Denmark and Finland Grab Bond Market in Third Quarter

    Stockholm (NordSIP) – Amid rising interest rates and increasing turbulence in the Middle East, the third quarter of 2023 saw a drop in quarterly issuance in Nordic green bonds vis-à-vis the rest of the year.

    Nevertheless, the market in 2023 continues to grow relative 2022 and there were important standout transactions from Denmark, Finland and Sweden. From a regulatory perspective, the market also saw the adoption of the European Green Bonds Standard, which should facilitate transparency and accountability in the market.

    Nordic Issuance Slows Down

    After a strong performance in the first half of the year, the third quarter of 2023 saw issuance down 38% and 35% in comparison to the first and second quarters, respectively. Issuance was also down by almost US$1 billion, equivalent to 8%, vis-à-vis the third quarter of 2022.

    “While Q3 sustainable bond issuance was down slightly from the record volumes seen in the first and second quarters of the year, we remain positive about the strength of the sustainable bond market in the context of the Nordic bond market as a whole. With a continuing upwards trend in the proportion of Nordic bond volume that is issued with a sustainable label, we can point to macro factors for the slight drop in sustainable volume over the last quarter rather than fundamental challenges to sustainable bond formats,” says David Ray, Nordea Sustainable Finance Advisory

    Nevertheless, the third quarter of 2023 marks the fourth consecutive quarter of growth in sustainable bond issuance as a proportion of the total Nordic market. This recent growth trend has also set a new high-water mark, with 14% of total Nordic issuance in Q3 2023 carrying a sustainable label.

    According to Nordea, this is a long-term trend. “Over the past 5 years, the proportion of Nordic bond volume issued with a sustainable label – green, social, sustainability or sustainability-linked – each year has steadily increased from 5% in 2015 to 13% over the first 9 months of 2023,” the Nordic bank explains in its Q3 Sustainable Debt Update report.

    As in previous years, Sweden remains the dominant country in terms of sustainable bonds. However, the country’s share has been decreasing since 2020, when it peaked at 56%. Seemingly, this decrease in relevance has taken place due to the rise of Danish issuance, which represents almost a quarter of the Nordic Market.

    Denmark on the Rise

    Although part of a clear broader trend, the increasing relevance of Denmark in the third quarter of 2023 can be attributed to the borrowing activities of its sovereign. Indeed, market participants seem to agree that the highlight of Nordic issuance was the issuance of a DKK 7.75 billion ten-year green tween bond by the Danish state.

    The bond payis a 2.25% coupon and was priced at a 93.096 discount to yield 3.053%. Danske Bank, J.P. Morgan SE, Nordea and SEB acted as joint lead managers on this transaction. “The new green bond is a twin bond to the existing conventional 10-year nominal bond, hence it has the same financial characteristics as DGB 2.25 2033,” Nordea explained on the occasion of this bond issuance.

    Danish investors purchased 57% of the bonds while the rest of the Nordics bought another 7% of the securities. Investors domiciled in the UK and Ireland purchased another 17%, followed by France & Benelux (8), Asia & Middle East (5%), Germany, Austria and Switzerland (5%). Sectorally, Asset managers dominated demand, purchasing 48% of the securities, followed by pension funds & insurance companies (26%), banks (9%), bank treasuries (9%), central banks and official institutions (7%) and hedge funds (2%).

    Beyond the sovereign, Danish issuance was also significant in the sustainability-linked loan bond market. Discussing the role of the country in this segment, Nordea noted that “the Danish market leads the volume rankings for the first 9 months of 2023, taking 41% of total Nordic supply to the end of Q3. Sweden has taken an unusually small share so far during 2023, dropping to the smallest contributor to Nordic volume at 13% after being the leading contributor at 42% in 2022.”

    Swedbank’s Social Bond and the Real Estate Market

    At the end of August, Swedbank issued a €500 million 7-year inaugural social bond aimed at employment generation, socioeconomic advancement and empowerment, and affordable housing, on Wednesday, August 30th. The transaction follows the publication of Swedbank Sustainable Funding Framework in 2022 and is the first social bond issued by a bank in the Nordics, according to Swedbank. At a time of increasing interest rates and rising homelessness, this bond shines a light on an issue too-often forgotten. “Supporting a positive development in society is a long-standing tradition of Swedbank and I am very proud of this milestone. The bank aims to contribute to the growth and development of the communities in which we operate, and we are committed to continue to do so in the future”, says Fredrik Nilzén, Head of Group Sustainability at Swedbank.

    On the topic of accommodation, there’s evidence to suggest that Sweden played an important role in green bonds in the real estate market. According to Swedbank, as many as 19 ESG Frameworks had been launched by Nordic real estate companies during the year, up to the middle of September 2023. This effort was led by Swedish companies which represent over two-thirds of this effort, thanks to the efforts of businesses  such as K2A, Heimstadem, Titania, Humlegården, Balder, NP3 Fastgheter, Arwidsro, among others

    Finland Gaining Momentum

    According to Nordea, the supply of sustainable bonds from Finland was up over 520% from the same time last year and “up over 150% on Finland’s previous Q3 high observed during 2020”. As a result, Finland beat its previous full-year sustainable bond volume record already in the first nine months of 2023. Nordea argues that most Finnish green bonds this year originate in the financial sector.

    One outstanding example of Finnish momentum could be found in Nordea Bank Abp’s €1 billion senior non-preferred bond issued on August 30th, the proceeds from which are tied to its sustainability-linked loan (SLL) portfolio. The security has a maturity of three years but can be called after two years and attracted €1.85 billion in demand from 129 investors. According to Nordea, the framework is designed to allow investors to help support the transition to a low carbon economy. Proceeds from the bond are used to finance or refinance sustainability-linked loans that have been selected to be part of the SLL Funding asset pool. Loans in the pool must be aligned to the Sustainability-linked Loan Principles, contribute to combating climate change (e.g.:through the reduction of greenhouse gas emissions or energy consumption), and have key performance indicators (KPIs) and targets that are considered “material” and “ambitious” by an external reviewer.

    NIB Shows Unlocks Investor Demand

    Among international organisations, the issuance of a SEK2 billion five-year environmental bond by the Nordic Investment Bank stands out as an example of attractive investment opportunities in green bond markets.

    “A fantastic result for NIB in the Swedish kroner market today, issuing an oversubscribed SEK 2 billion NEB Benchmark. The outcome showcases how issuance in green format, from a top quality issuer, can unlock investor demand and enable pricing at an attractive level in relation to relevant comparables. Danske Bank is proud to have supported NIB on another successful NEB issue,” Gustav Landström, Head of SSA Origination at Danske Bank, commented.

    Regulatory Developments

    On the regulatory front, the main development during the third quarter of 2023 was the adoption of the Green Bond Standard in the EU, although with some nuclear protests from Germany, Austria and Luxembourg.

    The regulation establishes a system for the registration and supervision of entities acting as external reviewers (often known as Second Party opinion providers) for European green bonds and to regulate the supervision of issuers of European green bonds. All proceeds of European green bonds will need to be invested in economic activities that are aligned with the EU taxonomy for sustainable activities, provided the sectors concerned are already covered by it.

    Images courtesy of K8 on Unsplash (edited) and Nordea & NordSIP
    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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