Green bonds: Money that improves the environment

NIB has a long track record in financing environmental projects through lending operations. Each project to be financed by NIB undergoes an assessment of its potential environmental impact. A considerable part of the Bank’s total loan portfolio is classified as environmental loans.

The NIB Environmental Bond was established in 2011 as an investment product geared at investors willing to support sustainable environmental investments in the Nordic–Baltic region.

“These investors would like to see their money working to mitigate the climate change and reduce air and water pollutions” says Lars Eibeholm, Vice-President and Head of Treasury at NIB.

The NIB Environmental Bond (NEB) framework outlines how NIB selects, assesses, separates and reports on the projects that the Bank finds eligible for green bond financing.

“We would like the Nordic–Baltic region to be seen as a pioneer in sustainable investments, which is an area where NIB is contributing to the benefit of its customers, investors and owners”, Mr Eibeholm continues.

In the past three years since the NEB framework was established, fourteen projects have been financed with the proceeds of these bond transactions. The total amount of NEB financing for projects with a positive environmental impact has to date reached EUR 647 million. The total emission reduction impact of these projects is equivalent to 265,550 tonnes of CO2.

“Green bonds differ from ‘regular’ bonds in one important aspect: the investment decision is not only driven by the assessment of the risk and return relationship inherent in the investment, but also by an opinion on how the proceeds should be used”, say Mr Eibeholm.

“The risk return aspect is well understood, and organisations such as ratings agencies provide standardised, comparable information for investors. The environmental aspect is a new perspective for investors to analyse. This is why we think it is very important to make information about the projects readily available through our communication channels.”

The proceeds raised under NIB’s environmental bond framework are only used to finance projects located in NIB member countries or the EU in the areas of energy efficiency, renewable energy, public transport using electricity or biofuels, electricity transmission and distribution systems increasing renewable energy capacity, wastewater treatment and green buildings.

The first of the NEB-financed projects was Anholt Offshore Wind Farm in the strait of Kattegat. A NIB Environmental Bond contributed (EUR 91 million) to financing this project. Hydropower plants are also included in the list of projects that get a green light for financing from the environmental bond proceeds. For instance, Agder Energi in Norway is upgrading one hydropower plant and building another in southern Norway. An environmental bond-funded loan is helping UPM-Kymmene in Finland produce renewable diesel from crude tall oil, which is the first ever industrial-scale project of its kind in the world.

NEB is also financing combined heat and power (CHP) plants in Sweden and Norway, a winning biomass-fuelled model widely applied in the Nordic countries. These are municipally owned projects intended to replace outdated heating and energy generating technology with a more powerful and eco-friendly equivalent. The largest of them is Fortum Värme’s CHP plant in Stockholm, with sufficient capacity to heat about 20% of the Swedish capital. Other projects are located in the Swedish cities of Linköping and Vimmerby, as well as in Gjøvik municipality in central Norway.

Another large group of projects financed from NEB proceeds focuses on innovation and modern technologies aimed at cutting production or running costs, thus contributing to more efficient use of energy and other resources. The Swedish firm SKF, for instance, is investing in reducing friction and wear in the moving parts of industrial equipment. The meat packaging company Danish Crown is using heat recovery installations for cooling areas and water heating in its new slaughterhouse. S-ryhmän logistiikkakeskukset Oy in Finland is building a logistics hub that will utilise geothermal sources for heating.

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NIB Environmental Bonds