No room for green sovereign bonds in Sweden at present

27 April 2018

The Swedish National Debt Office sees no room to issue a green sovereign bond at present. Given the current limited borrowing requirement in Sweden, introducing a new debt instrument would lead to higher long-term funding costs for the government, according to the Debt Office.

The Debt Office submits its response to the inquiry Promoting the Market for Green Bonds (SOU 2017:115) to the Ministry of Finance today.

One of the main proposals in the inquiry is that the Swedish government should issue green bonds within the framework of the ongoing financing of deficits in the state budget and maturing loans. It therefore concerns borrowing for already decided upon and approved expenditures in the budget, not financing new green investments. The money raised through the green bond must correspond to the amount of budget expenditures classified as green.

The Debt Office’s viewpoints in brief

  • The Debt Office sees no room to currently introduce green sovereign bonds within the management of central government debt. Given the current limited borrowing requirement, introducing a new debt instrument would lead to higher long-term funding costs for the government. Consequently, it is not consistent with efficient management of government debt.
  • Even long-term, the structural borrowing requirement – and with that the capacity to issue new instruments – would be limited since the surplus target within the fiscal policy framework implies that new expenditures primarily should be funded through taxes and fees, not with higher government debt.      
  • Should the borrowing requirement nonetheless be large over a period of time, the Debt Office may consider green government bonds as a compliment to traditional bonds. A green bond could then be issued provided it is perceived to contribute to long-term cost minimisation or lower risk.
  • The alternative solution proposed by the inquiry, to label a traditional sovereign bond “green,” is only possible if the same preconditions as for the traditional sovereign bonds prevail. For example, there has to be sufficient green expenditures to achieve the volume required to ensure liquidity during the life of the bond.
  • The Debt Office opposes the proposal to further investigate reduced capital adequacy requirements and resolution fees in order to promote the issuance of green bonds.    

The Debt Office’s consultation response to the inquiry Promoting the Market for Green Bonds, pdf

Contact

Robert Sennerdal, Press Secretary, +46 (0)8 613 46 94