Green light for climate-friendly loans

Publisert av: Andreas Nyheim - 5. juli 2017

Green bonds are increasing in popularity among private investors and pension funds. DNB is looking to tempt more Norwegian and Scandinavian companies to ‘go green’ in their borrowing.

The green shift has captured the interest of the financial markets. Since the Paris Agreement in 2015, investors have become more aware of climate and environmental challenges. Many have specialised funds which primarily seek to invest in green investments.

This trend opens up for new possibilities for Nordic companies wanting to borrow money.

“The green market is developing rapidly and is gaining more attention from investors. In Norway, we are still in an early phase, but we foresee great opportunities ahead,» says Hedda Giaever, bond broker in DNB Markets (pictured).

Largest in Sweden

Green bonds are loans which finance climate-friendly projects. So far there are nine Norwegian companies that have borrowed money in this way: BKK, Nord-Trøndelag Elektrisitetsverk, Scatec Solar, Lyse, Vardar, Entra, Fantoft Utvikling, Kommunalbanken and DNB. In addition, the City of Oslo has done the same.

Norwegian companies have raised a total of NOK 20 billion in this market.

SIGNIFICANT INTEREST: Salvatore Santoro in DNB has helped companies in a variety of industries with funding in the form of green bonds.

The market is currently larger and more mature In Sweden than in Norway. Arise, the wind power company, and Sveaskog, Sweden’s largest forest owner, are among the companies which DNB has helped set up green bonds in Sweden. DNB has built up expertise on both sides of the border between Norway and Sweden and across different business sectors.

 

“Green bonds are not limited to wind power or solar energy. Real estate companies have borrowed money through green bonds to be able to invest in projects where buildings use less energy and are more environmentally friendly. Car manufacturers have borrowed money to develop electric and hybrid cars. Internationally, Repsol, an oil major, is one of the companies which has succeeded with financing itself in this market,» says Salvatore Santoro, head of Investment Banking in DNB Markets in Stockholm.

Investors require more

Not everyone can borrow money through a green bond. The phrase «greenwashing» means that the money is used for projects which seem more environmentally friendly than they really are. To avoid this, companies must meet certain requirements in the form of established standards for green bonds.

DNB Markets also cooperates with independent experts, such as Cicero and DNV GL, to verify that the money goes to projects which are truly green.

“The green market has become more mature, where Investors and banks have become better at making requirements. Investors have also become better at evaluating the quality of each individual company. We have many good examples where green bonds are used for projects which help to make a difference. My personal goal is to get a green bond within shipping with the aim to reduce emissions and invest in environmentally-friendly solutions,” says Hedda Giaever.

Increase in demand

The market for green bonds worldwide doubled from USD 50 billion in 2015 to USD 100 billion in 2016, and Moodys, the investors service company, is expecting to double this figure in 2017. DNB also expects further growth in this market.

“First, because the market is becoming more transparent and easy to follow, and second, because green bonds will receive more attention from investors. Many pension funds would like to place a certain share of their capital in green investments,» says Salvatore Santoro.

Evidence suggests that ‘going green’ also results in cheaper financing. In the autumn of 2015, Barclays, the investment bank, conducted an analysis which indicated that the interest rate on green loans was aproximately 20 basis points (0.2 percentage points) lower than similar loans for «ordinary” companies.

«We cannot yet prove that green loans are cheaper, however, what we know for sure is that demand is often greater because many investors are on the lookout for green investments. In theory, it should then be possible to achieve better pricing than could otherwise be achieved,» says Santoro.

Overview from DNB Markets: Latest reports and analyses