Nordic Green Bank seeking private investors for green portfolio

A bid to save the Baltic Sea led to the founding of the world’s first green investment bank. To date, the Nordic Green Bank Nefco has helped more than 600 innovative companies to scale their businesses globally.

Sunset in German port town Warnemünde. Nefco was once set up to modernise water treatment plants connected to the Baltic Sea, known as one of the world's most polluted waters. Imago Stock & People GmbH / ANP

Now, the publicly funded financial institution wants to invite private investors to its green portfolio, Nefco vice president Josefin Hoviniemi tells Impact Investor.

Helsinki-based Nefco was founded thirty years ago when the Nordic governments launched a finance institution to modernise water treatment plants in the region, specifically in the former Soviet Union.

After a successful start, the institution expanded to fund a variety of Nordic green tech companies investing internationally. Nefco managed close to €600mn in funds by the end of 2020, and agreed on 120 new projects last year.

Investments are mainly long-term loans but also equity investments, explains Hoviniemi. “The initial capital has been reinvested many times over,” she says.

Impacts are measured and vetted to ensure that investments make a significant contribution to the shift towards a ‘green’ economy. While the bulk of the capital is publicly funded, Nefco is now considering seeking private investments for its green projects, says Hoviniemi.

“We want to move towards private institutions and cooperate with them in order to finance more projects.”

‘Results-based financing'

An initiative to electrify millions of people in Zambia, Mozambique, Burkina Faso, Liberia and Uganda is one of the Nordic Green Bank’s latest programmes. The Beyond the Grid Fund for Africa was set up on behalf of the Swedish International Development Cooperation (SIDA).

It aims to bring off-grid solutions such as mini-grids and solar home systems to rural and peri-urban areas (areas immediately adjacent to a city or urban area) in Sub-Saharan Africa.

“The idea is to initiate local businesses and to bring renewable energy to rural areas where people don’t have access to electricity. It’s not a question of a hand-out, but results-based financing,” says Hoviniemi.

Green solutions

Nefco’s role is to manage the facility while the programme is implemented in cooperation with the Renewable Energy and Energy Efficiency Partnership (REEEP). Funding green ideas is at the core of its operations, explains Hoviniemi.

“Our focus is to finance small and medium sized Nordic companies that offer green solutions, either a green technology or a new business model that helps reduce emissions and contribute to a cleaner environment,” says the vice president, adding that the return on impact is paramount.

“Research shows that many green tech companies lack access to capital to bring their innovations to the international market. We believe that these innovations and solutions can have an enormous environmental impact outside the Nordic countries, and that’s why we have taken a decision to fund ideas that can really make a difference,” says Hoviniemi.

Innovative clean energy solutions, ideas that encourage circular economies or a more efficient use of resources are currently gaining traction.

“Another sector where we expect a lot of growth is agriculture. Sustainable food production is a very important aspect of the green transition,” says Hoviniemi.

Financially sound

Nefco claims that its investments have helped reduce nutrient pollution in waste-water projects by an average of 80% while energy-efficiency projects have led, on average, to 50% less CO2-emissions.

“In Ukraine, for example, the renovation of public buildings has led to huge savings by making them more energy efficient,” says Hoviniemi.

While the financial return is secondary to the environmental impact, Hoviniemi stresses that Nefco only funds projects and business models that are financially sound. The majority of businesses that receive funding are innovative Nordic companies with a clear impact focus. To be eligible, the companies must have passed the initial start-up phase and be ready to scale production.

“We don’t compete with traditional banks. Our loans are often unsecured and subordinate to traditional bank loans,” she says.