SPEECH Governor Signe Krogstrup’s speech at Nordea's 11th Annual Nordic AAA Seminar about financing and the energy transition CHECK AGAINST DELIVERY Slide 1 Many thanks to Nordea for inviting me today. You might question the relevance of discussing climate change and financing the transition amid inflationary pressures and banking turmoil. I would argue that these phenomena are intimately connected. Climate change and the needed energy transition have contributed to the supply-driven energy price volatility, which has been a primary driver of the current high levels of inflation in Europe. • Climate considerations were a key factor underlying the growing dependence on Russian natural gas in Europe prior to the invasion of Ukraine. Page 1 of 21 11 May 2023 • A higher proportion of renewables in the energy mix in Europe means that the energy supply, and hence energy prices, have become increasingly sensitive to heat, drought and lack of wind, as we experienced last summer. • While we have no counterfactual, it is likely that the European energy mix, and thus inflation and interest rates, would have developed very differently in the absence of global warming. Slide 2 This is the agenda for the presentation. First, I will give a status on climate change, with a focus on financing needs. Then, I will discuss the role of the financial sector in supporting the green transition and managing climate-related risks. The financial sector as a whole – including Danmarks Nationalbank – still has much work to do to understand climate-related risks. Finally, I will turn to Danmarks Nationalbank’s role and efforts in the green transition. Page 2 of 21 Slide 3 We start with a status on the climate. Slide 4 Global energy systems are still largely based on fossil fuels. • The use of oil and gas continues to grow, while the use of coal has stagnated. • Missing de-carbonisation of energy, notably, mirrors insufficient climate policies to support pricing of carbon emissions. We are far from reaching the climate goals of the Paris Agreement. Page 3 of 21 • As a result of the sustained growth in carbon emissions, temperatures continue to rise. • The recent 6th IPCC Synthesis Report – published in March – concludes that even with the current nationally determined contributions, it will be hard to limit global warming to below 2 °C. • With the current nationally determined contributions, global temperatures are likely to increase by 2.8 °C by 2100. Challenges to an electrification of the European energy supply remain. • Solar and wind generation challenges the stability of supply. Fuelbased power plants provide a more stable supply of electricity than solar and wind energy, which are sensitive to the weather. • Plans to ensure the stability of supply of renewable energy rely on untested technologies, e.g. Power-to-X or e-fuels. Because these solutions are under development, they have yet to be tested at a largescale, and some technology risk remains. • Electrification requires access to necessary minerals and rare earths. Global demand for critical minerals is set to rise two- to four-fold by 2030, according to the IEA. A key challenge is that geopolitical risk and security concerns increasingly call for diversification of supply chains. This is, however, hampered by the fact that critical minerals extraction is geographically highly concentrated. • The increasing importance of critical minerals could become a bottleneck for green energy deployment. Slide 5 Page 4 of 21 Demand for energy can shift rapidly when incentives are sufficiently strong. • Europe has rapidly reduced its dependence on Russian gas during 2022. • Consumption of energy has been reduced all together, and consumption has switched to alternative energy sources. • At the end of 2022 and early 2023, European consumption of gas was around 20 per cent below the average for the corresponding months in 2021 and 2022. • At the same time, Europe has increased its import of liquified natural gas from Africa and the Middle East. In order to take the energy transition further – and make it greener – policies that shift incentives and promote stability will help support financing. Thus, access to finance to enable green investment can be supported by: • Policies to make green solutions profitable, e.g. carbon taxation. • Stable planning horizons, which allow these companies to think longterm. Lower growth is not the solution to reaching the climate goals. • ‘Degrowth’ is sometimes advocated as a solution to climate change. • Recent developments underline how we cannot rely on lower growth for reducing emissions. In 2020, fossil fuels consumption fell by only 5.4 per cent, despite a substantial drop in global economic activity, related to the covid-19 pandemic. • Growth would have to fall to an unrealistic degree to make a meaningful dent in emissions. • Instead, policy action can shift incentives in favour of renewable energies and away from fossil fuels, such as carbon taxes and emission standards, in additional to technical solutions. Different estimates of the need for financing are illustrated in the box to the left. • The right-hand box contains different estimates for the world, EU and Denmark. • The estimates are based on net-zero scenarios for the world, Fit for 55 scenarios for the EU and the 70 per cent goal of the Climate Act for Denmark. • These figures are associated with many uncertainties, and I do not want to focus on any specific figure. Page 5 of 21 • The point is: Vast amounts of funding are necessary for the global economy to transition. Slide 6 The final point on sustainable finance brings me the next topic: the role of the financial sector in the green transition. First, two important points: • We cannot and should not expect the financial sector – and here I include the central banks – to solve the climate problem. The tools to shift behaviour, demand and supply away from fossil fuel-based energy are fiscal and regulatory. • However, the financial sector can support the transition by performing its role of intermediating capital and managing the associated risks. • I will elaborate on this role in the next slides. Page 6 of 21 Slide 7 Climate change and the transition bring both opportunities and risks to the financial sector. • Any economic transition requiring investment is a business opportunity for the financial sector to apply its skills in risk pricing as well as return and profitability assessments. • The green transition is no different. The financing of green projects is paramount for the transition. Without financing, the world cannot make the necessary investments. • The green transition faces a special set of challenges for risk management, which I will get back to. From a central bank and financial stability perspective, proper risk assessment associated with climate change and the energy transition is particularly important. • Sound risk management means that risks should be held on balance sheets that have the capacity to absorb these risks if they materialise. • Banks and investors must take account of climate- and energy-related risks in their credit policies and capital allocation. • This implies a special focus on the risk assessment of investments in assets that may become ‘stranded’ in the transition, such as fossil-intensive investments. • Green companies must undergo the same scrutiny as regular companies. The recent energy crisis in Europe illustrates how climate- and energy-related risks are already first order. Page 7 of 21 Slide 8 Climate-related risk pricing is difficult, but essential, in the financial sector. And often, climate-related risks are not well priced. Poorly priced climate-related risks are a financial stability concern, the extent of which we investigate at Danmarks Nationalbank. • We analyse how climate change and transition risks will affect the Danish economy and financial system. • The aim of this work is to facilitate a dialogue with the financial sector about risks and opportunities. The slide offers some examples of our analytical work. • The pieces include work on flood risk in the housing market, energy requirements on real estate and pricing of risk in equity markets. • The gist of the analytical work suggests that climate-related risks tend to be underpriced, although the extent to which this is the case seems to be decreasing. • Climate-related risks are becoming increasingly salient in financial markets. Page 8 of 21 Slide 9 Proper risk pricing is challenged by the fact that climate-related exposures are opaque. • The assessment of climate change and transition-related risks cannot be based on historical data and distributions in the way that risk assessments are traditionally made. New scenario-based techniques for risk pricing are being developed. • Moreover, properly assessing climate-related risks requires new data and a higher level of transparency of exposures in balance sheets. • Many companies lack knowledge about – or do not share – the greenhouse gas emissions in their supply chains. • This makes it difficult for banks and investors to assess how a company’s failure to transition will impact its profitability. A higher degree of transparency and systematic and standardised collection of data across companies and value chains, including financial portfolios, is necessary. • Many initiatives to increase the level of transparency of climate-related exposures are under way or being implemented. • The Task Force on Climate-related Financial Disclosures (TCFD) has been central in expanding voluntary disclosures. New EU regulation introduces stricter requirements for both financial and non-financial businesses’ disclosures. Page 9 of 21 • The Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR) are prominent examples of disclosure regulation. • Climate-related transparency is also adhered to by European central banks, with the introduction of the common minimum disclosures of the Eurosystem. I will come back to Danmarks Nationalbank’s own disclosures later in the presentation. Slide 10 Finally, I will turn to how climate change affects our work at Danmarks Nationalbank. Page 10 of 21 Slide 11 Danmarks Nationalbank’s climate-related activities can be categorised under three headings. • They relate to our central bank mandate, our aim to fulfil this mandate in a responsible way and our role as a government debt manager. • The activities are anchored in a cross-bank analytical agenda, reflecting their interdisciplinary nature. Under our mandate, we analyse how climate change and the green transition will affect the Danish economy and financial system. • The work results directly from our objective to ensure a robust economy with stable prices and financial stability. • Our most prominent role in – and contribution to – the transition is to live up to our mandate of ensuring a robust economy with financial stability. This supports stable planning horizons for transition policies as well as for companies and financial planning. As a public institution, we aim to organise our work responsibly. • We aim to invest our financial portfolios responsibly, and this includes an aim to meet the climate goals of the Paris Agreement to transition to net zero by 2050. • We have similar goals for our own carbon footprint as an organisation. We issue green government bonds on behalf of the Ministry of Finance. Page 11 of 21 • Our debt management office manages Denmark’s government debt. • This includes the management of government funds, preparation of an issuance strategy and issuance of government securities. Under this heading, we started issuing so-called green government bonds last year. I will comment on each of these aspects in the final part of my presentation. Slide 12 Climate change can challenge price and financial stability. • Heat stress or lower crop yields lead to chronically lower output abroad, with spill-over effects for Denmark. • Heat waves, droughts and floods cause prices and income to fluctuate in Denmark and abroad. • Flooding, or expectations of flooding, reduces the market value of mortgaged real estate and can lead to losses among credit institutions. The green transition can also challenge price and financial stability. • Transition policies can change relative prices. Policies that result in carbon emissions being priced can lead to higher prices for certain goods and services. Subsidies, on the other hand, can reduce certain prices and hamper the competitiveness of non-subsidised products. Page 12 of 21 • An increased reliance on solar and wind energy could lead to greater short-term volatility in energy prices because their supply is more inelastic and fluctuating. • ‘Stranded’ assets – e.g. if polluting companies go bankrupt or prices of homes that are expensive to heat drop – could lead to credit losses. We work to understand how climate change and the transition will affect the price and financial stability objectives of Danmarks Nationalbank. • This includes analyses of the impact of energy prices on inflation and stress testing the banking system for climate risks. • Based on our analyses, we make recommendations to other authorities or the financial sector about how climate-related risks are best addressed, to reduce price and financial stability risks. • We also investigate the pricing of climate-related risks among market participants. This sheds light on the current salience of these risks. • We support standards for transparency as well as a systematic collection of data on companies’ climate-related financial exposures. Climate-related financial data allow financial firms to benchmark themselves against peers. • The aim of this work is to raise awareness and support the pricing of climate-related risks. Slide 13 We expect financial firms to increasingly assess and disclose climate relevant data, and this includes ourselves. Page 13 of 21 Danmarks Nationalbank published its first climate-related disclosure report in March this year, as part of our annual reporting. • The disclosure covers bonds issued by governments and regional authorities as well as equities and corporate bonds invested via exchange-traded funds, ETFs. • These asset classes amounted to approx. kr. 50 billion – or 10 per cent – of the market value of foreign reserves at the end of 2022. Disclosure is currently not possible for the remaining part of the foreign exchange reserve. • There is not sufficient data or widely accepted definitions of climate footprints for the remaining asset classes. • It is our ambition to broaden the disclosure as disclosure standards and data are developed. Some caveats are in order before interpreting the disclosed figures. • Climate-related disclosure of financial portfolios is an area under development. One should therefore be careful when interpreting the disclosed figures. • The metrics measure emissions of greenhouse gasses from the economic activity generated by the issuers. • The metrics do not express the effect on actual greenhouse gas emissions when individual investors issue, purchase or sell the associated assets. • On top of these limitations, there are unresolved issues with doublecounting and other inconsistencies across asset classes. We do not use the disclosed numbers as a parameter in the management of the FX reserve. • The primary objectives of the FX reserve are to support the fixed exchange rate, financial stability and international obligations of Danmarks Nationalbank. • Given these objectives, we aim, as far as possible, to invest our financial portfolios in line with our policy for responsible investing, and notably, in line with the Paris Agreement. • The metrics are based on current carbon emissions, whereas the Paris Agreement sets a goal of climate neutrality by 2050. Page 14 of 21 Slide 14 Following the approach of the ECB, we report the climate footprint using three distinct metrics. • The metrics are the weighted average carbon intensity (WACI), carbon footprint and absolute financed emissions. • The metrics measure different aspects of the emissions associated with the investments, and all three have advantages as well as drawbacks. • I will not go into these here, as it quickly becomes technical. The footprint from government bonds fell slightly from 2021 to 2022. • The lower WACI reflects that the share of our bond holdings that was invested in countries with high emissions relative to GDP dropped in 2022, as compared with 2021. • This reflects a restructuring of the bond holdings that had nothing to do with the climate. The footprint from the ETFs also fell from 2021 to 2022. • The lower WACI indicates that a smaller part of our ETF holdings was based on equity and corporate bonds issued by companies with high emissions relative to revenue in 2022, as compared with 2021. • This was intended, as the ETF holdings were shifted towards ETFs that comply with the EU’s Paris-Aligned Benchmark. Page 15 of 21 Slide 15 I now turn to our issuance of green governments bonds on behalf of the Danish state, which we started in 2022. First some background: The green bond market has increased significantly over the previous years, but it remains small. • Prevailing market conditions caused debt issuance volumes to decline in 2022, across all categories of bonds, green bonds included. • Sovereign green bonds made up around 14 per cent of total green bond issuance globally, see the right-hand chart. More than 50 per cent was issued by companies. • However, the green government bond market remains small, with around 3 per cent of overall bond issuances. We decided, together with the Danish government, to issue green government bonds starting in 2022. • Issuance of Danish green government bonds is expected to be around 15 per cent of our total issuance of domestic bonds in 2023. • The green government bonds are still a small share of outstanding government bonds, constituting just around 2.5 per cent. Page 16 of 21 Slide 16 Our motivation for issuing green bonds is two-fold. • First, we aim to contribute to the development of the green financial market, which has the potential to play an increasingly important role in directing investment towards sustainable projects. • We notably help set a standard for the Danish green bond market and add critical mass with a high-quality dark green and AAA-rated green bond. • Second, issuance of a green bond contributes to maintaining a broad and diversified investor base for Danish government bonds and accommodates increased demand for green assets from investors. The Danish government green bond follows the highest standards. • It is important to follow best practice and support regulation that enhances transparency. • We are at the forefront of market standards by evaluating and selecting green spending on the basis of the EU’s taxonomy for sustainable activities. This helps promote transparency, which is crucial to building trust between the issuer and investor. • The high quality and transparency are supported by the Dark Green rating, which is the highest climate and environmental accreditation possible by the external verifier Cicero. • We monitor market developments – including the EU Green Bond Standard – and gradually seek to adapt our programme to the best market practice and to meet requirements and expectations from the investor community. Page 17 of 21 We use a ‘twin bond’ concept to ensure adequate liquidity. • The concept was first launched by Germany in 2020. • Green bonds are issued with the same financial characteristics as a regular Danish government bond, i.e. same cashflow. • Investors have the option to swap their green twin bond one-to-one with a corresponding and more liquid conventional twin bond. • The twin model means that price differences, if any, are quite transparent. The ‘greenium’ is clearly identified. Slide 17 Our goal is to issue up to kr. 10 billion this year. In comparison, total government issuance is kr. 65 billion. • As the figure shows, we issued an amount of 15 billion of green government bonds in 2022. • This will bring the total outstanding amount of Danish green government bonds up to kr. 25 billion in 2023. • The new 10-year green government bond series will be issued in the 2nd half of 2023 in accordance with the central government’s Green Bond Framework. • The series will follow the twin bond concept and thus have the same financial characteristics as the new benchmark 10-year nominal bond maturing in 2033. There is currently a green premium of 3-4 basis points on the existing 10year Danish green government bonds. Page 18 of 21 • The opening of our first green bond in January 2022 was met with overwhelming demand and an initial ‘greenium‘ of 5 basis points. • This was more than expected and higher than most other European green government bonds. • Since then, the size of the green premium has varied between 1-5 basis points. • The green premium declined in the early part of 2023, at a time when market volatility was high and market focus was elsewhere, at least for some investors. It is difficult to predict the green premium of the new 10-year green bond. It is not our goal to issue at a specific green premium. Slide 18 Transparency about the use of proceeds from the green government bonds is essential for buyers of green bonds. • An allocation and an impact report are published to achieve sufficient transparency. • The impact report for eligible expenditures in 2021 was published earlier this year. Allocation report: The central government is committed to reporting that proceeds have been allocated in accordance with the current Green Bond Framework. Page 19 of 21 • Eligible green expenditures under the current framework are focused on Denmark’s two highest-emitting sectors: transportation and energy. • These expenditures are largely aligned with the EU’s Taxonomy. • In the transportation sector, the framework includes direct operating and capital expenditures for the rail network infrastructure and indirect expenditure through a tax exemption for zero- and low-emission vehicles. • The framework includes direct subsidy schemes and indirect expenditures through a tax exemption scheme, to incentivise the transition to solar and wind power. • With the proceeds from 2022 and the proceeds planned for 2023, issuance of approx. kr. 20 billion will be allocated to clean transportation, and approx. kr. 3 billion will be allocated to renewable energy. Impact report: The central government is committed to reporting on expected climate and environmental impact through an impact report. • The report includes detailed descriptions of the allocated green expenditures along with an estimation of environmental impacts. • Approx. 5 Mton CO2e emissions were avoided in 2021, according to the aggregated impact metric. • Other output and environmental impact metrics are included in the report, such as an estimated production capability of 12,000 GWh in renewable energy. Slide 19 Page 20 of 21 We are still far from reaching the climate goals of the Paris Agreement. The energy transition is behind schedule and has much ground to cover. Recent events have shown that an abrupt transition with supply stops is costly in terms of risks to inflation and can lead to financial turmoil. Climate-related risk pricing is central to directing financing for green projects. The attention of the financial sector to climate issues has grown in recent year. • Some evidence that attention to – and pricing of – climate risks is increasing, but more needs to be done. • Progress toward disclosures to support risk management is welcome. • I expect we will continue to see new issuers supporting the development of green capital markets. Climate change is macro-critical, and most activities and objectives at Danmarks Nationalbank are affected by climate considerations. • Our most important contribution to the transition is to live up to our mandate of ensuring a robust economy with price and financial stability. • This means taking account of and assessing climate-related risks to the macroeconomy and financial system. • Moreover, together with the Danish government, we support the development of green capital markets by issuing green government bonds. Page 21 of 21 DANMARKS NATIONALBANK Financing and the energy transition Governor Signe Krogstrup 11th Annual Nordic AAA Seminar, 11 May 2023 Agenda Status on climate change and financing Role of the financial sector in the energy transition Climate-related activities in Danmarks Nationalbank Status on climate change and financing Thursday, 11 May 2023 The world’s energy supply remains fossil-based, and electrification challenges remain The world’s energy supply remains largely fossil-based, and global temperatures continue to rise Exajoule °C 1.8 Renewable energy Nuclear energy 1.5 Gas Oli Coal 1.2 0.9 0.6 0.3 Challenges to an electrification of the European energy supply • Stability of supply • Untested technologies, e.g. Power-to-X • Access to minerals and rare earths Temperature increase relative to the average temperature in 1951-1980 (right axis) Note: The chart shows the annual global energy consumption by source and temperature increase. Source: Macrobond. Thursday, 11 May 2023 Building new energy supply requires financing Demand for new types of energy can change fast with the right incentives: e.g. gas consumption in the EU fell strongly in 2022 Billion cubic metres Per cent Consumption of gas relative to same month in 2020 and 2021 (right axis) America Africa Middle East -10 -20 -30 -40 Supply of renewable energy requires financing. Estimated funding necessary towards 2030: • World: 0.6-1 per cent of GDP annually, according to the IEA (2021) and IMF • World: 2 per cent of GDP annually, according to the IEA • EU: 2 per cent of GDP or EUR 470bn annually, according to the European Commission • Denmark: DKK 500-600bn accumulated, according to Finance Denmark Note: The bars show the import of LNG to EU27. Source: Bruegel based on Bloomberg and Eurostat. Thursday, 11 May 2023 Role of the financial sector in the energy transition Thursday, 11 May 2023 The financial sector’s role – in the transition and otherwise – is to provide capital, supported by sound risk-return analysis Thursday, 11 May 2023 Climate-related risks are often not well priced Thursday, 11 May 2023 Disclosure standards and a systematic collection of data support risk management Climate-related exposures are opaque • Climate change and the green transition have no historical precedent • Companies lack data on their supply chains’ reliance on greenhouse gas emissions Lack of transparency hinders risk management • Banks and investors need data to assess the impact on corporate profitability of a company’s failure to transition Disclosures contribute to transparency • Voluntary standards are expanding these years (e.g. TCFD and IFRS/ISSB) • EU requirements take effect these years (e.g. CSRD and SFDR) Thursday, 11 May 2023 Climate-related activities in Danmarks Nationalbank Thursday, 11 May 2023 Climate-related activities in Danmarks Nationalbank RESPONSIBILITY MANDATE Financial analysis (e.g. climate stress test) Collection of financial climate data Own carbon footprint Responsible investment AGENT OF THE STATE Macroeconomic analysis (e.g. scenarios for inflation) Issuance of green government bonds A NA LY TIC AL AG E NDA AC RO SS TH E C E NTRA L BA NK Thursday, 11 May 2023 Climate change, the green transition and Danmarks Nationalbank’s objectives CONSEQUENCES OF CLIMATE CHANGE CONSEQUENCES OF GREEN TRANSITION IMPLICATIONS FOR DANMARKS NATIONALBANK Shocks to prices and income because of a warmer climate and natural disasters Effects of climate policies, such as a carbon tax or subsidies Understanding implications for price and financial stability More volatile energy prices Recommendations for other authorities and the financial sector Financial losses due to natural disasters Financial institutions’ exposure to ‘stranded’ assets Pricing analyses Transparency and systematic collection of data on exposures Thursday, 11 May 2023 Disclosure of the climate footprint from Denmark’s FX reserve Disclosure currently covers 10 per cent of the FX reserve The disclosure covers bonds issued by governments and regional authorities as well as ETFs Per cent • Disclosure standards do not exist for the remaining asset classes Asset classes in foreign exchange reserve • We monitor the development in metrics and data to broaden the disclosure in the future Disclosure standards are not without problems • Double-counting and other inconsistencies exist across asset classes Covered by disclosure Money market products Bonds issued by supranational institutions etc. • Disclosed figures do not express the effect on actual emissions of investors owning the assets Covered bonds Bonds issued by central governments and regional authorities Equities and corporate bonds (ETFs) Note: The holdings are stated at market value as of 30 December 2022, excluding gold and IMF loans. Source: Own calculations. Thursday, 11 May 2023 Climate footprint from the FX reserve Bonds issued by central governments and regional authorities Allocation of emissions Equities and corporate bonds (ETFs) Production-based Scopes 1-2 Weighted average carbon intensity (tonnes of CO2e per million euro in GDP or revenue) CO2e footprint (tonnes of CO2e per million euro invested) 965,691 2,107,460 26,806 98,176 Absolute financed emissions (tonnes of CO2e) Share of market value of foreign exchange reserve in 2022 (per cent) 7.9 2.0 Note: The holdings are stated as of 30 December 2021 and 30 December 2022, excluding gold and IMF loans. CO 2e emissions, GDP, revenue, EVIC as well as total bond issuances by central governments and regional authorities for 2021 have been used in 2022, as data for 2022 were not available at the time of disclosure. Source: UNFCCC, World Bank, Bloomberg, MSCI and own calculations. Thursday, 11 May 2023 The market for green bonds has grown significantly, despite a drop in issuances last year Annual issuance by region Annual issuance by issuer type Billion, USD Billion, USD North America Supranational Latin America Europe Asia-Pacific Africa Loan Non-financial business Local government Government-backed entity Financial business Development bank ABS Sovereign Note: Breakdown by region is not available for 2022. Source: Climate Bonds Initiative. Note: Breakdown by issuer type is not available for 2022. Source: Climate Bonds Initiative. Thursday, 11 May 2023 Danish green government bonds: Aim and design Motivation Follows the highest market standards • Support the development of green financial markets • Largely aligned with the EU Taxonomy • Dark Green rating • Maintain a broad and diversified investor base in Danish government bonds Issuance by twin bond concept • Well-known and proven concept • Supports the liquidity of the green bond Thursday, 11 May 2023 Green premium levels reflect continued investor demand for green Danish government bonds Planned issuance of additional kr. 10 billion under the government’s Green Bond Framework in 2023 Investors’ willingness to pay a green premium remains, despite market volatility Accumulated issuance, kr. billion Yield to maturity p.a., per cent 4.0 3.5 The green bond issuance volume is expected to reach kr. 25 billion in 2023 Spread, basis points DGB 0.00 per cent 2031 3.0 DGB per cent 0.00 2031 green 2.5 2.0 1.5 1.0 Green premium (right axis) 0.5 Source: Danmarks Nationalbank. 0.0 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 Source: Nordea Analytics. Thursday, 11 May 2023 Ensuring transparency of the use of proceeds from green government bonds Note: The revenue generated from the Danish sovereign green bond issuance in 2022 and 2023 will finance eligible green expenditures in 2021 and 2022. The remaining revenue generated in 2023 will finance prognosed eligible green expenditures in 2023. Source: Danmarks Nationalbank. Thursday, 11 May 2023 Concluding remarks The green energy transition is behind schedule, and its financing needs are enormous Improving climate-related risk pricing is essential for the financial sector to provide financing for the transition Danmarks Nationalbank supports the transition through economic stability, macro risk analysis and development of green capital markets