12 Dec 2019

COP25: Sustainable finance - the Nordic way

“Young people are analytically angry because they understand the situation, and I think the pressure that put on us is a great source of hope,” said Professor Nicholas Stern at London School of Economic and Political Science. Speaking at NIB’s joint COP25 debate in Madrid and Stockholm on 10 December, Stern stated, “I am optimistic about what we can do, but I worry deeply about what we will do.”

The debate on sustainable finance and what would be the best way for the Nordics to reduce global emissions, was livestreamed between Madrid and Stockholm.

Taking part in Stockholm were Susanna Campbell, Member of the Board of Northvolt, Kjell Nilsson, Director of Nordregio, and Thomas Wrangdahl, First Vice President and Head of Lending at NIB. At the Madrid end, the speakers were Nicholas Stern, Professor, London School of Economic and Political Science, and Pekka Morén, Co-chair (Sherpas), Coalition of Finance Ministers for Climate Action and Member of the Board at NIB.

Both, please

The question of what is the best way for the Nordics to reduce global emissions is partially about cost-effectiveness. Should the Nordics reduce CO2 anywhere in the world for the cheapest money, or continue as frontrunners in showing it is possible to have economic development while reducing emissions?

According to Kjell Nilsson, Director of Nordregio, we need to do both.

“You have to be efficient when investing and it is important to be frontrunners," said Nilsson, adding that the most promising sectors for the Nordics to be frontrunners in are renewable energy production and carbon storage.

Nilsson reminded the audience that the Nordics are still “quite high” emitters per-capita of CO2, with emissions mainly coming from transportation and the production of cement, iron and steel. His organisation has facilitated the Nordic Economic Policy Review 2019, providing academic insight into Climate policies in the Nordics.

Risk-taking needed

Susanna Campbell of Northvolt said she is a strong believer in profitable and growing businesses that also do good.

“Northvolt is such a business because we truly want to make a difference and drive CO2 out of the transportation value chain,” says Campbell. “Our ambition is to manufacture the world’s greenest batteries.”

Founded in 2016, Northvolt is in the process of establishing itself as a European supplier of sustainable, high-quality battery cells and systems with a minimal CO2 footprint and the highest ambitions for recycling.

“We are trying to find innovative ways of making sure that we have a very clean and tidy supply chain,” said Campbell.

Getting there

NIB is currently looking to finance Northvolt. According to Thomas Wrangdahl of the Nordic Investment Bank, Northvolt is an exciting and important project for Sweden, the Nordics and Europe in developing battery factory capabilities.

“Northvolt approached NIB early on, but we could not finance a new venture with no track-record and partly new battery systems. When Volkswagen and Goldman Sachs came on board with quite a lot of money and knowledge, then that was the time when NIB could say yes to finance," said Wrangdahl.

While NIB has mostly focused on financing established companies, Wrangdahl hopes that NIB could finance more businesses that are similar to Northvolt in the future.

Campbell said that Northvolt’s partners, like NIB and other international partners, are key here.

"I think that a private-public capital mix and some creativity, also with some players wanting to take a little bit more risk on start-ups than they used to, is crucial to make the right things happen,” said Campbell.

Wrangdahl said that financing is crucial for getting the green transition done.

"I think that NIB, together with the EIB, should be part of that transition and take bolder moves than we normally do. However, we cannot make bold moves unless we have a sound base in our portfolio. Gratefully, that sound base includes many financially important environmental projects like for instance hydro- and wind parks.”

Talking about Northvolt, Wrangdahl said, it all comes nicely together.

“We finance Skellefteå kraft, which is where Northvolt will get their electricity from hydro and wind power. Northvolt also needs mines, which perhaps are not among the most environmentally friendly of projects, but without them there would be no batteries. NIB finances several of the largest mining companies in the Nordics that are crucial to Northvolt's operations,” Wrangdahl said.

Sherpa on a steep trail

Present for the first time at a COP, the Coalition of Finance Ministers for Climate Action launched the Santiago Action Plan to accelerate their countries’ transition to low-carbon and climate-resilient economies. The coalition, which is led by Finland and Chile, comprises 51 countries covering 30% of global GDP.

Pekka Morén, Co-chair (Sherpas), Coalition of Finance Ministers for Climate Action, said the coalition aims to strengthen competencies for integrating climate aspects into economic policy-making.

“The coalition is up and running and the learning and sharing of experiences with support from academia is ongoing. Take green bonds for example; many countries have started to issue them during this year, based on successful issues by other countries,” Morén said.

An understatement

Stern is a former chief economist of the World Bank and European Bank for Reconstruction and Development. In 2006, he carried out a review of the economics of climate change in 2006, where the main conclusion was that climate change is a result of the greatest market failure that the world has seen, and that the costs of inaction on climate change are far greater than the costs of action.

“That statement has not changed and is still true. There is also a cost of inaction far greater than the cost of action. Those two statements are even truer now than they were at that time,” Stern said.

Since 2006, the science of climate change has matured, showing the rapid effects of increasing emissions on the climate. On the other hand, technology has moved forward to replace polluting production and processes and young people have become a force to reckon with.

Backing the finance ministers

According to Stern, the finance ministers are needed to set up the processes needed for the green transition.

“We have to go net zero CO2 emissions by mid-century if we want to have a chance of holding to 1.5 degrees Celsius, and perhaps 15 to 20 years later if we want to hold to 2 degrees. That is very rapid change and involves economic change across the whole economy. This is the story of driving down to zero, which requires strong investments in infrastructure, housing, transport, energy and so on. One cannot change the whole economy unless the finance ministers, the people making policies, are leading that process,” said Stern.

“We have a world which is a demand constraint, where interest rates are on the floor and there are plenty of savings, but insufficient investments. This is a very attractive story, which is very good for the economies of the world in terms of demand and building new infrastructures. It is very good for us all in terms of having cities where we can move and breathe in robust ecosystems with rising living standards. I do not pretend to say that this will be easy,” said Stern, adding that, “I am optimistic about what we can do, but I worry deeply about what we will do”.

You can watch the full debate here.