Nordea Bank Abp plans to start selling sustainability-linked bonds on behalf of borrowers. For companies not previously eligible for green financing, Nordea says the new product provides access to investors focused on environmental, social and governance (ESG) goals.

Here’s how the new product works: Nordea ties coupon payments on the securities to performance targets such as emissions or gender equality. That’s different from the standards needed to issue green bonds, where a borrower is required to satisfy stringent use-of-proceeds categories.

“Many issuers realize that this constitutes an opportunity not seen since the first Nordic Green bond was issued, and are
therefore interested in exploring the format,” said Anna Reuterskiold, a debt capital markets banker at Nordea in Stockholm.

Globally, sustainability-linked bond issuance totaled just USD 1.1 billion in the first half of the year compared to USD 5.1
billion in 2019, according to data compiled by BloombergNEF.

That’s as sales were overshadowed by a supply glut of social and so-called pandemic bonds as borrowers of all stripes rushed to raise financing to bridge the fallout from the pandemic.

Nordea’s Reuterskiold expects more corporate clients will adopt the sustainability-linked format in the second half of 2020. “Capital markets can be a catalyser for positive change,” she says.

In June, the Loan Market Association published the Sustainability-Linked Bond Principles, providing buyers and sellers with a codified set of standards for the new asset class. Reuterskiold says the framework “will allow for the market to grow.” For now, the Nordic region has yet to see its first sustainability-linked bond, “leaving the position of pioneer unclaimed,” said Reuterskiold.