By Nasdaq Staff
The Nasdaq Nordic Sustainable Bond Market is flourishing due to our continued commitment to the environment, society and a more responsible future. With over one hundred green, social and sustainability bonds listed, it is a testament to the extensive integration of sustainable practices amongst Nordic companies.
Nasdaq’s sustainable bond listings offer high transparency that makes it easier for investors to invest and manage risk, which goes hand in hand with our overall mission to provide fair, transparent and efficient markets.
In this series, called Green Voices of Nasdaq Nordic, we are providing a platform that allows our green bond issuers and investors to share their stories. This story shines a light on the Church of Sweden and their commitment to invest sustainably.
The Church of Sweden, which can trace its origins back to the year 829 , began incorporating sustainability factors into its asset management business about a decade ago. Now it is expanding its efforts by collaborating on bonds that go toward financing sustainable cities and clean water.
The asset management business is founded on a financial policy that the Church’s Central Board adopted in 2010. The Church has been a pioneer in its internal asset management, having invested in the first green bond issued in Sweden by SEB and the World Bank.
For more than ten years, the Church has used external fund managers who see sustainability as an element that creates business opportunities for companies. The investment strategy also expanded to include green bonds a few years back, in addition to its positions in equity funds.
“Green bonds fit very well into our sustainable investment strategy,” said Anders Thorendal, Treasurer and Chief Investment Officer at the Church of Sweden. “Our ambition when we started investing in green bonds in 2015 was to support the development of the market for green bonds.”
Last year, the Church, along with two Swedish banks and an insurance company, invested in a Sustainable Development Goal (SDG) bond, which refers to the 17 sustainable development goals established by the United Nations in 2015. The investments went into the pool of sustainable projects at the World Bank, highlighting the 11 th SDG, Sustainable Cities.
This work was part of the initiative by Swedish Investors for Sustainable Development (SISD), which consists of 18 Swedish investors who want to increase their investments in the SDGs. Some of the other SDGs aim to eliminate poverty and hunger, address climate change, reduce inequalities, and promote responsible production and consumption.
“We hope to see more investment opportunities that clearly target the SDGs in the future. Issuers will be rewarded if they are able to clearly tie the financed projects to the SDGs, allowing investors to see the societal and environmental benefits of the bonds.”
As institutions and retail investors increasingly consider environmental, social and governance (ESG) factors in their investment strategies, green bonds are becoming attractive portfolio assets. That said, the surge in demand could strain the budding green bonds markets.
“If the demand is larger than the supply, it could mean that the return for the investor will be lower,” said Thorendal. “On the other hand, the green content is likely to reduce some risks linked to, for instance, energy or water, which could justify a somewhat lower return. And to be clear, we are running out of time to save our own future from devastating effects from climate change.”
“For the bond market to be able to address the SDGs and the climate risk, I think the whole bond market needs to be more sustainable. Until now, the focus has been primarily on the world’s one percent green bonds,” Thorendal continued. “We could use some of the learnings from sustainable bonds to make the whole market go that direction.”
As green bond issuers work to meet the increasing demand, social bonds, which are still relatively new, are gaining traction, according to Thorendal. The social bonds, however, are a bit more complicated, mainly because it is often harder to find square and straightforward metrics for the reporting of how the proceeds have been effective.
“Energy and CO2-emissions, or water consumption and waste are so much easier to measure,” noted Thorendal. “But social bonds are obviously more linked toward social matters like the working environment, gender equality, jobs created, better health, etc., which is more complex to understand if and how a specific action has led to a desired outcome. But that shouldn’t stand in the way of doing what you think is the right thing to do.”
Even though social bonds are relatively new to investors, it only highlights the increasing demand for sustainable investments.
“Thanks to green bonds, I think the entire bond and equity market will become more transparent about the environmental and societal effects of the investments. There is a growing understanding that business-as-usual is not fit for today’s challenges to create financial value.
To protect and create value from now on in the real economy, we need to understand how the economy will be forced to change due to climate change, the massive loss of biodiversity, and the growing natural resources scarcity. Add to all this political instability. In this new landscape, the SDGs serve as a guide for corporations and their investors to find business opportunities.”
The Nasdaq Sustainable Bond Market was launched in July of 2015 with a total volume of 740 million euro. In 2017, €1.7bn ($1.9bn) was raised on the Nasdaq Nordic Sustainable Bond Market, up 81% from 2016. In 2018, more than 4,7 billion was raised on Nasdaq’s Nordic and Baltic sustainable debt segments. We facilitate infrastructure, monitor issuers and foster dialogue to ensure the continued growth of the markets.
Bonds can be listed on Nasdaq Sustainable Bond Market if a set of criteria are fulfilled. The respective criteria are based on the green and social bond principles (the GBP and SBP), for which ICMA acts as secretariat, and have been developed in cooperation with Sustainalytics , a global leader in ESG research.
Issuers that wish to list green, social or sustainable bonds on our sustainable bond market go through the same process as traditional bond issuers. However, the issuer must supply Nasdaq with information regarding the bond or bond framework as well as the third party’s review when applying to list.