Questions and answers – the green bond framework

Why is the Government issuing green bonds?
Why is a green bond framework needed?
What is a green bond?
Which budget appropriations will be included in the green bonds?
What is ‘dark green’ grade?
What does it mean that a dark green grade has been awarded to the Swedish framework?
How were the appropriations in the list selected?
Why do other appropriations not qualify as eligible green expenditures? What happens next?

Why is the Government issuing green bonds?

This is part of the Government’s work for the transition to sustainable development. The financial market plays a key role in this transition, and the Government wants to improve the opportunities for sustainable investments by promoting the market for green bonds. As an issuer of green bonds, the Government can encourage other actors towards the sustainable investment market. The green bonds will also give visibility to Sweden’s environmental and climate action and its impact. By issuing green bonds, the Government can offer proactive and transparent information to investors concerning ongoing environmental and climate projects.

Why is a green bond framework needed?

The framework offers investors a transparent way to ensure that bonds are green. It is the framework that differentiates between green bonds and other bonds, and will demonstrate how the proceeds from the bonds are linked to the green expenditures in the central government budget. The framework outlines how the green bonds are defined and selected and how they are to be monitored, recorded, reported and reviewed. The Government is responsible for preparing the framework and selecting the green expenditures from the central government budget. The Swedish National Debt Office is then charged with marketing and selling the green bonds on the capital market at an appropriate time during the year.

What is a green bond?

It is a type of bond in which the money raised is used to finance various kinds of environmental and climate initiatives. The terms applicable to a government issuing green bonds are slightly different to those for private actors. For sovereign green bonds, the money raised must be linked to an equal volume of budget expenditure that has already been approved by the Riksdag and is defined as green.

There are as yet no regulatory frameworks that define what constitutes a green bond, but there are standards – the Green Bond Principles – that can be used as a starting point. Work is also under way to establish EU standards. The important thing is that investors in these bonds must be able to monitor what the money is linked to and what environmental and climate impact it achieves.

Which budget appropriations will be included in the green bonds?

The green bonds will be linked to expenditure items in the central government budget associated with green investments and projects. Appropriate expenditures are selected based on an assessment of which appropriations contribute to fulfilling Sweden’s environmental objectives and the climate policy framework. The process and criteria for selecting eligible green expenditures are described in detail in the green bond framework.

What is ‘dark green’ grade?

The independent reviewer was the Norwegian Center for International Climate and Environmental Research (CICERO). CICERO uses a grading scale on which dark green is the highest of four grades. CICERO’s grades include the level of environmental ambition in the appropriation, and also the thoroughness of the processes for selecting the expenditures and reporting, to ensure a high level of environmental integrity and transparency. Sweden is the first country to receive a grade of dark green.

What does it mean that a dark green grade has been awarded to the Swedish framework?

An issue of sovereign green bonds does not in itself create any new green investments, but it can send a signal and increase interest among other actors in issuing green bonds, thereby leading to additional green investments (investments that lead to emissions reductions).

How were the appropriations in the list selected?

Selecting which appropriations would be the eligible green expenditures involved narrowing down the expenditure areas (EA) in the central government budget. Expenditure areas that were not deemed appropriate or relevant for the green bonds were excluded. Six expenditure areas have been identified as being of particular interest. These include General environmental protection and nature conservation (EA20) and Energy (EA21), as well as International development cooperation (EA7), Planning, housing provision, construction and consumer policy (EA18), Transport and communications (EA22) and Industry and trade (EA24).

Alongside the criteria set in the framework (which must be met by all appropriations linked to the bond), appropriations in EA20 have been given priority because they most clearly aim to contribute to achieving Sweden’s environmental objectives. These appropriations are generally handled by the Swedish Environmental Protection Agency, which has good insight and expertise.

Why do other appropriations not qualify as eligible green expenditures?

The central government budget appropriations that were not selected due to the Green Bond Principles criteria may have been excluded because:

• They do not contribute sufficiently clearly and directly to meeting the environmental objectives
• They may lead to carbon lock-in
• They include large-scale hydro-electric and geothermal power
• They include nuclear power

What happens next?

In July 2019, the Swedish National Debt Office was instructed by the Government to issue green bonds in 2020 at the latest. Now that the framework and selection are in place, the Swedish National Debt Office will sell the green bonds on the capital market at an appropriate time in the course of this year. They will announce the exact timing at a later date. The issue will then be evaluated.