Debating the risks and opportunities of green financing at Almedalen 2017. From left: Moderator Sharon Jåma, Connie Hedegaard, Magnus Billing, Thomas Wrangdahl, Mats Andersson, Klas Eklund.
"There is no conflict between investing green and having a good return, quite the contrary”, says Magnus Billing, CEO of the Swedish pension fund Alecta and member of the EU High Level Expert Group on Sustainable Finance, at Almedalen week in Visby, Gotland.
The need for funding to limit global warming is huge, but financial markets are slow to respond. Green bonds, for example, represent only a small proportion of global investors' portfolios. What needs to be done in order to change the situation? What are the roles of public and private sectors in financing the green transition?
These questions where discussed during a panel debate on “Financing the green transition” at Sweden’s Almedalen week in Visby. The debate was co-arranged by the Nordic Council of Ministers, the Swedish think tank Global Utmaning and the Nordic Investment Bank (NIB). Some 125 people participated in the event.
Almedalen week is Sweden's largest participatory political forum, and is held annually during the first week of July on Gotland. The panel debate on green financing gave experts the opportunity to talk about the role of green bonds and to highlight the importance of global impact reporting standards.
Klas Eklund, Senior Economist at SEB, says that the green transition is moving slower than what had been hoped for, and is costing more than expected.
“One way for green investments to become more profitable is to make polluters pay for destroying the environment. Governments can help by guaranteeing liquidity of green bonds”, Eklund says.
According to Eklund, there is a need to improve our knowledge and skills to properly assess the effects green investments will be having.
“At the moment, we do not have sufficient competence to estimate the long-term consequences of green investments. However, if we can succeed in this, we will see a real increase these kinds of investments. We still have 20-25 years, but then it could be too late.”
“Several international standards for impact reporting are in the works, but it will take time.”
Eklund says that while he is disappointed by US President Trump’s decision to withdraw from the Paris agreement, China has become a source of optimism.
“China is serious about reforming its financial system, and wants to move away from funding heavy industry towards more sustainable projects.”
Magnus Billing, CEO of Alecta and member of the EU High Level Expert Group on Sustainable Finance, says the question is how to secure pension investments for the next 50-60 years.
“The current economic outlook is short-term. What we need is a longer perspective than what is provided in quarterly and annual reports”, Billing says.
“Green bonds are a fantastic product for pension companies to invest in. However, I believe we need more information and standardisations on how to invest into green bonds.”
The EU high level group, of which Billing is a member, is scheduled to publish recommendations that will underpin the EU’s strategy for sustainable investing.
Billing said the report will cover the responsibilities of governmental finance inspection bodies, debate required capital levels and argue that risk in green investments should be seen as something positive.
“There is no conflict between investing green and having a good return, quite the contrary”, says Billing. “When that is widely understood, we will see a surge in green investments.”
Thomas Wrangdahl, Head of Lending at NIB, says it is important to find transparent ways of measuring the impact from environmental financing.
“If we can establish shared ways of measuring the effects of green financing, and report on it in a comparable way, I believe that the consumers will come to drive the demand for green financing,” Wrangdahl says.
Connie Hedegaard, Chairwoman of think tank Concito and former European Commissioner for Climate Action, agrees and says it is important to have a set of international standards so that impact can be compared.
”What really has meaning and influence is when pension savers start asking how their funds are invested at annual general meetings”, Hedegaard adds. “We need to reconsider how we create growth, for example by stopping to subsidise fossil fuels”, she adds.
Mats Andersson, Special Investigator into green bonds on behalf of the Swedish Ministry of Finance, also says that the green transition has shown that we need good governance models to better report the environmental impact of green financing.
He adds: “Only when green bonds start to give a better return than ordinary bonds, then we will see real change.”
Still, the demand for green bonds is larger than what is offered. Green bonds are a niche product, representing less than one percent of the global bond market.
“If one had to pay tax on fossil fuels, then green investments would start to become more profitable”, Andersson says.
NIB Environmental Bonds for the protection of the Baltic Sea
At NIB, our vision is for a prosperous and sustainable Nordic–Baltic region. We work towards that vision by providing complementary long-term financing to projects that improve competitiveness and the environment. We see green bonds as a key instrument for raising the funds needed for environmental projects.
Since 2011, we have been issuing NIB Environmental Bonds and using the proceeds to finance environmental projects, such as Stockholm’s Future Wastewater Treatment project at Henriksdal. The new membrane technology used there will result in 40% lower discharges of phosphorus and 33% lower discharges of nitrogen into the Baltic Sea. The plant will also remove all particles larger than 0.04 micrometres, i.e. all micro plastics, from the wastewater.
So far, the total CO2 equivalent impact if projects financed by the proceeds of NIB Environmental Bonds is 940,000 tonnes.
NIB is co-hosting the Nordic Finance Day on 14 November at the UN Climate Summit COP23 in Bonn, Germany. The programme is being held at the Nordic Pavilion.
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