Leveraging Markets to Finance the Green Transition
Transitioning to a lower carbon economy is an expensive endeavor. According to a recent McKinsey study, the cost of the green transition amounts to an increase of $3.5 trillion dollars globally each year to reach net-zero by 2050. But the cost of ignoring climate change will amount to an even larger loss, around 18% of global GDP, according to insurance firm Swiss Re.
For many companies and governments, the desire to become more sustainable is real, but financing climate projects requires capital, especially with the looming deadline of the Paris Agreement, which is coming up in 2030. As part of Nasdaq’s ongoing commitment to increasing access to capital, we explored how we could leverage our marketplace expertise to help companies and governments across the globe finance their individual climate journeys.
Given the increasing interest by investors in environmental, social and governance (ESG) investing, coupled with companies’ desire for more sustainability, in 2015 we created a bond market that unites issuers and investors with vetted and pertinent ESG projects. The Nasdaq Sustainable Bond Market helps raise debt capital for investments with clear benefits to the environment, social sustainability, or both, bringing investors to organizations looking to kickstart their climate initiatives and finance a more sustainable tomorrow.
Meanwhile to empower bond investors to evaluate the actual impact of their investments,and for issuers looking to simplify their reporting and increase visibility, we created the Nasdaq Sustainability Bond Network.
What is the Nasdaq Sustainable Bond Market and Bond Network?
The Nasdaq Sustainable Bond Market supports international standards and principles that have won broad recognition in the market, such as the Green and Social bond Principles and the new EU Green Bond Standard. It allows issuer's to showcase their alignment to the standards and a security for investors who know that the bonds on the market fulfill their commitments.
Issuers looking to raise debt capital for ESG-related projects list their bonds in four categories:
- Sustainability Bonds: loans used to finance projects that bring clear environmental and socio-economic benefits.
- Green Bonds: loans used to finance projects and activities that benefit the environment.
- Social Bonds: loans used to finance projects achieving positive socio-economic outcomes with a neutral or positive impact on the environment.
- Sustainability-Linked Bonds (SLB): loans which characteristics or terms are dependent on the issuer's ability to meet pre-defined sustainability performance targets.
Meanwhile, the bond network connects issuers of sustainable bonds with investors globally, empowering them to evaluate and report on the impact from their bond portfolios. The platform provides an efficient and easy-to-use portal that allows investors to see the impact they are making through their investments based on the U.N.’s 17 sustainable development goals and EU taxonomy.
The network currently has over 1,570 issuers across 75 countries and contains over 14,000 bonds. In the past year, the platform has grown 25% in listed volume, showing increasing interest by corporates and governmental issuers around the world.
Financing Net-Zero
Providing debt capital for climate projects is an essential avenue for many cities to create safer and healthier communities. These bonds have been used to finance climate and sustainability projects like reducing greenhouse gas emissions, cleaning the Baltic Sea, and even building affordable housing for people with developmental disabilities.
In San Francisco, the city has used Nasdaq’s Sustainable Bond Network to grow its green bond program, reaching international investors where the market is much larger than in the U.S.
In a Trade Talks interview, San Fransisco Water and Environmental Finance Manager Mike Brown, discussed how expanding sustainable bond markets is essential for building a climate-resilient future.
“It is a huge opportunity to not only build resilient infrastructure that not only mitigates emissions...but also...to invest in our communities, it is socially inclusive infrastructure as well,” Brown said.
The city of Helsingborg, Sweden was the first to list a Sustainability-Linked Bond on Nasdaq’s markets, aiming to reduce its emissions. The city has curbed greenhouse gas emissions by 52% since 1990 and believes it is possible to reach net-zero emissions by 2035.
“With this SLB, we put up a clear and tough target for the climate work that we do. Hopefully, other cities around the globe will follow—if so, there is a climate benefit, and thereby a benefit for all of us,” said Göran Heimer, Group Treasurer for the city of Helsingborg.
Meanwhile, companies like ICA Gruppen, Sweden’s largest grocery chain, are taking advantage of the bond market to bring more eco-friendly products to consumers and finance other environmental projects. The company hopes to use its green bonds to target eco-efficiency and has successfully completed a green bond issue of SEK 3.5 billion.
"Sustainability has for a long time been, and will continue to be, at the center for ICA Gruppen as well as a key success factor for our business. The great interest in our green bond is encouraging and a clear testament that we have high credibility in what we do and our ambitious sustainability goals," said Kerstin Lindvall, Chief Corporate Responsibility Officer at ICA Gruppen.
The Future of Climate Financing
According to S&P Global Ratings, the interest in sustainable bonds is seeing steady growth. In 2023, global sustainable bond issuance is expected to rise by 2.5% as more companies and governments take advantage of the increasing interest from investors in sustainability projects.
Nasdaq’s Sustainable Bond Market and Network are just some of the many ways we are leveraging our market expertise and innovation to spur investment in the green transition. Nasdaq also partners with voluntary carbon market, CIX and the first of its kind carbon removal crediting platform, Puro.earth, that help companies offset their emissions and even remove carbon from the atmosphere.
“Nasdaq is able to help accelerate the climate journey by supporting capital allocation, price discovery and transparency...we are on the frontlines of corporate efforts to reduce carbon emissions and implement sustainability strategies,” said Frederik Ekstrom, Head of Nasdaq Stockholm.
To learn more about Nasdaq’s Sustainable Bond Market and how to list Sustainable Bonds, visit our website.
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