In response to the demand for advanced green finance instruments, Sweden’s largest municipal finance agency, Kommuninvest, is issuing green bonds to institutional investors to finance green loans for investment projects undertaken by local and regional governments. Some of the projects financed by green bonds include one of Europe’s largest onshore wind farms, a fleet of electric buses for public transportation, and energy-efficient housing. Through the Kommuninvest Green Bonds Framework initiative, small municipalities that play an important role in achieving Sweden’s ambitious environmental goals are provided with environmental financing opportunities. Green bonds thus play an important role in facilitating the transition to a more sustainable society, supporting Sweden’s goal of becoming a fossil fuel-free country.
Key facts
- Kommuninvest has provided funds for more than 130 investment projects in more than 75 Swedish municipalities and county councils/regions;
- The issuance of green bonds was made possible by an increasing portfolio of green loan projects approaching SEK 25 billion (USD 3.1 billion);
- Commitments totaling SEK 8.6 billion (USD 1.1 billion) for 27 renewable energy projects are expected to avoid 395,730 tons of annual CO2 emissions, equivalent to 85,000 cars taken off the road.
Challenge.
Access to climate finance to finance green projects has proven to be one of the main obstacles to achieving climate neutrality. Smaller local and regional governments found it difficult to find sources of financing, as their demand for loans was relatively small and not large enough to interest large commercial banks.
Solution
Kommuninvest introduced green bonds and green loans to support climate action in local and regional governments in Sweden. By combining individual green loans into a common portfolio, Kommuninvest offers small municipalities green financing opportunities to further diversify and increase the sustainability of Kommuninvest’s financing.
Green bonds are a cost-effective way to raise capital to combat climate change, where the funds raised by the issuer are used to finance environmental projects. For example, green bonds have financed one of Europe’s largest onshore wind farms, which includes 99 wind turbines with an installed capacity of 247.5 MW, as well as a fleet of electric buses for local transportation. All projects must meet predefined sustainability criteria and are reviewed by an independent environmental committee.
Helping the planet
A project provides green bonds and green loans to finance or mitigate climate change, adaptation to climate change, or can be a project related to environmental management. For example, a mitigation project financed by green bonds reduces carbon dioxide emissions by increasing the supply of renewable energy and reducing the need to use fossil fuels.
Helping people
Swedish local and regional governments can now easily access cost-effective environmental financing. Funding from green bonds will allow them to successfully achieve the transition to a carbon-neutral society, which will help reduce the effects of climate change. Environmental projects will allow future generations to benefit from a society in which Sweden’s major environmental challenges have been addressed.
Spillover effect
The activities are easily scalable as they are integrated into the day-to-day operations of Communinvest in terms of lending, financing and investor relations. Due to the projected increase in green loans, the bank expects to add additional resources to support the verification and approval of green investment projects and impact reporting. Replicability has been demonstrated by the fact that local public debt services such as Kommuninvest have already been established in other Scandinavian countries (Denmark, Finland and Norway). Kommuninvest works closely with these agencies and is eager to share knowledge and experience. In Finland, municipal finance issued its first green bond in September 2017 and drew inspiration from Kommuninvest in its green bond management model.