Sustainable finance

Nordea adviser to the Danish central bank on its launch of sovereign green bonds

In January, a new chapter opened on the Danish government bond market with the central bank’s first issue of sovereign green bonds. Nordea was the structuring adviser on the government’s issue of this new type of financial instrument.

Wind turbines in the ocean

On 19 January 2022 the first ever sovereign green bonds hit the Danish market – and were well received by investors. At the first auction of the new 10-year green bonds, they sold for more than DKK 5bn, but the bids exceeded more than four times that amount. This was the strongest demand for a new bond type issued by the central bank since 2008.

Jacob Michaelsen, Head of Sustainable Finance Advisory.

When investors buy this new type of sovereign bond, they help finance government projects that specifically support the green transition – and Nordea has been one of the architects of this bond from the start.

Jacob Michaelsen, Head of Sustainable Finance Advisory, who was the leading adviser from Nordea, says:

“The central bank had for quite a while been communicating that this new type of bond was on the way. So the investors were naturally ready to buy, but demand was also fuelled by investors feeling very reassured by the analysis, criteria and selection of green projects that have gone into the launch of this bond. It is closely linked to the government’s budget and ambition to transition to greener forms of energy and transport.”

Stricter and greener criteria

The launch was the result of a long process where Nordea assisted the central bank in identifying several different issuance models to enable the government to define the overall Green Bond Framework. It describes the conditions for the bond and the projects eligible for financing via green bonds.

The new Green Bond Framework was completed in November 2021 and is aligned with the Green Bond Principles published by the International Capital Market Association, which Nordea knows very well from our previous role in structuring green bonds both at the Nordic level and globally.

 As opposed to conventional government bonds, the use of proceeds from green bonds is subject to a number of requirements. The requirements are based on the criteria set out in the so-called EU Taxonomy, which is a classification system for sustainable economic activities.

What are green bonds used for?

The Danish central bank aims to issue green bonds worth up to DKK 15bn as part of the expected total sales of government bonds of DKK 65bn in 2022. The green projects eligible for financing under the government’s Green Bond Framework help support:  

  • The production of renewable energy in the form of wind and solar energy
  • The green transition of the transport sector

As part of the sale of green bonds, the government undertakes to report on the use of the proceeds and the expected environmental and climate effects of the projects. Jacob Michaelsen explains about the process:

“Nordea was appointed as adviser back in May 2020 and both the Danish central bank and the Ministry of Finance have been incredibly thorough and dedicated in setting the quite strict criteria that apply to the bond – and this clearly shows in the end product. This is an area where we keep improving our alignment with the European and international guidelines and it’s been really exciting to be a part of. We’re proud that Nordea can help support the green transition in Denmark.”

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