New guarantees to boost green lending

The Swedish government has assigned the country’s export credit system the task of contributing to the climate transition. Financiers benefit from new guarantees from government agencies EKN and Riksgälden (The National Debt Office), backed by Sweden’s AAA rating, as well as the green loans issued by state-owned Svensk Exportkredit (SEK).

EKN’s Green Export Credit Guarantee lets exporters and banks insure up to 100 per cent of the value of a transaction to protect themselves from the risk of non-payment. EKN’s standard export credit guarantees normally offer up to 95 percent risk cover.

“In order to make use of the Green Export Credit Guarantee, the export transaction must be for green products or products with an end use as part of a green activity, says Victor Carstenius, Senior Analyst at EKN and adds: “EKN follows the EU taxonomy’s classification of green activities that contribute to climate change mitigation and climate change adaptation to determine whether an export transaction can be covered by the new guarantee.”

The export-oriented guarantee complements EKN’s Green Credit Guarantee for green investments and working capital needs within Sweden. That guarantee covers loans up to SEK 500 million for green investments and working capital needs only within Sweden and covers the bank’s risk up to 80 percent (up from a previous 50 percent). The two guarantee types have the same green incentive (higher cover ratio) and the same green definition (EU taxonomy).

“An unbeatable combination”

To cover green investments in Sweden above SEK 500 million, the Government has given Riksgälden a mandate to provide state credit guarantees for new loans raised by companies with credit institutions for financing large green industrial investments. Credit guarantees can be issued in Swedish kronor, euros, or US dollars. Riksgälden uses the EU taxonomy as a tool for the green definition.

“Riksgälden issues green guarantees covering up to 80 percent of loans provided by credit institutions. We analyse investments from a legal, financial, and environmental standpoint,” says Ulrika Sernbrandt, Green Guarantees Senior Project Manager at Riksgälden.

EKN and Riksgälden provide pure cover and SEK may provide refinancing with green, social and sustainable linked loans. SEK issues green loans to companies and projects that promote the transition to a low-carbon economy, and that contribute to the UN Sustainable Development Goals. “SEK is active on the green bond market and issues green bonds for funding used to finance the green loan portfolio,” says Senior Sustainability Analyst Helena Engnér Aili and concludes that Swedish industry and exports are well positioned to meet the demands for investment in transition technology: “The financing capabilities of SEK, EKN and Riksgälden, and cleantech from world-leading suppliers form an unbeatable combination.”

EKN’s Carstenius agrees: “From hotbed startups to established multinational giants, Swedish exporters enjoy a prominent position in cleantech, thanks to innovations that help facilitate the transition to a carbon-free society. Electric mining equipment, non-fossil fertilizers and biofuels are a few examples.”

Fossil-free steel production

Investments in large-scale industrial projects that involve transitional technology often require large amounts and consortia made up of international as well as Swedish financiers. One example is H2 Green Steel in Boden, Northern Sweden, a hydrogen-powered green steel plant financed through a combination of equity and debt financing.

H2 Green Steel has executed conditional commitment letters for EUR 3.3 billion in senior debt with SEK and the commercial banks BNP Paribas, ING, UniCredit, Société Générale and KfW IPEX-Bank. The European Investment Bank has received board approval for EUR 750 million of senior debt funding. Riksgälden has issued a letter of intent to provide a green credit guarantee of EUR 1 billion of H2 Green Steel’s senior debt.

“Riksgälden stays in touch with international lenders as well as domestic banks, to finance industrial investments in different industries,” confirms Sernbrandt.