KfW Issues Largest SEK Green Bond

    Stockholm (NordSIP) – Kreditanstalt für Wiederaufbau (KfW), the German development bank, issued a three-year SEK 7 billion green bond at the end of May. According to KfW’s green bond framework, the proceeds from this issuance will be directed to renewable energy and improved energy efficiency in construction projects.

    This transaction is the largest ever SEK Green Bond new issue, the largest ever SSA primary issue in SEK and the second Green Bond issued under KfW’s updated Green Framework, according to KfW. “We issued our second liquid green bond after having published our new framework recently,” commented Petra Wehlert, Head of Capital Markets at KfW. “We are excited to see this strong demand in the SEK market, after our initial € 3 billion issuance two weeks ago.”

    According to KfW’s estimates, the environmental impact of a € 1 million investment in this bond will facilitate a 293 tons reduction in GHG emission (CO2-equivalents) per year. Renewable energy projects include photovoltaic panels, wind energy, hydropower, biomass energy, biogas energy and in renewable energy electricity grids and power plants. Energy efficiency projects will focus on real estate properties, including passive houses, which use 75% or less primary energy compared to the requirements of the current German energy saving ordinance for new buildings.

    While the renewable energy part of the framework received a dark green rating from CICERO, the energy efficiency use of proceeds only warranted a light-to-medium green rating. On this latter use of proceeds, CICERO’s second opinion noted that “focusing on energy efficiency alone lacks broader environmental considerations (e.g., water consumption, local environmental impact, construction material, public transport access etc).” Moreover, “buildings can include fossil fuel heating systems, such as oil & gas heating that represent an emission lock-in effect.

    The green bond pays a 0.125% annual coupon and was priced at a 100.360 premium, in line with initial guidance of SEK MS -10.5bps, to yield 0.05%, according to KfW. A two-year Schatz and a five-year Bobl bond auctioned by the German Federal government on the May 28 and 29, respectively fetched an average yield of -0.65% and -0.56%.

    The currency of the transaction determined the geographical focus of the demand for this security, with 95.4% of the bonds being purchased by Swedish investors. There remaining went to Danish (4.3%) and UK-domiciled (0.3%) investors. Sectorally, pension funds took up 60% of the securities, followed by bank treasuries, which purchased another 31.2% of the green bonds. The remaining was split between central banks (4.3%), government agencies (4.3%) and asset managers (0.3%).

    “We are pleased to add another green bond from KfW to our growing green bond portfolio. Alecta’s mission is to maximise the value for our clients through the (collectively agreed) occupational pension, which we do through responsible investments creating good returns and this requires competitive businesses committed to climate transition,” said Peter Lööw, Head of Responsible Investment at Swedish pension fund Alecta.

    Picture courtesy of KfW

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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