Danske Bank Expects Nordic ESG Bond Sales to Triple in 2021

(Bloomberg) -- Investment bankers at Danske Bank A/S are preparing for a threefold jump in Nordic sustainable bond sales next year, as companies without credit ratings join the issuance spree.

Jenni Tuomaala, who runs Danske’s debt capital markets origination desk in Finland, says “companies that have struggled with the scarcity of eligible assets in the past” are set to “massively” add to green issuance through sustainability-linked bonds, which link coupons to environmental, social or governance goals.

In Sweden, the biggest Nordic economy, the corporate bond market remains largely unrated with only 79 issuers out of a population of 290 carrying a credit grade, according to year-end data compiled by Stamdata AS.

That lack of ratings has left some investors questioning the health of the market, and even the Riksbank has added its voice to the list of critics. But with demand for green bonds outpacing supply, issuers that provide debt meeting sustainability criteria are likely to find buyers.

Year-to-date, Nordic corporates have issued a total of 141 green and sustainability bonds, according to Danske.

For corporate issuers, the appeal of sustainability-linked debt lies in lighter administrative requirements, Tuomaala said. Many of them already have a sustainability strategy and targets, which makes it easier for them to tap debt markets, she said.

Unlike green bonds, sustainability-linked debt doesn’t peg a bond to a specific project. Instead, issuers commit to broader ESG targets on a company-wide level.

“Looking into 2021, I can see in particular that we’ll have unrated issuers making use of either the use-of-proceeds based on green bond issuance or the sustainability-linked format,” Tuomaala said.

Price Pull

The expected surge in issuance is set to affect prices across the market for sustainable debt. Tuomaala says that, by tapping ESG demand, unrated borrowers in the Nordic region stand to close the “quite substantial premium” that exists relative to rated companies in Europe.

Issuing this sort of debt “is definitely an opportunity to price tighter,” she said. “There are still sectors and companies that could find opportunities.”

“What is lacking and desired by the investor base is green issuance from the industrials segment,” the Danske banker said.

But Tuomaala says sustainability-linked debt is likely to draw in issuers “from a multitude of sectors, including forestry, paper, pulp, packaging and real estate, alongside all the industrials, machinery and services.”

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