Nordic Green News – 2 September, 2020

Large market interest in Swedish green bonds

SEB writes that yesterday, the Swedish Debt Office (Riksgälden) issued Sweden's first green government bond via syndication, with SEB as one of the leading banks and the structural adviser. According to the government plan, SEK 20 billion was issued for which the total interest exceeded SEK 47 billion. According to a press release from the Swedish debt office, 72 individual investors participated. 62% of issuance was from Sweden, 18% from the UK, and 15% from the EMEA region. By investor category, 46% were pension funds, 33% asset managers and 9% insurers. SEB noted that SEK 20 billion of government debt was significant, given the overall level of debt being raised in recent years. In 2019, a total of only SEK 30 billion of SEK denominated bonds were issued by Sweden.

 

Comment: Nordic governments contorting themselves to promote green finance

Although it is a positive that there is a strong underlying demand for green bonds, raising debt this way raises a number of questions. Sweden’s government presents a lengthy prospectus explaining the rationale and what the funds are to be used for, and the bonds have been labelled ‘dark green’, the highest rating available from Cicero, which rates green bonds. However, there is no tangible net climate positive that arises from them. Essentially the current activities of the Swedish government have been divided into two buckets. Those that can be claimed to be strongly climate positive will be funded by the dark green bond. The rest are financed the usual ways - by taxation or standard government bonds. In addition, the bonds will be paid back out of general taxation revenue, most of which will remain non-green over the 10 year period of the bond.

 

The exercise could be accused of being mere branding. Alert to this, the government points at another rationale – the green bond was not issued to raise extra money for green projects. Rather, it was to support the development of the green bond market. Is this a fair claim? Possibly, in that the government has now placed a large volume (SEK 20 billion) of green bonds, denominated in SEK, attracting global attention to the method. In addition, the market price for this is transparent, so other commercial projects can see what the price of the green bond is before deciding on their financing strategy.

 

But the contortions that Nordic governments are going through to develop green financing can stretch the point, as highlighted by Bloomberg, reviewing a Danish proposal for green bond. Bloomberg explains that any green bond can be thought of as a regular bond, plus a promise to do green stuff. The regular part of the bond should price at regular terms. The difference between the green bond and the regular bond is therefore the ‘greenium’.  Pricing of green bonds from France, Ireland and Belgium shows a ‘greenium’ of about 0.01% or 0.02% to fund environmental projects over regular projects.

 

But for Denmark, which doesn’t issue a large volume of green bonds, the interest in its green market could be low. Denmark thought to overcome this by issuing a regular bond, with a green certificate packaged with it. The regular Danish bond would be identical to other debt raised by Denmark, and would therefore trade exactly the same. The green certificate is a new independent instrument, which the market can find a price for if investors choose to trade it after buying the package.  

 

But, as the Bloomberg story points out, this would lead to the bizarre situation in that “The green certificate is a zero-coupon bond with zero redemption at maturity. Hence, there are no financial commitments or corporate actions connected with the certificates.” In plain English, this means that there are no financial value whatsoever in holding the certificate. Anyone paying money for it, must be doing so for another reason. Truly financial engineering taken to the extreme, which Bloomberg points out with clarity and humour. Sweden has considered this and tried another approach.

 

Uljabuouda wind farm becomes an important test centre for future turbine models in extremes

The Uljabuouda wind farm in Sweden’s far north offers unique conditions in an extreme, exposed mountain climate. The park is now being developed into an important test center for future turbine models. First opened as a commercial farm in 2010, the park is now being developed into a test centre for wind power. Today there are ten 125 meter high power plants in the park, but Skellefteå Power is hoping to gain approval to build towers up to 330 metres tall. The test centre will be a collaboration between Skellefteå Power, RISE, Vattenfall, Chalmers, Energiforsk, Vinnova and relevant municipalities and industry organizations. 

 

Velux Group pledges to become 'lifetime carbon neutral' by 2041 centenary

Velux Group, a Danish roof window manufacturer became the latest firm to commit to a carbon reduction programme going beyond net zero emissions, announcing sweeping plans to offset its historic carbon footprint - which it pins at around 5.6 million tonnes - by investing in forest and biodiversity projects in Uganda and Myanmar developed for Velux by WWF. Velux CEO, David Briggs commented, "We will also dramatically reduce our future CO2 emissions and ask our suppliers to do the same. Hopefully other companies will be inspired to become 'lifetime carbon neutral' in order to create a sustainable future for all."

 

Clas Ohlson goes circular

Clas Ohlson, a Swedish home improvement chain, is now launching a service that enables you to rent products instead of buying new ones. The offer ranges from drills to circular saws and more advanced tools that may be needed for major renovations. “We see a great demand for this type of service,” says Sara Langhoff, Business Development Manager at Clas Ohlson. As part of a three-year pilot project, we have had a rental service where we tried our hand at the Nordic market. The service has proven to be successful and now we want to take it a step further by expanding the rental range and ensuring that the service is available in all stores in the Nordic region.

 

Circular furniture manufacturer growing rapidly

Reforma, a start-up which sells furniture online with a focus on sustainability, is growing fast. The company is expected to reach sales of SEK 40 million this year. The self-designed furniture made from recycled materials is mostly made in India.

 

Lidl grows and reduces the climate footprint

Lidl Sweden has published its sustainability report for 2019/20. The report shows that Lidl grew for the third year in a row (by 8.8 %) at the same time as it has succeeded in reducing its climate footprint by 4.6%. Since Lidl began measuring its emissions in 2016/17, the company has reduced them by 22% despite increased sales during the same period by 31%.

 

"Norway's most effective climate measure" is completely unknown to most people

Norway is frequently cited as a leader in the uptake of electric vehicles, a consumer pattern that is heavily subsidised by the government. However, few know that the country achieves far more by the investments made by Norfund, owned by the Ministry of Foreign Affairs, in renewable energy in developing countries. According to Norfund, analysis shows that these investments now help to avoid emissions of 8 million tonnes a year, which is 170% of the annual emissions from all passenger cars in Norway.

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