Green bond framework - Gothenburg

With its green bonds framework, the City of Gothenburg in Sweden finances sustainability projects that promote a transition to a low-carbon and climate resilient society. Green project categories include: renewable energy; green buildings; energy efficiency; clean transport; waste management; water and wastewater management; sustainable land use and environmental management; and climate adaptation. The majority of the proceeds are expected to go to the green building category. Green bond net proceeds will not be allocated to projects for which the main purpose of the project is fossil energy production, nuclear energy generation, or potentially environmentally harmful resource extraction. Since the first issuance in 2013, the city has issued green bonds nine times for projects including for e.g. a large solar park, a sewage pumping station, a city-wide electric car sharing system, and more. Of these, the only nature-based solution to be funded thus far was the planting of trees. The framework has raised a total of €680,693,500 (SEK 7.060 billion) to support the transition to an environmentally sustainable society. Gothenburg’s green bonds are the first financial product that allow mainstream investors (about 98% of the capital market) access to climate financing at no additional cost.

Overview

Type of instrument:

Economic and fiscal instruments›Financing mechanisms /market-based instruments (e.g. taxes to generate revenue)

Challenges addressed

Water management (e.g. reuse)
Green space management (e.g. accessibility)
Air quality
Human health, comfort and well-being

Consideration of nature-based solutions:

Within the green bond framework, projects that relate to a sustainable environment and that are not solely related to climate are considered. According to the City of Gothenburg's Green Bond Impact Strategy, these may only account for a maximum of 20% of projects. The only project among the nine green bonds issued so far that can be considered a true nature-based solution is the planting of trees in the city. The project includes tangible biodiversity benefits, promotes a green cityscape and has a positive impact on urban air quality as well as well-being of citizens.

Targeted (peri-)urban areas:

Parks and (semi)natural urban green areas

Urban green space connected to grey infrastructure

Good practice characteristics:

Sustainable in the long-term

Locally appropriate

Potential to be replicated / upscaled

Innovative

Policy business case

Governance

Government body/bodies

Initiating body:

Gothenburg City Council

Instrument design:

Details about how the instrument was designed:

Sweden’s municipalities are responsible by law for a number of areas that are vital to the public good. The City of Gothenburg issued their inaugural green bond in 2013 as the first city in the world in an attempt to attract investments aimed to reduce the effects of climate change. The framework established by the City of Gothenburg constitutes the basis for city’s work with green bonds. In 2015, the requirements for projects financed within the framework for green bonds were specified even further in a subsequent framework. This was done to assure that there are clear and concrete requirements placed upon the projects. The green bond market has evolved since, with new market constructs such as the Green Bond Principles updated in June 2018 by the International Capital Market Association. As a response, the latest Green Bond framework was published in 2019 with the intention to follow best practices as new market standards develop.

Instrument implementation:

Type of involvement:

The green bond framework promotes and enhances the city’s finances by attracting private investments. The green bonds serve to spread the financial risks so that the city has a solid financial base that frees resources that can be used in activities that benefit all of Gothenburg’s citizens. The process to evaluate, select and allocate green bond proceeds to eligible green projects comprise the following steps: 1) Relevant Project Manager evaluates potential green projects and present them to the Green Bond Committee; 2) The Green Bond Committee approves the potential green projects based on adherence to the green bond framework and register them as approved green projects in the City’s internal system. A decision to allocate net proceeds will require a consensus decision by the Green Bond Committee. Approved green projects will be included in the City of Gothenburg’s pool of approved green projects; 3) Decisions are documented and filed. The Green Bond Committee is chaired by the Head of Treasury and includes members from the City Planning & Development Office and the Environmental Office. The Head of Treasury is responsible for the monitoring and reporting of the green bond framework.

Type of non-governmental actors involved:

Implementation of NBS (e.g. with government funds)

Targeted actors:

Public sector institution (e.g. school or hospital)

Private: household, real estate developer, business , financial

Financing

Sources of funding:

Public local authority’s budget

Corporate investment

Budget:

Above 10 000 000€

Details about instrument financing:

Green projects form a portfolio of assets eligible for financing and refinancing by green bonds. Net proceeds will finance capital expenditures and can finance both existing and new green projects. Refinancing is defined as financing for green projects completed more than 12 months prior to the Green Bond Committee’s approval. The distribution between new financing and refinancing will be reported on in the City of Gothenburg’s annual green bond reporting. The proceeds from the Green Bonds are used to finance projects defined within the city's framework for green bonds. Eligible projects can be fully or partially funded by the city.

Monitoring, evaluation and impacts

Is a monitoring framework in place?:

Yes

The companies owned by the City of Gothenburg work according to the EU Directive on Sustainability Reporting, which means that companies must include sustainability factors as part of their annual financial reporting. In brief, this involves measuring, following up, describing and communicating an organisation’s influence on sustainable development. The City of Gothenburg annually and until maturity of the green bonds issued, provides reporting on allocation of proceeds and environmental impact of the green projects at a portfolio level. Presently, the City of Gothenburg have not implemented recommendations from the Task Force on Climate-related Financial Disclosures (TNFD) when it comes to reporting. Transparency, reporting, and verification of impacts are key to enable investors to follow the implementation of green finance programs. Procedures for reporting and disclosure of green finance investments are also vital to build confidence that green finance is contributing towards a sustainable and climate-friendly future, both among investors and in society.

Did an evaluation take place?:

Yes

The City of Gothenburg’s green bond framework, including the governance structure, has been given an Excellent rating by an external evaluator. The climate and environmental targets of the City of Gothenburg have been evaluated as progressive and very ambitious and the City's green bond framework, which describes a very wide set of eligible green projects, is key to achieving these targets. Estimations of impact indicators and projections of impacts are based on certain assumptions. The City of Gothenburg aims to make sound and conservative assumptions that are reasonably based on information available at the time. However, actual environmental impacts of projects may diverge from initial projections. Examples of this can be changes in law requirements, baseline conditions, behavior and slow start-up periods. Because of this, calculation methods and baseline assumptions may vary.

Achieved outcomes and impacts:

With its comprehensive green bond framework, the City of Gothenburg has solid prospects of achieving its environmental targets. Gothenburg is thus an example of a very strong and sustained municipal push towards the issuance of municipal green bonds to finance climate-sensitive projects that usually lack upfront capital. Nature-based solutions play only a minor role in this instrument to date, as more than two thirds (71 percent) of the total Green Bond funds were invested in the category "green building", e.g. to increase energy efficiency, for example through passive houses. The sustainable building programme considers important factors such as minimal negative environmental impact from a lifecycle perspective, promotion of sustainable transport, integrating green spaces, stormwater collection, preserving/enhancing biodiversity, and minimal resource use and waste during the life of the building. Positive impacts on biodiversity from the green bond programme are likely to be indirect, apart from the tree project to plant trees in the city.

Success factors and lessons learned:

The governance structure of the city of Gothenburg's green bond framework is a key success factor. However, the bonds have received some criticism as most of the green bond funds focused on green buildings and have increased local rents, making them unaffordable for single-parent and/or low income households. This side effect highlights the importance of considering the social dimensions of municipal green bond spending in designing the instrument and selecting projects.

Sources and further information

Further documents

Weblinks:

https://finans.goteborg.se/wpui/wp-content/uploads/2014/02/Green-Bond-Impact-Rep…

https://unfccc.int/climate-action/momentum-for-change/financing-for-climate-frie…

https://goteborg.se/wps/wcm/connect/62a1132d-55f6-482c-9a3b-b2cf4114314f/Impact+…

https://finans.goteborg.se/wpui/wp-content/uploads/2019/09/Second-Opinion-City-o…

https://finans.goteborg.se/wpui/wp-content/uploads/2019/09/City-of-Gothenburg-Gr…

Photos

@Maria Eklind