The Nordic Investment Bank is asking bookrunners “to take a little more responsibility” in the green bond market, in a bid to reduce greenwashing and help them buy notes in advance of doing due diligence.
It’s an interesting move that involves forming cooperative alliances with deal managers whose environmental processes align with the NIB’s.
The Helsinki-based bank is owned by Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden and has an explicit environmental mandate from its Nordic and Baltic owners to promote environmentally sustainable projects.
The bank has been an issuer of green bonds for five years, but earlier this year it pledged to start buying corporate notes through its lending book, which has previously been dedicated to financing direct loans to environmental projects. Of the €500m it committed in April, it has already invested around €100m, according to Lars Eibeholm, NIB’s Head of Treasury.
“When we do bilateral loans, we have weeks to look into how green the investment is, but in the bond market things move much faster and as a result we feel we need stronger cooperation with the banks,” Eibeholm told RI.
So NIB – which is a member of the Green Bond Principles – engages with banks to find out what their internal processes are and how they assess whether a bond should be labelled as green.“We would like to check that it’s not just the normal debt capital markets team labelling bonds green because it will make the deal more successful. We want to know what banks are doing, because if it’s robust enough, then we can cooperate with those banks, and – when time is of the essence – buy the bond and assess it afterwards.”
Three banks have so far been accepted by NIB as having sufficient processes in place. Handelsbanken, SEB and Nordea are “the first of several banks we have lined up” for cooperation, according to Eibeholm.
None of them have had to make any alternations to their existing processes and, in most cases, NIB will continue to be able to perform a full assessment of the bonds ahead of issuance. If a bond is bought via these cooperations and then assessed and found not to be green enough, then NIB says it will sell them.
“In the current green bond market there are a lot of requirements for investors and for issuers, but there aren’t the same requirements for the banks. This process engages them more, and ensures we maintain integrity around the green bond market and avoid greenwashing.” Link