More issuers needed to unlock Nordic green bond potential

Investor demand for green bonds is still outstripping supply -- despite a jump in the number of entities issuing the debt vehicles in 2018.
Jacob Michaelsen from Nordea (left) Ann-Charlotte Eliasson from Nasdaq and Lars Mac Key (right) are in a panel discussion during the seminar "Unlocking the green bond potential in Denmark", which was organized by Nasdaq. | Photo: Nasdaq
Jacob Michaelsen from Nordea (left) Ann-Charlotte Eliasson from Nasdaq and Lars Mac Key (right) are in a panel discussion during the seminar "Unlocking the green bond potential in Denmark", which was organized by Nasdaq. | Photo: Nasdaq

Following years of rapid growth in the number of green bonds coming onto the market -- such as the 64% surge of 2017 -- issuance of the environmental project financing vehicles climbed more moderately in the Nordics in 2018, but still hit USD 1,070bn (EUR 947bn) by the end of the year.

Sweden dominates the overall market as its issuers accounted for 65 percent of the activity.

According to Nina Ahlstrand, head of sustainable finance at Norway's DNB Markets, last year's slowdown was not related solely to green bonds, as it is normal for market uncertainty to prompt issuers to postpone bond launches.

"The number of issuers grew a lot in 2018, but the issued volume did not. The sustainable bond market is exposed to the same market sentiment as the regular bond market. There is definitely interest from potential issuers, and several Nordic companies already developed their green bond frameworks in 2018 despite not issuing right away," she tells AMWatch, adding:

"We should expect to see some issues from these companies in the next few years."

Unsatisfied demand

Nasdaq OMX Copenhagen hosted a seminar about green bonds earlier in February. The overarching theme was to discuss why Denmark lags behind Norway, and especially Sweden in green bond issuance.

According to Manuel Adamini, head of investor engagement at The Climate Bonds Initiative, current discussions with potential investors are very positive, which indicates there is much more unsatisfied demand.

Adamini notes that investors are being generally much more educated on green bonds than just a few years ago.

"What investors are seeking is yield, diversification and sheer volume. We are doing okay on volume – yes, headline numbers disappointed a bit last year but that's against the backdrop of a lot of market volatility and bond market contraction," he tells AMWatch at a seminar. 

More potential

One of Adamini's main points is that there's room for many more green bond issuances in Sweden, Norway, Denmark and Finland.

According to Lars Mac Key, head of sustainable bonds at Danske Bank capital debt markets, a lot of the issuances are currently ongoing in Finland.

"Finland is gaining pace especially on the corporate side, and we receive still more questions from potential issuers, as well as from the investor community where we have seen a few new green bond mandates and funds during the last year," he tells AMWatch.

"We also see a lot of Norwegian demand if the bond is issued in Norwegian Kroner, " Mac Key adds.

“In contrast, the corporate issuer base in Denmark is relatively small, however, the financial institutions have started to show interest and investor interest have grown rapidly, even if from low levels."


A frequent issue in relation to investing in green bonds is that many of the deals brought to market are oversubscribed by investors. A newly issued green bond with Danske Bank as structuring manager attracted orders over SEK 850m despite being a SEK 500m green bond. In 2016, the first Finnish green bond was oversubscribed within a few hours.

A more recent example of the oversubscription of the category sustainable bonds was the first Nordic blue bond issued by Nordic Investment Bank in January.

The value of the transaction was SEK 2bn (EUR 190m) However, the final order book reached above SEK 3.2bn (EUR 300m) SEB is the lead manager of the bond.

Swedish investors like Folksam, AMF and AP3 are also the 21 accounts participating in Nordic–Baltic Blue Bond.

More issuers needed

According to Mac Key from Danske Bank, for the market to evolve a more diversified issuer-base in the Nordics is needed. This would involve sovereigns entering the market alongside more non-financial corporates.

Jacob Michaelsen, head of sustainable bonds at Nordea, also believes that the green bond market would welcome a more diversified issuer base:

"Corporates play a major role in developing the green bond market, and it's important to be coherent so each market does not move to different directions," he tells AMWatch.

"Even though it might be difficult, it is important to have patience. We shouldn't expect to see annual double-digit growth rates. Instead, let the market mature at its own pace," Michaelsen adds.

Positive expectations

The urgency to finance climate-friendly solutions is outspoken daily. Ann-Charlotte Eliasson, head of fixed income listings at Nasdaq, believes that increasing awareness among people in the Nordics of the impacts of climate change, will drive the market increasingly to opt for climate-friendly solutions.

One of these awareness-increasing developments was the extremely warm summer last year, she points out.

"I expect climate awareness and green issuances in Denmark, Finland and Iceland to increase in the future.  If we see a Nordic slowdown in green bond issuances, it will likely be a result of less issuance overall and not due to decreasing interest in sustainability," she tells AMWatch.

Nina Ahlstrand, DNB Market's head of sustainable finance, believes the green bond market will continue to mature this year.

"I expect more sectors to enter the market in 2019, thereby diversifying the issuer base, which is needed as investor demand still outstrips supply. I think this will be a global trend," she says.

AMWatch has additional articles about the prospect of green bonds in the pipeline for its next newsletter.

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