The Nordic Investment Bank (NIB), Nordic Environment Finance Corporation (NEFCO)and Nordic Development Fund (NDF) are frontrunners in different areas of Sustainable financing. They have been at it long before sustainable financing was even a term, and with quite remarkable results. There is a growing market for sustainable financing, because it works financially, environmentally and socially.
Today the global community have acknowledged that there are no alternatives to sustainable development. The UN 2030 Agenda for sustainable development sets integrated goals that aim to achieve a balance between the economic, social and environmental dimensions. As agreed at the UN’s Climate Change Conference in Paris in 2015, a green transition is required to limit the increase in the average global temperature. In 2018, the European Commission also issued an Action Plan that sets out an EU strategy for sustainable finance. To achieve these aims, private actors and governments need to co-operate to steer finance flows into sustainable projects.
One way of doing this is for governments to involve international financial institutions with clearly defined mandates, such as the Nordic Investment Bank, Nordic Environment Finance Corporation and Nordic Development Fund.
But more is needed. In September Denmark’s Prime Minster Mette Fredriksen said that her government need private investors to get on board if Denmark is to reach its goal of reducing CO2 emissions by 70 percent by 2030.
Danish pension funds answered the Prime Minister and are prepared to allocate 350 billion Danish kroner to green investments by 2030.
Sustainable finance is not just about green solutions. There is a common understanding among the Nordic governments that Sustainable financing has to be a broad pallet of tools with different mandates and target groups. Let’s start at the top with Nordic Investment Bank.
NIB operates in the Nordic and Baltic countries and give loans on sound banking principles to project that improve competitiveness and the environment. The main drivers for NIB when considering a project is sustainable growth, climate change, marine environment, pollution prevention and productivity improvement. The bank is owned by the eight Nordic and Baltic states.
According to NIBs President and CEO Henrik Normann the Nordic and Baltic countries recognise that they are a bunch of small countries in a big world.
- Alone we can only achieve so much, but together as “The Nordics” we carry weight. We have a brand. We have developed environmentally sound solutions that can be replicated and scaled in other parts of the world. That is the added value of our cooperation, says Normann.
Alone we can only achieve so much, but together as “The Nordics” we carry weight. We have a brand.
One example of a project that fit the bill as a Sustainable Growth project is Anholt Wind Farm in Kattegat between Jutland and the island of Anholt. NIB have, over the years, invested heavily in Demarks transition from coal and fossil fuel based energy production to renewable wind energy.
The offshore wind farm consists of 111 wind turbines, each with a capacity of 3.6 MW, making it one of the largest offshore wind farms in the world. The offshore wind was commissioned in 2013.
With a capacity of 400 MW, Anholt wind farm provides CO2-free energy corresponding to the annual power consumption of 400,000 Danish households, or 4% of Denmark's total power consumption.
NIB also provided partial financing of the Skagerakk 4 interconnectors which is a project owned by Norwegian Statnett and Danish Energinet.dk. Basically it´s an underwater power cable enabling both Denmark and Norway to exchange power when the windmills in Denmark experience little wind, or when the Denmark has a surplus of energy they need to distribute elsewhere.
Leave no one behind
In the increasingly polarized debate on climate action Normann is concerned about the victims of green solutions. His argument being that when industries are challenged by the green change we must not forget those who stand to lose their jobs. He compares it to the effects of globalisation which have lifted millions of people out of poverty in poor countries. At the same time globalisation is immensely unpopular in for example USA. The reason being that many US industrial workers lost their jobs to cheap labour in third world countries. US workers therefore see themselves as victims of a policy that didn´t consider the consequences for them. That again paved the way for populist politicians that now lead the resistance against climate action claiming that US workers will once again pay the price.
- When we now see a growth in sustainable finance I think it´s quite important that we look at if there are victims in this process of green transition. Therefore we at NIB focus not only on the environment, but also on productivity. When those two factors work together we achieve sustainable growth. That way we create new jobs and prosperity also for our children, Normann points out.
For Henrik Normann Sustainable Finance means that we must measure more than just capital, credit and dividend. He urges investors as well as politicians to measure impact. The warning being that the cost of leaving people behind can jeopardise the change we need.
When we now see a growth in sustainable finance I think it´s quite important that we look at if there are victims in this process of green transition. Therefore we at NIB focus not only on the environment, but also on productivity.
Medium to small and with higher risks
While NIB is the big brother among the Nordic financial institutions and mainly focusing on large projects the Nordic governments (Denmark, Finland, Iceland, Norway and Sweden) saw the need for a finance institution that could focus on small and medium sized green projects and with somewhat higher risks, in both the private and public sector. For 30 years Nordic Environment Finance Corporation (NEFCO) has been this tool. Providing loans, grants and equity-type financing but focusing on the environmental side of projects rather than the economic side. In addition to its own capital, NEFCO also manages a number of trust funds to develop and de-risk green investments.
NEFCO have been engaged in 80 countries all over the world. Totalling a number of 1,300 projects.
- We are an organisation that is set up to focus on environmental and climate projects and nothing else. Each project might be small, but what we are aiming for is replicability and scalability, says Managing Director at NEFCO Trond Moe.
From freezing cold to state of the art
Could you imagine sending your child to a day-care centre or school where the indoor temperature drops to below 15°C in the winter?
In many municipalities in Ukraine parents don’t have any choice. Most schools and day-care centers in Kyiv, the capital of Ukraine, were built back in Soviet times. These buildings are far from modern standards, especially for energy efficiency. This means high energy consumption to heat the buildings and very low indoor temperatures in many of them.
In Ukraine the municipalities have no experience of private financing and borrowing from the private sector. In the past they only got money from the central government, Moe explains.
In Ukraine the municipalities have no experience of private financing and borrowing from the private sector. In the past they only got money from the central government
- In Ukraine the municipalities have no experience of private financing and borrowing from the private sector. In the past they only got money from the central government, Moe explains.
In order to solve this problem, the Kyiv City State Administration initiated cooperation with NEFCO, which finances a wide range of energy-efficiency projects in Central and Eastern European countries, including Ukraine. The aim was to implement energy-efficiency measures in more than 200 public buildings, primarily day-care centers and schools.
- We saw a need for alternative ways of financing. At the same time there was a huge need for improving the energy efficiency. Since climate action is one of our main goals it felt natural to start with financing the renovation and improving energy efficiency of these buildings, says Moe.
One example of a refurbished building is day-care center No. 431 located west of the center of Kyiv. It was in almost full decay. Now it is difficult to believe that it was built in 1964.
- There were cracks in the façade, the tiles were falling off and the visual appearance in general was unattractive. Our roof was full of holes. We had temperatures of 15-18°C and we could only raise it by using electrical radiators, but then the wiring was burning, says Acting Head of Day-care Center 431 Olena Patrik in an interview after the opening last year.
With the thermal rehabilitation, it was possible to get rid of all the defects of the old building. The construction works lasted only for six months and were completed in April 2018.
- Our main goal with this project was to demonstrate the ease and the effectiveness of such projects. With relatively simple means the municipalities can finance and implement similar projects all over Ukraine. It´s replicable and scalable to the need of each municipality and they can do it themselves, Moe points out.
Our main goal with this project was to demonstrate the ease and the effectiveness of such projects. With relatively simple means the municipalities can finance and implement similar projects all over Ukraine.
Small and agile
Poor people are the once most vulnerable to the consequence of climate change such as hurricanes, flooding or draught.
According to Managing Director at The Nordic Development Fund (NDF) Karin Isaksson the impact of an escalating climate crisis will be immense. Her organisation’s mandate is to work towards development and getting people out of poverty. Through the years the NDF´s mandate has shifted so that they have moved from a development only focus and towards a mandate that puts them in the nexus between development and climate.
- It´s quite important to remind yourself how this two aspects are interrelated. If we don´t try to fight climate change it will mean that another 120 million people will not be able to get out of absolute poverty, Isaksson states.
NDF is the smallest of the three Nordic finance institutions, but also the most agile. NDF finances projects in Asia, Africa and Latin America usually in cooperation with bilateral, multilateral and other development institutions. The model is based on so called soft loans which means that if a project fulfils the agreed upon goals and criteria, the loan will be turned into a grant.
NDF started out back in the late 1980´s with a credit stock of just EUR 4 million. Today the total of climate change financing by NDF is EUR 375 million.
- To us sustainable finance is to pay attention to the environmental, social and governance (ESG) aspect. This is an area where both the public and private sector has found common ground in the last 10 years or so. ESG is something that should not only be seen in a compliance perspective but as a value creator for everyone, says Isaksson.
NDF is engaged in a variety of different projects one being the West Africa Coastal Areas Program (WACA). The objective of the NDF funding is to improve climate resilience in coastal regions of Benin and Senegal.
- This is a really good example of how we work with adapting people and region to the consequence of climate change. This area is the home of millions and millions of people and they are already affected by the impact of climate change, says Leena Klossner Deputy Managing Director at NDF.
In the beginning NDF provided an early state grant for the preparation of the program. The whole program has now grown to a multimillion project where the World Bank and a number of international investors are also involved in financing the projects.
- In fact this was one of the fine examples mentioned by the President of France Emmanuel Macron as part of his Planet One Summit just some years ago, Klossner says with pride.
In fact this was one of the fine examples mentioned by the President of France Emmanuel Macron as part of his Planet One Summit just some years ago
How gender equality affects the climate
Another project NDF is involved in right now is the Energy and Environment Partnership Trust Fund for Southern and East Africa. (Link)
It might come as a surprise to some but having gender equality top of mind in development projects has proven to have a positive impact on the environment as well. The reason is quite simple.
- Women are often more reliant on energy when cooking and other household chores and all of this is made much more efficient if clean and reliable energy is made available to them. And of course it has huge implication for education which can be understood as an important tool to empower women, Isaksson explains.
Also approximately 600.000 women and children die each year as a result of poisons gas from cooking over open fire inside houses. Therefore NDF is engaged in a project that promotes and distribute clean cook stoves and biogas solutions. Engaging women as sales agent has also proven very effective.
“Women can provide valuable inputs in the design, manufacturing, sales and distribution of these products. Women have had particular success in the sales and distribution of such products, in many cases, outperforming male counterparts. Being female and a sales agents selling to other women, lends to their credibility to promote and sell a cooking products”, a report issued in 2017 stated.
So - to wrap it up - sustainable finance actually works. We just need more finance institutions who understand that in order to create a big change we need to recognize the value and importance of even the smallest piece in this natural mechanism we call mother earth.