Green and climate bonds have potential to become more efficient

There has been an immense growth in the green bond market and the investor demand for green projects keeps growing. However, a Nordic legal framework for green bonds is missing. This is something Kristina Forsbacka, Ph.D. student at Lulea University of Technology, will address in a highly topical research project.

The research project
The research project “Climate finance and sustainable finance. A legal analysis of contractual terms and conditions for climate bonds and green bonds; focus on the financial markets in the Nordics” will run over two years.

“According to the EU Commission around 180 billion euros a year of additional investments in energy efficiency and renewable energy is needed to achieve EU’s 2030 climate targets. Mobilisation of private capital to fund sustainable investment is essential”, says Kristina Forsbacka, researcher in law at Lulea University of Technology and lawyer with many years of practical experience in international climate finance.

The project is financed by Nasdaq Nordic Foundation, Nordic Investment Bank and Folksamgruppen.

Investigating the frameworks
Frameworks for green bonds and climate bonds have been developed by market actors and the Nordic countries have been in the forefront. The EU Commission recently presented a legislative proposal for a EU classification system for sustainable activities (a taxonomy) and a proposal to harmonise regulations regarding enhanced investors’ duties for institutional investors and asset managers. However, it is still unclear what the legal requirements should be for a green bond. Would more legal regulations and defined responsibilities make the green bond market more efficient?

The market is potentially not as efficient as it could be. The frameworks could become clearer, to ensure that the environmental impact that green bonds promise to deliver gets delivered.

“I will investigate and analyse green bond frameworks with focus on climate bonds. In addition, I will analyse how EU regulations and other recommendations can be implemented, and if coordination and standardization is possible”, says Forsbacka.

“According to the Paris Agreement capital flows shall be made consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. If the high climate ambitions are to be achieved, more capital flows will need to be directed towards sustainable activites. That is why this research is important.”

The research is carried out in cooperation with Stockholm Sustainable Finance Centre, a collaboration between the Stockholm Environment Institute (SEI) and the Stockholm School of Economics (SSE). A reference group with representatives from the financiers, Nasdaq Nordic Foundation, the Nordic Investment Bank, Folksamgruppen, institutional investors AP2, AP4, AP7 and Alecta are tied to the project.

Supervisors are Malou Larsson Klevhill at Luleå University of Technology, who was principal secretary in the Swedish Government’s Green Bonds Official Report (SOU 2017:115), and Stefan Lindskog, President of the Supreme Court.

NIB has issued NIB Environmental Bonds since 2011 and is the biggest Nordic green bond issuer.