Interest among investors for green bonds is considerable. Now, in June 2017, the City of Gothenburg will be issuing its fifth green bond. The funds are earmarked for green projects in the city.
The main question during the Green Finance Workshop held in March 2017 – which was organised by the City of Gothenburg in partnership with Climate KiC – related to how financial instruments can be utilised to hasten the transformation to more climate-smart cities. Representatives within environment, technology and finance from several European cities came together to discuss ways to inspire green investments in order to maintain and boost current development. Gothenburg was the first city in the world to work with green bonds, which constitute a financial instrument, and has done so since 2013.
Significant interest in green bonds
Significant interest exists among investors in knowing that issued funds are used to develop green cities. The market increased from SEK 13 billion in 2013 to SEK 90 billion in 2016.
– “There are a huge demand from investors for Green Bonds, much higher than in regular bonds” says Magnus Borelius, City of Gothenburg CFO.
Investors queue up when the City of Gothenburg issues green bonds. New investors, who were not interested in the City of Gothenburg’s bond programme in the past, are getting in touch at their own accord. Numerous investors also wish to participate in the marketing drive for the bonds, which is something the city never experienced with its common bonds.
Cooperation and ingrained environmental work
Climate-smart and eco-friendly projects and assets financed by the bonds are what makes them green. A major success factor for the City of Gothenburg’s green bonds is the comprehensive research carried out by the city with respect to environmental work. Gothenburg has blossomed from a grimy industrial town into a clean, knowledge-based economy.
Magnus emphasises the valuable collaboration between the Finance and Environmental departments which arose from the work involved with green bonds: “The collaboration has presented new opportunities for both departments. We have learnt from one another.”
The value assigned to green bonds is not based on whether the environmental efforts in the green projects are successful. But investors are not solely interested in solid figures. They also require guarantees and transparency to ensure that the funds are actually used for the green projects to which they have been allocated. This demands a lot more trust and transparency between lenders and investors, as well as more reporting.
The City of Gothenburg has established a framework pertaining to which projects will be allocated funds from green bonds. A few of the projects financed by green bonds in Gothenburg include an ultrafilter in Lackarebäck’s water treatment plant, the expansion of the GobiGas facility, tree planting in the city by the Parks and Nature Agency, Göteborg Energi’s Celsius project, the city’s electric vehicles, and local government’s project focusing on sustainable buildings.
Together with the city, Magnus Borelius, City of Gothenburg CFO, has received numerous awards commending the city’s innovation with regard to green bonds. He was the 2016 Financier of the Year in Gothenburg, and he accepted the UN’s 2016 Momentum for Change climate award on behalf of the city.