globalcapital.com/article/b16fyz9vvw0dpg/swedish-state-green-bond-a-golden-egg-says-minister
20. For more information on the 6 Aika initiative for supporting
urban innovation, see https://6-aika.fi/in-english/
21. The LM Group Holdings bond was redeemed early.
22. The issuer defaulted on its bond in November 2017. The bond
was accelerated by the trustee in January 2018. However, bondholders intend to convert their claims under deal guarantees into
equity and new debt in the related operating companies to recovervalue from the assets (operating wind turbines).
23. See Understanding green and climate bonds, Inclusion in the
Climate Bonds Initiative’s database on the inside cover17

Appendix. Nordic green bond issuanceCountry / Issuer
sectorGreen bond issuer

Amount
EURm

Green
bonds

ActivesinceLatest
issue

Tenor
min

Tenor
max

Supranational

NIB Nordic Investment Bank6

2,978

18

Feb-10Aug-17

2

20

2,301

5

Mar-15

Nov-17

5

12

500

1

Jun-17

Jun-1710

10

Denmark
LGFA

KommuneKredit

Energy WindØrsted (prev. DONG Energy)

1,250

2

Nov-17

Nov-17121001

LM Group Holding

511

Oct-15Oct-155

5Vestas5001Mar-15Mar-15

7

7

1,007

4

Oct-16

Nov-172

1021

FinlandLGFA

MuniFin Municipality Finance907

3

Oct-16Oct-17

5

10Energy Grid

Fingrid1001

Nov-17

Nov-17

10

10

2,686

29

May-10Nov-172

10

NorwayLGFA/State BankKBN Kommunalbanken AS6

1,555

13

May-10Nov-17

3

10

Bank

DNB Bank

116

1

Feb-15

Feb-155

5Local Government

City of Oslo158

1

Dec-15

Dec-1599Energy Solar

Scatec Solar ASA

131

2

Nov-15

Nov-17

3

4

Energy GBE

Agder Energi

771

Nov-17

Nov-171010

BKK AS131

1

Oct-14Oct-14

7

7

Lyse AS55

1

Apr-17

Apr-17

6

6

Vardar AS

32

1

Dec-14

Dec-14

5

5

NTE6

89

3

Nov-14

Nov-14

3

7

Entra ASA

219

3

Sep-16May-17

2

7

OBOS Forretningsbygg

441

Nov-17

Nov-175

5

10,239119

Oct-13

Dec-172

7SBAB Bank

397

2

Jun-16Oct-17

5

5

Swedish Export Credit

4441

Jun-15Jun-155

5LGFA

Kommuninvest

1,511

3

Mar-16May-173

4Bank

Nordea Bank

5001

Jun-17

Jun-17

5

5

SEB

500

1

Feb-17

Feb-17

5

5

Swedbank

5001

Oct-17Oct-175

5City of Gothenburg

601

7

Oct-13Jun-17

6

6

City of Lunds

77

1

May-17May-172

2

City of Malmö131

2

Dec-17

Dec-174

6City of Norrköping

621

Oct-16Oct-166

6City of Västerås

76

2

Nov-16

Nov-165

5Örebro Kommun

1333

Oct-14Oct-16

5

5

Region Skåne

124

1

Oct-16Oct-16

5

5

Stockholms Läns Landsting518

5

May-14Jun-17

5

6

Södra Skogsägarna

1071

Jun-16Jun-16

5

5

Svenska Cellulosa AB

1702

Mar-14Mar-14

5

5

Sveaskog

213

3

Mar-16

Sep-17

5

5

Real Estate

SwedenState Bank

Local government

Agri/Forestry

Agri/Forestry GBE

The Green Bond market in the Nordics Climate Bonds Initiative18

continued
Country / Issuer
sectorGreen bond issuer

Amount
EURm

Green
bonds

ActivesinceLatest
issue

Tenor
min

Tenor
max

Energy Heating

Fortum Värme

266

2

May-15May-15

6

7

Energy Wind

Aligera22

44

2

May-14

Nov-14

5

5

Arise AB6

159

2

Apr-14

Sep-14

3

5

Wallenstam, Svensk NaturEnergi

982

Mar-15May-16

2

4

Rikshem AB

349

12

May-14Oct-17

2

5

SKB

30

1

Nov-16

Nov-165

5

Fastighets AB Förvaltaren

161

3

Oct-14

Sep-162

5Stångåstaden

113

3

Sep-15Oct-16

5

5

Uppsalahem531

Sep-15

Sep-155

5Atrium Ljungberg

249

5Mar-17Oct-17

3

6

Castellum1032

Oct-16Oct-165

5Fabege AB

254

7May-16Oct-172

5

Humlegaarden Fastigheter AB

1311

Jul-17

Jul-17

5

5

SFF6

579

13

Nov-15

Nov-17

2

5

96

1

Mar-14Mar-14

5

5

Vasakronan AB

1,138

19

Nov-13Oct-172

7Real Estate GBE

Specialfastigheter

126

2

Nov-17

Nov-175

7Transport

Volvofinans721

Jun-17

Jun-175

5

19,207

178

Feb-10Dec-172

1001

SwedenHousing

Housing GBE

Real Estate

6

Skanska AB
6Grand Total

Pending green bonds23
SectorGreen bond issuer

Country

Amount
EURm

Bonds
IssuesActiveSince

Latest
issue

Tenor
min

Tenor
max

Real Estate GBE

Hemsö Fastighets AB

Sweden1072

May-16May-16

5

5

Energy GBE

Eidsiva Energi

Norway801

Sep-17

Sep-17

6

6

Local Government

City of Östersund

Sweden801

Dec-17

Dec-175

5Hemsö’s sustainability bonds fund primarily
low carbon buildings and energy efficiency
improvements in public buildings such as
schools and care homes. However, up to
10% may be allocated to social uses such as
internal or external areas of school premises
or nursing homes, which improve learning
resp. well-being, or adapting premises
for refugee housing. If actual allocation topurely social uses is within 5% the bondwill be included in the CBI labelled green
bond database.

Eidsiva Energi proposes to use theproceeds from the bond for hydro projects
and improvements in energy efficiency
at a district heating plant. The Climate
Bonds Initiative has reservations aboutcertain types of hydro projects and seeks
to determine the scale of climate impact
before inclusion. There are two aspects
under consideration with respect to district
heating: (a) energy source – fossil fuels
are undesirable and (2) scale of energy
improvements, i.e. level of climate impact.

The Green Bond market in the Nordics Climate Bonds Initiative

City of Östersund proposes to use part ofthe proceeds to fund hydropower with waterrights court ruling in Sweden or concessionin Norway and the Climate Bonds Initiativerequires further information on this aspect.
We are also seeking to clarify the parameters
around the production of hydrogen fromelectrolysis and other residual flows, anotherpotential use of proceeds.

19Financial corporate

LGFA

State bankGovernment-backed entity

Local governmentNon-financial corporate

Sweden: largest most diversified
Nordic green bond market

Norway: diversified green bondmarket

4000
3000
2000

1000
EUR Millions

EUR Millions

2000

0
2013

2014

2015

2016

2017

1000
0
2013

2014

Denmark: two newissuers in 2017

2015

2017

Finland: MuniFin is
the dominant issuer
2000
EUR Millions

2000
EUR Millions

2016

1000
0
2016

2017

1000
0
2016

2017

© 2018 Climate Bonds Initiative
Author:Monica Filkova, CFA

Contributor:
Camille Frandon-Martinez

Prepared by the Climate Bonds Initiative

Design:Godfrey Design

Source data from Thomson Reuters Eikon,
climatebonds.net and other parties. All figures
are rounded.

Commissioned by Handelsbanken

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financialorganisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility forcontent on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within
this communication should be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects theclimate attributes of the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws.
A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties onbehalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication.