Denmark Launches Inaugural Green Twin Bond

    Stockholm (NordSIP) – On 19 January 2022 the Danish Government, through the Danish Central Bank (Danmarks Nationalbank), conducted an auction for its much-awaited inaugural green government bond. The fixed income security is a 0% green bond loan maturing on 15 November 2031, worth DKK5 billion.

    Demand was buoyant with bids worth almost five times (DKK23.54 billion) the final allotment value allowing the green bond to be priced at a 98.63 discount to yield 0.14%. This first issuance represents a third of the DKK15 billion of the sovereign’s green borrowing expected for 2022, a little shy of a quarter of the country’s total DKK65 billion borrowing needs for the year.

    When developing the model for its green bond issuance, the Danish Central Bank’s main concern was to support liquidity in the green bond. To address this concern, the “Twin bonds” model announced on December 9th, 2021, has identical characteristics to an existing general-purpose benchmark bond. This allows investors to switch from green to the corresponding and more liquid conventional 10-year twin bond one-to-one at any time. However, investors will not be able to switch the conventional twin bond to the corresponding green twin bond.

    This approach represents a deviation from Denmark’s original plan to issue “green certificates”, first discussed by the Danish central bank at the end of May 2020. That model separated the financial commitment to provide coupon payments and the principal at the time of redemption from the commitment that the expenditures will go to green projects.

    The green government bond will be issued in accordance with the “Kingdom of Denmark Green Bond Framework”. The sale will commence via MTS Denmark’s auction system with primary dealers as counterparts. According to the framework, the Danish Climate Act of 2019 is at the centre of the country’s green ambitions. The aim of the act is for Denmark’s greenhouse gas emissions to fall to 70% of its 1990 levels by 2030 and to achieve climate neutrality by 2050. According to a 2021 estimate by the Danish energy authority, by 2019 total greenhouse gas emissions had fallen to 40% their 1990 levels.

    Most recently,  during her new year’s speech, Danish Prime Minister Mette Frederiksen announced a new tax on CO2 emissions and a roadmap to ensure green aviation became a reality within Denmark by 2030.

    Image courtesy of Danmarks Nationalbank
    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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