The Swedish bank that helped usher in the era of green bonds may be just months away from blazing a trail for a new kind of sustainable finance in its home market.
SEB AB expects to be the first to arrange a sustainability-linked bond in the Nordic region, according to Mats Olausson, a senior adviser for climate and sustainable finance.
Nordic banks such as SEB and Nordea Bank Abp are all vying to be first to push out the new debt instrument which, unlike green bonds, doesn’t target a specific green project, but instead links borrowing costs to environmental, social or governance goals.
Olausson says SEB is “in a number of discussions with clients who fulfill the requirement of having a well-defined and ambitious strategy.” The Nordic region’s first sustainability-linked bond “will likely come within a few months,” he said.
The pipeline of deals would add supply to a market that’s struggled to keep up with investor demand. When it comes to sustainability-linked bonds, only a handful of companies have issued so far, including Novartis AG and Suzano SA.
Globally, sustainability-linked bond issuance totaled $1.1 billion in the first half of the year, compared to $5.1 billion in 2019, according to data compiled by BloombergNEF.
The new financing form got a further boost recently, after the European Central Bank said it will start accepting the instruments as collateral from January.
Olausson says some obstacles remain, including the question for investors of how “to book an instrument where the return includes an unknown which is outside the financial markets.”
But appetite for ethical investments is high, as asset managers, pension funds and life insurers respond to intense customer demand in the wake of the Covid-19 pandemic and amid growing evidence of climate change.
Green Pioneers SEB helped arrange the first ever green bond back in 2008, after Swedish pension funds turned to the World Bank to find climate-friendly projects in which to invest. More recently, SEB designed the framework for Sweden’s debut green government bond program.
“We’ve issued 20 billion [kronor] for the Swedish government before, but we’ve never had 72 different buyers in the bond, which we did this time,” Hans Beyer, SEB’s chief sustainability officer, said.
The bank now plans to pitch green deals to other national debt offices outside of the Nordic region, even if it’s not a primary dealer in those markets.
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