Financing Sweden’s green transition

On 27 September, the Nordic Investment Bank (NIB) invited clients, investors, peers and other stakeholder to a seminar in Stockholm to discuss Sweden’s transition towards a greener, more sustainable future. With insights from Romina Pourmokhtari, Minister for Climate and the Environment, who underlined the urgency of embracing a fossil-free era, to André Küüsvek, NIB’s President and CEO, who presented NIB’s role in financing this transition, the seminar painted a multifaceted picture of Sweden’s green ambitions. Senior Economist Klas Eklund with Mannheimer Swartling, offered a detailed analysis of Sweden’s current economic position in the face of this transition.

Minister for Climate and the Environment, Romina Pourmokhtari, said it is urgent to transition from a fossil economy to a fossil-free one.

“Investments in emission reduction are not only central to addressing the climate crisis but are also vital if we want to generate profit in the future.”

Highlighting Sweden’s achievements in the green transition, she reminded that Sweden’s electricity sector is almost 100% fossil-free and attributed the success to the large-scale nuclear energy projects of the ’70s and ’80s. Pourmokhtari also noted the advancements of Swedish companies like Scania and Volvo in producing battery-powered trucks, and the collaboration between Scania and Northvolt that resulted in effective battery lifespans.

Sweden’s progress was also evident in the innovative Swedish battery company, Northvolt, which she credited with harnessing fossil-free electricity to create a large-scale battery factory. The Minister thanked NIB for supporting the “impressively large investment.”

Pourmokhtari emphasised the importance of fossil-free steel, referring to the HYBRIT initiative, a collaboration aiming to revolutionise the steel industry. She said that with steel accounting for a significant portion of Sweden’s emissions, this move is pivotal.

Discussing the challenges ahead, Romina underlined the need for an increased supply of fossil-free electricity. She highlighted the government’s commitment to augmenting nuclear power and streamlining permitting processes.

On the intersection of biodiversity and climate change, Pourmokhtari underscored the mutual benefits they often share. However, she admitted to occasional conflicts between the two objectives, emphasising the need for thoughtful integration.

When asked about financing green transitions, the Minister viewed it as an ever-growing global concern. She highlighted the vast, long-term investment opportunities in climate transition, especially given the increasing demand for clean products and services. Pourmokhtari believes that the future will see various financial institutions finding different avenues to contribute to the green shift.

NIB’s role in financing the future

André Küüsvek, NIB’s President and CEO, shared insights into the role of NIB during the seminar. Küüsvek encapsulated the primary goal as building prosperous societies without harming the planet, underlining that this is precisely NIB’s mission.

He presented NIB’s dual mandate: firstly, enhancing the productivity and long-term competitiveness of financed enterprises and economies, and secondly, giving precedence to environmental protection, which has taken on increased importance in recent times. Referring to Sweden’s triumphs, Küüsvek drew attention to its pioneering and advanced industries rooted in an export-dependent economy. He stressed the necessity to shift focus towards a fossil-free future, with NIB keen to play a pivotal role alongside commercial banks and capital markets.

Küüsvek elaborated on NIB’s strategic approach, which encompasses providing longer-term financing that complements commercial banks. He also disclosed that in Sweden, over the decades, NIB has funded projects totalling SEK 217 billion from its balance sheet, with overall project sizes possibly surpassing half a trillion Swedish krona.

He emphasised the significance of collaboration between the public and private sectors, as well as academia, for breakthroughs in areas like sustainable transport and green energy. Regarding the inflation energy crisis, he recognised the challenges of recent years, including the Covid crisis and geopolitical tensions. However, he portrayed these challenges as moments that emphasise NIB’s relevance and resilience, as the bank offers a steady hand with its long-term financing capabilities.

Küüsvek acknowledged the complexity of the green transition but said he views it as an opportunity. He also expressed NIB’s dedication to fostering a sustainable future, both locally and on a global scale.

Klas Eklund’s insights on the Swedish economy

Klas Eklund, Senior Economist at Mannheimer Swartling, began by discussing Sweden’s current economic outlook, indicating that compared to other regions, Sweden lags in GDP forecasts for the upcoming year. This, he believed, was attributed to Sweden’s sensitivity to interest rates, given its high household debt with primarily floating mortgage rates. When central banks raise interest rates, sectors like construction feel the pinch. Inflation, he noted, was on the decline but was largely influenced by recent global events, from pandemics to wars and supply shortages.

Drawing attention to the Swedish currency’s weakness, he pointed out that it had been a concern over the years due to factors such as softer past monetary policies, a history of devaluations, and the movement of Swedish savings into foreign assets.

Global economic growth forecasts, in Eklund’s perspective, had been increasingly pessimistic, citing IMF predictions as evidence. One alarming trend he underscored was the global decline in productivity growth, which was even more pronounced in Sweden.

Addressing the crux of the seminar, Eklund highlighted the critical need for efficient green transition investments. While estimates vary—from $5 trillion to $55 trillion globally—the focus should be on net numbers, considering investments that would have been made regardless of environmental priorities. Emphasising the available capital for such transitions, Eklund mentioned resources from both the European Union and the U.S, as well as assets within institutions that support the Paris Agreement targets.

Zooming in on Sweden, Eklund noted that, unlike other countries, Sweden’s public sector debt as a share of GDP had actually decreased, even amidst global crises. This, he hinted, was problematic, as these resources could be allocated effectively, especially given Sweden’s strong creditworthiness.

In conclusion, Klas Eklund portrayed a mixed picture of Sweden’s economy while emphasising the significance and methods of financing the green transition, urging for efficient and strategic investments in this critical area.

From fossil economy to a profitable and green future

The following discussion revolved around the challenges and opportunities in transitioning towards a more sustainable future. While financing is available, there are complexities in its utilisation, and there is a need to look at a broader range of issues, from strategic bottlenecks to societal challenges, to ensure effective implementation.