The sustainable sovereign bond market heats up

Ever since Poland became the first sovereign to issue a green bond back in December 2016, the race has been on to see which countries would follow. Now the market looks set to grow rapidly, with Sweden recently publishing its Green Bond Framework, Germany planning to issue its inaugural green bond in September and Denmark exploring an innovative new model for sovereign green bonds.


The sovereign green bond and its related investments aim at achieving Poland’s National Renewable Energy Action Plan, targeting 15% renewable energy consumption by 2020, and the creation of carbon sinks through its National Programme for the Augmentation of Forest Cover.

The sovereign green bond includes expenditures such as subsidies which support further mobilisation of capital from the private sector.

It all started with a surprise. While many had pegged France to become the first sovereign to issue a green bond, building on strong momentum from the 2016 Paris Agreement and the ground-breaking Article 173, Poland came in as a dark horse in 2016 to claim the first-ever sovereign green bond.

Besides it beating France to the punch, the market was also surprised to see that Poland, a land known more for its coal plants than renewable energy parks, would be the sovereign to break the mould. Since then, we have seen the field of issuers continue to grow, bringing in more expected countries, such as the Netherlands, but also those with more “difficult” green stories, such as Nigeria, one of the world’s biggest oil exporters.

Most recently Sweden and Germany have announced their intentions to enter the market after the summer break. In the case of Sweden (see below for a recap of the framework), the plan is to come to the market in August, while Germany looks set to hit the market in September.

Sovereign issuers that have issued green bonds

Issuer Name Use of Proceeds Announce Date Currency Amount Issued Tenor
Republic of Poland Green Dec-16 EUR 750,000,000 5y
French Republic Green Jan-17 EUR 26,884,000,000 22y
Fiji Green Oct-17 FJD 80,000,000 13y
Fiji Green Oct-17 FJD 20,000,000 5y
Nigeria Green Dec-17 NGN 10,690,000,000 5y
Indonesia Green Jan-18 USD 1,250,000,000 5y
Republic of Poland Green Jan-18 EUR 1,000,000,000 9y
Kingdom of Belgium Green Feb-18 EUR 7,481,000,000 15y
Lithuania Green Apr-18 EUR 68,000,000 10y
Ireland Green Oct-18 EUR 5,000,000,000 12y
Indonesia Green Feb-19 USD 750,000,000 6y
Republic of Poland Green Feb-19 EUR 500,000,000 30y
Republic of Poland Green Feb-19 EUR 1,500,000,000 10y
Netherlands Green Apr-19 EUR 8,779,004,000 21y
Hong Kong Green May-19 USD 1,000,000,000 5y
Korea Sustainability Jun-19 USD 500,000,000 5y
Chile Green Jun-19 USD 2,318,357,000 31y
Chile Green Jun-19 EUR 1,554,685,000 12y
Ecuador Social Jan-20 USD 400,000,000 15y
Ecuador Social Jan-20 USD 326,852,000 15y
Chile Green Jan-20 EUR 1,269,017,000 20y
Chile Green Jan-20 USD 750,000,000 12y
Guatemala Social Apr-20 USD 500,000,000 12y
Hungary Green Jun-20 EUR 1,500,000,000 15y
Indonesia Green Jun-20 USD 750,000,000 5y
Chart showing Global green, social and sustainability bond supply in USDbn equivalents


The French Government issued the largest green bond issuance so far, reconfirming their leading role within sustainable finance. France arranged the historic 2015 Paris Climate Agreement and has been implementing several policies to support investment in its Energy and Ecological Transition for Climate (TEEC). The size and above average tenor of the green bond have market creation implications.

The green OAT includes tax and intervention expenditures to mobilise private capital in green investments as well as direct investments.

Another sovereign looking into the green bond market is Denmark – although with a twist. In December 2019, Danmarks Nationalbank (the debt management office of Denmark) announced that it was looking into a possible new model for sovereign green bonds whereby it would issue so-called “green certificates” accompanying an underlying traditional, non-green bond. Earlier this year, the bank announced that it had appointed a group of banks to further investigate this structure (disclosure: Nordea is appointed as one of the three advisors).

The idea behind the setup is to allow the national bank to “strip” the green commitments in order to preserve the liquidity of the existing bonds (see the graphic below for an illustration from Danmarks Nationalbank). The notion of reduced liquidity has been raised before by Riksgälden (the debt management office of Sweden), in their reply to the national inquiry, “Promoting the Market for Green Bonds.”

Illustration of Denmark's new model for sovereign green bonds

An illustration of Denmark's new model for sovereign green bonds. Source: Danmarks Nationalbank


Fiji’s Green Growth Framework as well as its National Development Plans commit to a transition to a low carbon and climate adapted economy. The issuance of the inaugural green bond reconfirmed this strategy.

Fiji was the first developing country to issue a green bond.

The green bond supports mobilisation of private capital for green investments by including expenditures as tax exemptions, tax credits and subsidies.

Why are sovereigns going green now?

Taking a step back from the detailed discussions of structure, another relevant topic to highlight is why sovereigns are venturing into the green bond market now, some 10+ years after its inception. One simple answer is public pressure. On the back of the Covid-19 crisis, the cry from the public and the financial markets to “build back better” certainly holds sway.

However, looking more fundamentally at the green bond market, we note that it evidently has not lacked motivation, as seen from the record-breaking supply levels and overall excitement in the market. True, some argue that sovereigns bring liquidity to the green bond market, and certainly that is appreciated by investors. But the reality is that liquidity is not really that big of an issue, at least if you are looking to sell, as noted in our recent article on green bond funds.

In our view, the true value add of sovereigns going green lies in the further validation that it brings to the market and the potential to spur local green bond supply in the respective markets. True, neither French nor Dutch issuers have needed much encouragement to venture into the green market, but look over to the UK and you will find a different story. In countries such as Nigeria and Hungary, the need for guidance and leadership is even more potent.

With the rise of the social bond market on the back of the Covid-19 outbreak, a natural follow-up to the green question is whether sovereigns should also venture into the social bond format, as they are evidently responsible for funding such activities as healthcare and other social initiatives. Time will tell if that will come to fruition. While this idea has drawn some scepticism previously, life in the post-Covid-19 world certainly looks different, so we wouldn’t rule it out.


Nigeria issued the first African sovereign green bond and the first Climate Bonds Certified sovereign bond. The green bond is a signal to local and global market participants that Nigeria is transforming its economy.

The green bond mobilises federal funds for new projects that help the country meet its climate targets and moves the economy away from dependency on oil-related income.

A closer look: Sweden’s Green Bond Framework

The Swedish government on June 5 published their Green Bond Framework and announced that a green bond issuance will follow later this year.

The Green Bond Framework, the first sovereign framework to receive a dark green shade from Cicero, is robust and supports Sweden’s objective to publish the greenest sovereign green bond framework. The framework allows for green bonds up to around SEK 30bn and includes a transparent and clear outline of the various expenditures and appropriations.

The Green Bond Framework is well anchored in Sweden’s overall sustainability agenda and environmental objectives, which signals a consistent sustainability strategy to investors, further helped by the increased transparency related to green bonds. The introduction and outline of Sweden’s environmental objectives (pages 1-4) make this very clear.

Below we have summarised the key pillars of the framework:

Use of proceeds

Categories included in the framework are:

  • Renewable energy and energy efficiency
  • Pollution prevention and control
  • Environmentally sustainable management of living natural resources and land use
  • Terrestrial and aquatic biodiversity conservation
  • Clean transportation
  • Sustainable water and wastewater management
  • Green buildings
  • Expenditures related to nuclear power, fossil energy, new investments in large-scale hydropower or purely management grants are not included.
  • Eligible green expenditures are limited to central government budget expenditures and do not include foregone central government tax revenue resulting from environmental or climate considerations, or expenditures financed by state-owned companies, regions or municipalities.

Nordea reflections:

  • The framework covers the majority of the categories included in the Green Bond Principles and is connected to Sweden’s environmental targets and the Sustainable Development Goals (SDGs) in a clear manner.

Selection of Projects

The selection of expenses to be funded by green bonds must meet the following three mandatory criteria:

  • The expense must substantially contribute to at least one of the environmental objectives.
  • The expense cannot do any significant harm to another environmental objective.
  • The expenditure should be likely to contribute to long-term net positive environmental results and effects.

A portfolio of proposed green expenditures will be selected and collated as a recommendation of eligible green expenses by the Swedish Government Offices, with help from experts when required, to be handed over to the government.

The portfolio of eligible green expenditures will be approved through a government decision.

Nordea reflections:

  • Follows the same eligibility criteria as the EU Taxonomy, with green expenses requiring substantial contribution to environmental objectives and which cannot do any significant harm to other environmental objectives.
  • The inclusion of mandatory criteria for a project to be eligible is a positive development of sovereign green bond frameworks, and the level of the criteria puts high pressure on the selected projects to be truly green and is a great way to make the process even more transparent and aligned with EU developments.
  • Special recognition is also given to both life-cycle analysis and reflections on social consequences and the risk of lock-in effects.

Management of Proceeds

The National Debt Office is responsible for issuing Swedish Green bonds. The proceeds are monitored and documented by the National Debt Office according to specific procedures and are managed within the ongoing liquidity and debt management.

Once the Swedish green bonds have been issued, an amount corresponding to the amount issued will be allocated to the portfolio of eligible green expenses that has been selected and approved in advance. The National Debt Office uses a register/virtual account for this purpose.

The National Debt Office will publish the final balance for the register/virtual account following the publication of the an Annual Report for the state, submitted by the Government. The National Debt Office is responsible for reporting to investors.

Nordea reflections:

  • The section is clear, concise and well aligned with market best practices. It is positive to see that the National Debt Office will publish the final balance.


The National Debt Office will publish an investor report no later than the fourth quarter of the year following the issue of the Swedish Green bonds and thereafter annually if considered relevant by the National Debt Office.

The investor report should include the allocation of proceeds, for the issued green bonds, between the eligible expenses included in the eligible expense portfolio.

The investor report should include an impact report, which describes the positive environmental effects from the green expenditures to the extent such information is presented in the regular environmental target reporting, or other available reporting. The impact indicators will be selected to correspond to the expenditure objective.

The investor report strives for transparency, realistic assumptions and robust control. The report will be compiled in collaboration with the Swedish Environmental Protection Agency.

Nordea reflections:

  • It is positive to note that the report will be compiled in collaboration with the Swedish Environmental Protection Agency, as this should add further strength to the impact assessments.
  • The section also provides indications to the methodological backdrop of GHG emissions, which is positive as it adds transparency and shows thoroughness in the outline of reporting.

External Review

The Swedish Government Offices have appointed an independent external reviewer, the Center for International Research Climate and Environmental Research (CICERO), which has evaluated the Green Bond Framework and provided a Second Party Opinion.

The National Debt Office’s documentation of the use of proceeds and the register/virtual account will be part of the National Debt Office’s Annual Report and is thereby subject to the review procedures that apply to all Swedish authorities.

Nordea reflections:

  • Cicero’s Second Party Opinion includes both a Dark Green shading and Excellent governance score. Both are the highest available and highlight the strength of the framework.
  • A third-party audit is referenced as being part of the overall reporting procedure applicable to all Swedish government agencies. Again, this highlights a strong focus on transparency and governance.

About the authors:

Ebba Ramel, an analyst in Nordea's Sustainable Bonds team

Ebba Ramel is an analyst in Nordea’s Sustainable Bonds team.

Jacob Michaelsen, Head of Nordea Sustainable Finance Advisory

Jacob Michaelsen is Head of Sustainable Finance Advisory at Nordea.

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