SSFC submits recommendations during Swedish sovereign bond enquiry

Authors: Marcus Svedberg and Hanna Ståhlberg
Stockholm Sustainable Finance Centre (SSFC) submitted several recommendations during the Swedish Government’s green bond enquiry. The Stockholm Sustainable Centre highlights that apart from giving a strong signal to other countries, several learning benefits for the market and its actors would emerge. Experts at the Centre argue that some of the innovations associated with the issuance of such a bond such as fintech and securitisation would help the green bond market grow.

Since the first green bond was issued a decade ago in 2007, the green bond market has gone through extraordinary growth. In particular during the last five years, green bonds have come of age. Before 2012, the market was practically non-existent. In 2017, more than USD155bn worth of new green bonds were issued, a staggering 78% increase from 2016. 146 of 239 issuers last year were new and included three sovereign bonds, one of them issued by the French government with a record size of USD 10.7bn (Climate Bonds Initiative 2018).


Green bonds are no longer a niche product for special interest issuers and investors but have become a mainstream product for most financial actors. Green bonds have often been referred to as win-win products. They seem to provide benefits all around: bond issuers promise to use the proceedings for sustainable causes, ranging from energy, water, environment, green buildings and climate friendly initiatives. Global players such as the world bank issue green bonds, financial institutions are doing so, and even corporates are chipping in.

A win-win situation for all involved. But is that so? Recently Hiro Mizuno, Chief Investment Officer of the Japanese Government Pension Investment Fund (GPIF), the largest pension fund in the world with USD 1.4 trillion in assets, seems to think otherwise. He recently said that green bonds are a lose-lose for issuers and investors due to the high costs involved to certify greenness and the lower liquidity associated with green bonds (Environmental Finance, June 2018).

At SSFC, we do not necessarily agree. However, considering the market is far from saturated and there are not enough green bonds to go around, the market for green bonds may be failing its potential buyers. This discussion is an important backdrop to the Swedish Government’s green bond inquiry earlier this year, where SSFC submitted several recommendations (Swedish Green Bond Enquiry 2017). 
Senior Advisor at SSFC
“The recommendation to issue a sovereign green bond has naturally received most attention but the rest of the inquiry was perhaps more interesting and arguably also more important." 
"The discussion on different ways to reduce the cost of issuing green bonds is particularly important, as it addresses the supply constraint and merits further research.”


The purpose of the inquiry, which was led by former AP4 CEO Mats Andersson, was “to identify ways to promote the market for green bonds”. SSFC, which was one of the referral bodies, broadly supports the main conclusion of the inquiry to issue a sovereign green bond in Sweden, modelled on the recent successful issuance in France.

France and Sweden have already taken concrete actions in the field of sustainable finance and initiated collaborative efforts, through the involvement of both private and public stakeholders. Green finance is one of the four key areas identified in the French-Swedish strategic partnership for innovation and green solutions signed on 17 November 2017 by the Swedish Prime Minister Stefan Löfven and the President of the French Republic Emmanuel Macron. 

Recently, to honor this French- Swedish partnership, a high-level conference on the development of green finance was co-organized by Crédit Agricole CIB and SEB in Stockholm, with the support of the Regional Economic Department of the French Embassy in Sweden. This event highlighted the need for joint action and collaborative approach to sustainable finance, including shared learning and experiences.

Although Sweden has limited borrowing requirements making the presumptive bond small, while the formal additionality would be limited due to the Budget Act, a Swedish sovereign bond would give a positive signal on the national as well as the international stage and represent a good follow up to the France issuance. Additionally, important learning benefits would emerge from the process of issuing the bond.