Stockholm (NordSIP) – During the first half of 2024, Nordic issuance of sustainable bonds was worth €31.5 billion, down by 6% compared to the same period last year. However, the devil is in the details and this negative performance was the result of a mixed performance that saw decreases among financials overwhelm increases in other sectors, according to Danske Bank data shared with NordSIP.
FIGs Undermine Corps and SSAs
While sustainable corporate issuance was up by 18% and Sovereign, Supranational and Agencies (SSA) issuance increased by 59%, while issuance by financial institutions (FIG) fell by 48%.
Corporates contributed 50%, and both FIG and SSA issuers 25% of the total volume. This is a drastic change compared to both 2022 and 2023 when FIG issuers were the largest contributor to the Nordic sustainable bond issuance.
“The share of the Sustainable Bond market held by corporates in 2024 is a new development. Let’s see how the market evolves by the end of year. Financial institutions might make a move later in the year as we come closer to the US elections and potential rate cuts,” Lars Mac Key, Global Head of Sustainable Products at Danske Bank, says.
Green Bonds Take Over
Green bonds are more dominant in the Nordic market than in the rest of the world, according to Danske Bank. The first half of 2024 took this to an new extreme with as much as 94% of all sustainable bonds being issued in green format. Only 5% was in sustainability-linked bond (SLB) format consistent with fears of a decline in this market. Social bonds represented a mere 1% of the issuance.
Geographically, Sweden remained the most important issuer in the market, increasing its share to 43% of all Nordic issuance in the first half of 2024, followed by Norway with 25%. Denmark’s 14%, Finland’s 11% and Iceland’s 4%. The Nordic Investment Bank (NIB) contributed 3% of issuance volume.
Iceland and Municipalities Rule Nordic SSAs
During the first half of 2024, SSA issuance by Nordic borrowers increased by 59% vis-a-vis the same period of 2023 to €7.4bn equivalent. The market was dominated by municipalities, municipality funding agencies (e.g: Sweden’s Kommuninvest and Norway’s Kommunalbanken) the NIB.
However, the standout SSA transactions for the first half of 2024 came from the Republic of Iceland, which entered the market for the first time with a green and a social (gender) bond. A €750 million (ISK 111billion equivalent) 10-year green bond was issued at the end of March. The bond offered a 3.636% reoffer yield and was sold to 280 investors. The transaction was joint managed by JP Morgan, BNP Paribas, DZ bank and Nomura. At the end of June, the Republic of Iceland returned to the market with a €50million (ISK7.5 billion) three 3-year gender bond.
According to the Ministry of Finance and Economic Affairs, “the proceeds from the issue will finance Government expenses that advance gender equality in the coming years. Eligible expenditures are, on one hand, expenditures that aim to provide decent living standards for women and gender minorities in a vulnerable position. This includes increased supply of affordable housing that benefits the target group, mainly low-income women, the majority of whom are single parents and/or have reduced work capacity. On the other hand, expenditures may go towards projects that contribute to reducing and redistributing the burden of unpaid care and domestic work. Eligible expenditures include increased maximum payments during parental leave, intended to allow and create incentives for both parents to make use of their equal right to paid parental leave following the birth of a child.”
Still among sovereigns, one reason for the small share of the market from Denmark so far in 2024 might be associated with the lack of green government bonds from the Kingdom of Denmark compared to the transactions it conducted in 2022 and 2023.
Beyond the increased issuance, Danske Bank notes that SSA borrowers appear to be front-loading their issuance in anticipation of a shorter funding window after the summer and before the US presidential election.
Real Estate Comes Back
Among Nordic corporates, issuance increased by 41% vis-à-vis the same period in 2023, to €6.3 billion equivalent, led by mainly by utilities (e.g.: Norway’s Statnett and Sweden’s Elevio), power generation (e.g.: Norway’s Statkraft and Denmark’s Ørsted) and transportation (e.g.: Denmark’s Maersk). Corporates also originated a few SLBs, including €500 million transactions from both Pandora and TDC Net.
Utilities (including power generation) and renewable energy issuers were the largest issuers in the first six months of 2024, representing 37% of sustainable bond issuance conducted by Nordic corporates. Meanwhile, real estate made a return during the first half of the year, representing another 28% of sustainable bonds issued by Nordic corporates.
Why the Drop in FIG Issuance?
There appear to be three main reasons for the 48% decrease in issuance from financial institutions. On the one hand, perhaps driven by the recent rise in interest rates and the even more recent decreases in interest rates, non-sustainable bond market conditions seem to be good enough to justify not entering those markets.
ESG has also experienced a political backlash, most prominent in the USA but also in Europe, which is not necessarily conducive to Nordic financial institutions that tend to issue in US Dollar. Danske Bank also notes that a lot of the sustainable bond deals have been conducted in Tier 2 format, which is not common for Nordic issuers.
Lead Managers
Reviewing the performance of global green bond dealers, BNP Paribas ranked at the top, overseeing 105 deals, worth over US$18 billion, followed by JP Morgam Credit Agricole, Deutsche Bank and Citi. Among Nordic banks, Danske Bank comes in 11th place, followed SEB (16th), Nordea (19th), Swedbank (31) and Handelsbanken (33).
“We are happy to maintain our position as the leading Nordic arranger of Sustainable Bonds as well as the leading arranger of Sustainable Bonds from Nordic issuers. Given the increase of corporate Sustainable Bond issuance, we are additionally happy to be the leading arranger of Nordic corporate Sustainable Bonds. Danske Bank is active throughout the sectors and industries, advising and arranging Sustainable Bonds from the smaller Nordic companies in local currency to major issuers as the sovereign Germany. Through this we achieve great knowledge of what investors want and can bring this into our Sustainable Bond framework advising. This also means we are one of the most active arrangers of Sustainable Bonds globally, as an example; in June, Danske Bank was the first arranger globally to arrange 100 green bonds in 2024,” Mac Key adds.
