Denmark and Norway Lead Nordic Bonds During First Quarter

    Stockholm (NordSIP) – As the first quarter of 2023 came to an end, financial markets took stock of the ongoing macroeconomic conjuncture and how it is affecting investors. Sustainable bond markets were no exception, including ESG-labelled bonds (proceeds-based), sustainable-linked bonds, transition bonds, green-linked loans and sustainable-linked loans (SLBs), which saw significant growth in the Nordic region during the start of the year, even if issuance across Europe was down for the same period.

    Aggregate Sustainable Bond Market

    According to Morningstar, “assets in sustainable bond funds have grown 11 times over the past decade, reaching US$516 billion globally at the end of 2022, of which 23% are in passive funds.” This is equivalent to a share of over 52% of the US$980 billion of green, social, sustainability or sustainability-linked (GSSS) bonds outstanding by the end of 2022.

    In its latest report on the sustainable bond maret, the Association for Financial Markets in Europe (AFME), European ESG bond and loan issuance reached €156 billion, down 4.3% year-on-year (YoY) but increasing 10.7% quarter-on-quarter (QoQ) in 2023Q1. The quarterly increase was driven by ESG-labelled bonds, which accumulated €116 billion in proceeds, the second-largest quarterly issued amount on records according to AFME.

    The Italian government and the European Commission issued the two largest deals in the market. Other sovereigns that entered sustainable markets also include Ireland, Turkey and Austria. French issuers continued to lead in total ESG bond and loan issuance, specially Caisse d’Amortissement de la Dette Sociale (CADES), which AFME describes as “a market leader for social bonds”. AFME also notes that ESG Securitisation issuance accumulated €1.1 billion in proceeds in 2023Q1, an increase of 103.3% compared to the first quarter of 2022, on two green RMBS and one social ABS.

    According to data from Swedbank, €139 billion and NOK19 billion were issued in sustainable bonds during the first quarter of 2023. In the same period, SEK35 billion was issued in Swedish Krona, with financials and SSAs leading the way. Outstanding ESG bonds as of the end of March 2023 amounted to SEK631 billion, equivalent to 13% of all outstanding bonds in Swedish krona. ESG bonds represented 7% of all outstanding bonds denominated in NOK and euro, according to the same source.

    The Nordics

    The relevance of sustainable bonds continued to grow in the Nordics during the first quarter of 2023. ESG bonds now represent 40%, 12% and 10% of all bonds issued by Nordic corporates, financial institutions and sovereigns, supranationals and agencies (SSAs), according to data provided by Danske Bank. While Sweden is traditionally the leader of the Nordic sustainable bond market, Denmark had a better start to the year. Nordic Sustainable bonds issuance reached €16.9 billion in 2023Q1, up from €15.7 billion in the same period in 2023, according to Danske Bank.

    In January, the Nordic Investment Bank (NIB) green bond issued a €500 million bond. In February, Volvo Cars issued a SEK1.5 billion green bond. The proceeds from these securities are “earmarked for funding and accelerating the company’s transformation towards becoming a fully electric carmaker by 2030 and becoming climate neutral and circular by 2040,” the company explained

    Pandora came to the market with an inaugural €500 million in SLBs in March. “The new financing programme will allow us to further diversify our funding structure while at the same time linking it directly to our sustainability commitment. Obtaining solid investment grade credit ratings further highlights Pandora’s strong financial profile and attractive cash generation,”  Pandora CFO Anders Boyer commented on this occasion. Kommuninvest issued a new €500 million bond in March, at which point Neste Oyj also borrowed €1 billion in six- and ten-year green bonds.

    Nordic Dealers’ View

    Nordic dealers remained optimistic about sustainable bond markets, their development and how they can assist sustainable investors pursue their goals, not least SLBs.

    “It is fantastic to see the awareness by investors today. ESG is now operational and integrated in the credit process of many investors. Sustainable Bonds are the most sought product in the ESG community, and this is reflected in the great interest for these products. With SLBs, issuers have a wider pallet to choose from. In essence, all issuers could issue a sustainable bond as anyone can set ambitious targets framing their most material sustainability issues. Regardless of the type of debt, these targets strengthen the issuer profile and investors’ possibility to scrutinise the issuer,” says Lars Mac Key, Head of Sustainable Bonds at Danske Bank.

    “Between 2021 – 2022 Swedbank held a top 2 position among Nordic banks for SEK ESG bond issuance in the Nordics both in terms of volume and number of transactions. Last year we were also the first Nordic bank to introduce ESG in direct lending and we expect the interest in ESG direct lending to increase in the upcoming years,” Elin Larsson, Vice President ESG Capital Markets at Swedbank comments. “In 2022, the Global ESG bond market was down by ~30% compared to 2021. It was first full-year decline ever in ESG bond history. The decline reflected the overall bond market fuelled by high inflation and geopolitical risks resulting in wider spreads and market volatility. However, ESG format has proven to be extra valuable under volatille market conditions securing deals are subscribed by investors and credit spreads are at reasonable levels,” Larsson concludes.

    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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