NIB Environmental Bonds: a product for environmentally conscious investors

Environmental or other theme bonds have become a well-established asset for a growing number of investors in recent years. Like other supranational institutions, the Nordic Investment Bank issues environmental bonds. Pursuant to its mandate, the Bank is particularly well equipped to offer investments targeted at projects which contribute to environmental improvements.

NIB has an explicit environmental mandate. This means the Bank strives to promote environment-friendly projects in its financing. Last year, NIB financed projects expected to reduce CO2 emissions by 300,000 tonnes and discharges of phosphorus into the Baltic Sea by 130 tonnes. The latter is equivalent to discharges from a wastewater treatment plant covering an area of approximately 7.4 million inhabitants.

In 2010, NIB created a framework for the issuance of NIB Environmental Bonds, or NEBs. It provides that the proceeds from NEBs be used for lending to solutions for renewable energy, energy efficiency and public transport, and for the reduction of emissions into the air or water. Since a substantial part of the Bank’s lending is already classified as environmental loans, one of the main tasks within the NEB framework is to define how the projects to be financed by environmental bonds are selected.

The analysis of the environmental impact of each project financed by NIB is an integral aspect of the loan approval process. In the assessment of the environmental impact of a project, the Bank also looks at the implementation risk of the anticipated positive effects on the environment. Both aspects are taken into account when selecting projects to be financed under the NEB programme.

How does the NEB programme work?

Rather strict rules have been set for loans to qualify for the programme; only projects which receive a high score on environmental impact and a low score on implementation risk can qualify. The duration of the loan and the maturity of the bond do not need to match exactly, which gives the programme enough flexibility to respond to investors’ duration preferences without compromising the goal of only financing the best projects by NEBs.

Transparency is an important aspect of NIB’s daily work. The same applies to disclosing the use of the proceeds from issuing NEBs. The proceeds are held in a separate portfolio until they are disbursed to an eligible project. A list of projects financed from the NEB proceeds is available here.

The issues of the NIB Environmental Bonds carry the same AAA/Aaa rating as any other debt issues made by the Bank.

How do NIB Environmental Bonds fit into the Bank’s overall funding strategy?

While strict eligibility rules put a limit on the issuance volume, NIB is committed to the environmental bond market and aims to continue offering this product to the market.

“NEBs offer a sustainable investment opportunity for investors and raise NIB’s profile as an environmentally conscious Bank in the capital markets,” says Alexander Ruf, Senior Funding Manager at NIB.