Green Finance and The Aggregation of Swedish Local Government Investment Projects| Sweden

In response to the demand for improved green financing instruments, Sweden’s largest municipal funding agency, Kommuninvest, is issuing green bonds to institutional investors to fund green loans for investment projects undertaken by local and regional governments. Some of the projects funded by green bonds include one of Europe’s largest onshore wind farms, a fleet of electric buses for public transport and energy-efficient housing. Through the Kommuninvest Green Bonds Framework initiative, smaller municipalities that are important in achieving Sweden’s ambitious environmental targets are provided with green financing opportunities. Green bonds are therefore instrumental in promoting the transition to a more sustainable society by supporting Sweden’s objective of becoming a fossil-free nation.

Key facts

Kommuninvest has committed funds to over 130 investment projects in more than 75 Swedish municipalities and county councils/regions;
Green Bond issuance is made possible thanks to the build-up of a Green Loans Project portfolio approaching SEK 25 billion (USD 3.1 billion);
Commitments totaling SEK 8.6 billion (USD 1.1 billion) to 27 renewable energy projects is expected to avoid 395,730 tonnes in annual CO2 emissions - equivalent to 85,000 cars removed from the road.

The problem

Accessing climate finance to fund green projects has proven to be one of the main obstacles in achieving climate neutrality. Small local and regional governments have struggled to identify funding, as their demand for loans has been relatively small and of insufficient volume to make it interesting to the large commercial banks.

The solution

Kommuninvest has introduced green bonds and green loans to support climate action within Swedish local and regional governments. Combining single green loans into an aggregated portfolio, Kommuninvest offers smaller municipalities with green financing opportunities to further diversify and increase the resilience of Kommuninvest's funding.

Green bonds are a cost-effective way of raising capital to tackle climate change where funds raised by the issuer are earmarked towards financing green projects. For example, the green bonds have financed one of Europe’s largest onshore windfarms containing 99 wind turbines with an installed capacity of 247.5 MW, and a fleet of electric buses for local transport. All projects must meet pre-determined sustainability criteria and are vetted by an independent Environmental Committee.

Helping the planet

The project provides green bonds and green loans to finance either mitigation of climate change, adaptation to climate change, or can be a project related to environmental management. For example, a mitigation project funded by green bonds reduces carbon dioxide emissions by increasing the supply of renewable energy and decreasing the need to use fossil energy sources.

Helping people

Swedish local and regional governments are now able to easily access cost-effective green financing. Funding generated from green bonds will allow them to successfully achieve a transition to a carbon neutral society, which will help to reduce the impacts of climate change. Environmental projects will allow future generations to benefit from a society in which the major environmental problems in Sweden have been resolved.

Spillover effect

The activity is easily scalable, since it is integrated with Kommuninvest's day-to-day operations both in terms of lending, funding, and investor relations. With the predicted increase in green loan volumes, Kommuninvest expects to add additional resources to support the activities of verifying and approving green investment projects, as well as reporting on impact. Replicability has been demonstrated in that local government debt offices like Kommuninvest are already established in other Nordic countries (Denmark, Finland, and Norway). Kommuninvest cooperates closely with these agencies and strives to share knowledge and expertise. In Finland, Municipality Finance issued its first Green Bond in September 2017, and has taken inspiration from Kommuninvest in its Green Bonds governance model.