Investors show interest as Stockholm County borrows green

Today’s green bond market is booming and attracting a growing range of issuers, including local and regional authorities. In Sweden, Stockholm County Council (SLL) is leading the green borrowing. This development has enabled international financial institutions to start eyeing the market.

In May 2014, Stockholm County Council became the first regional municipal body in Sweden to issue a green bond earmarked for investments that promote a transition to a low-carbon economy and climate-resilient growth.

In an interview with NIB Newsletter, Frida Korneliusson, treasurer of SLL, discusses green bonds as a tool for regional authorities to gain access to capital markets and for safeguarding green development projects in and around Stockholm.

“The decision to participate in the green bond market was driven by both our treasury and sustainability objectives,” Ms Korneliusson explains. “SLL has a systematic and goal-oriented environmental agenda that aims to promote energy and resource efficiency in our regional planning. Issuing green bonds definitely supports us in financing these goals. In addition to that, we are keen to diversify our funding sources and debt investor base.”

Public transport management, waste and water treatment as well as energy efficiency in buildings are the four areas in which SLL is taking action to decrease its environmental impact. “Investments that are eligible for funding with green bonds have to lead to reduced energy consumption and a smaller carbon footprint.”

“The first bond issued by SLL in 2014 amounted to SEK 1.1 billion and funded the expansion of the Roslagsbanan railway, as well as the renovation of Södertälje Hospital. The bond was fully invested by 31 May 2015”, says Ms Korneliusson. “The underwriter was SEB.”

SLL’s second green bond, amounting to SEK 1.8 billion, followed immediately in May 2015 and is intended for three projects: the construction of New Karolinska Solna University Hospital and Södertälje Hospital, as well as the next stage of the Roslagsbanan railway expansion. The underwriters for the second bond were SEB and Handelsbanken.

As with most authorities that issue green bonds, SLL is required to report on its activities to be in line with best practice.

“SLL has a steering committee that approves the projects that are included in the green bonds”, Ms Korneliusson continues. “To give investors the possibility to follow up, we offer participation in field studies, a project-level breakdown of the use of the proceeds and an annual update on developments of key projects.”

Further, the independent research institute CICERO in Oslo has audited SLL’s green bond framework and related projects and approved them as green investments.

Issuing green bonds as a means of funding sustainable projects and diversifying their investor base is taking off in other regional bodies as well.

This trend is reflected throughout Europe, where the importance of regional efforts in achieving climate targets has been recognised in light of the COP21 Climate Conference in Paris and the signing of the Paris Agreement in 2015.

In a February press release, the ratings agency Moody’s predicted that global issuance of green bonds could surpass USD 50 billion in 2016, as investments in low carbon infrastructure keep on growing. Stockholm County Council is aware of this development.

“We have had a lot of interest from investors in both our previous green bond transactions, and there were a lot of questions about when we will issue next”, says Ms Korneliusson.

In February 2016, SLL hosted a number of roadshows in several European cities, including London and Paris, to mobilise financing for a new green bond programme issued in euros. This could be SLL’s next pioneering move, as it would be the first green euro bond to be issued by a Nordic city or region.

“The euro market offers more liquidity and longer tenors than our domestic bond market. It also allows for investor diversification, in particular with regards to European socially responsible investors”, Ms Korneliusson concludes.