Buying green bonds a new way to finance environmental projects

NIB has allocated EUR 500 million for investment in green bonds issued by companies and municipalities in its member countries.

The NIB Newsletter asked Thomas Wrangdahl, Head of Lending and Lars Eibeholm, Head of Treasury to explain the essence of the new initiative.

Why would NIB support the green bond market and how will it benefit the Bank’s customers?

“Green bond issuance is gaining importance and the market is growing. The idea of NIB investing as a long-term lender in green bonds is to reach out to borrowers, which issue green bonds to finance projects with positive environmental impacts such as contributing to climate change mitigation. NIB wants to support this development and is now launching this investment window as a part of the Bank’s lending activities.

NIB’s member countries have given the Bank an explicit mandate to improve competitiveness and the environment of the Nordic–Baltic region. For many years, NIB has been assessing the impact of investments on the environment. The Bank is a recognised player in the bond market. We have the infrastructure to invest in and issue bonds, including environmental bonds which we have been issuing since 2011.

Looking at the big picture and the ambitious targets agreed at the UN COP21 conference in Paris late last year, massive investments are needed to protect the environment and mitigate the climate change. Green bonds are an excellent tool to engage private and public sector investors in the implementation of these ambitions. Participating in the green bond market gives NIB an opportunity to reach out to a broader range of partners; customers, banks and investors. NIB will cooperate closely with banks that act as organisers of green bond issues and by participating as a buyer NIB can also support the launching of green bonds.”

What are the criteria for selecting which green bonds to purchase?

“NIB will invest in bonds issued by corporates and municipalities in the Bank’s member countries. We target bonds of high creditworthiness which will not affect negatively the Bank’s overall risk profile. In order to verify how ‘green’ the bonds are, NIB will engage in a dialogue with the arranging banks, to identify what purposes the bond proceeds are being used for and perform an ex-post assessment of the individual bond transactions.

NIB has participated in the process for establishing commonly acknowledged standards for green bonds. We realise, however, that until the market has reached a higher level of standardisation, the frameworks of green bond issuers may somewhat differ, but this will not prohibit us from buying.”

What would be a typical amount for NIB to invest in an issuer’s green bonds?

“NIB would subscribe to at most one third of a bond issue and the intention is to hold the bonds to maturity, although, NIB may under certain circumstances decide to divest from an issue. A purchase will also depend on the issuer’s credit exposure with NIB and the maturity of the bond issue.”