By way of reassuring readers of our objectivity, we wish to highlight a recent Bloomberg discovery that the Nordics’ solid green-outperformance narrative is starting to show cracks. Reporter Natasha White’s May article, “A $135 Billion Bond Market Lures Issuers Too Risky for Banks”, suggests some of these banks have shifted from fly-fishing for trout to trawling for bottom-feeders.
The article describes how a few Nordic lenders have taken a look at the private market’s capacity to digest extremely polluting companies - the sort that banks and the public bond markets normally won’t touch with a bargepole because of their low ESG scores.
The banks — DNB (ticker DNBNO) and Pareto Securities (PABNO) in particular — appear to have thought, “We want a slice of this action too!” They've muscled in, taking advantage of the looser documentation requirements that apply in parts of the Nordic corporate bond market.
What are the implications for investors dealing in the Nordic market or that have Nordic bank exposure as part of their bond portfolios?
Smaller players active in this new arena, such as Pareto Securities, may not be of primary interest to the global investor crowd. If you’re still comfortable having Pareto on the ticket after the Lebara debacle in 2018, chances are you’re not too fussed about a bit of thermal coal exposure. For those unfamiliar, the Financial Times piece, “Lebara bond fiasco shines awkward light on Nordic market” (Mar 2018), offers some helpful context.
Perhaps more interesting is the rise of pro-GHG bond deals at DNB, the Norwegian powerhouse. DNB is not only a substantial issuer of green bonds — with a total of USD 16bn outstanding — it is also a large enough counterparty to qualify for ‘The Box’ universe. We have tracked DNB dealmaking for years, and you can see its net green/fossil syndication fee performance here:
DNB used to be a top green bank back in 2022. It has since fallen in the rankings to a level on par with regional US and Canadian banks rather than its geographical neighbours.
Admittedly, on this metric, DNB recovered quite a lot in our latest ‘The Box’ analysis. However, the improvement in green fees seems mainly driven by a single transaction for a large wind company. As the basis of our analysis is fee data, which is self-reported and/or modelled, we’d likely want to wait another quarter to see whether this improvement holds up — especially given what the Bloomberg story suggests.¹ ² The two panels of the figure illustrate the somewhat bifurcated view on recent developments.
DNB gave Bloomberg a superb example of the drug dealer’s defence³:
““It’s very evident that some banks are withdrawing from parts of the energy sector,’ said [the] global head of investment banking at DNB Carnegie, one of the top arrangers of Nordic bonds. “But they’re just being replaced by other banks, or the bond market.””
This is incorrect; the financing for heavy polluting activities such as thermal coal has been drastically reduced. Deals being done today are taking place in private markets. As is clear in from the Bloomberg article, other banks have chosen to step away from some segments of the market.
Not DNB. We believe this has real implications for both investors and issuers — for both how they select counterparties and how they allocate green bonds. At a time when banks are increasingly profiting by tilting green (see our latest ‘The Box’ report), one of the most meaningful forms of impact could be investors and issuers applying pressure on banks that go against the trend.
¹ When re-running our ‘The Box’ league tables excluding single-lead deals, DNB drops one spot to #22 out of 28.
² Note: DNB closed its acquisition of Swedish investment bank Carnegie in January this year. For those interested, Carnegie’s deal activity in oil and gas can be found here, and DNB’s here (self-reported, requires filtering).
³ The drug dealer’s defence is an argument seeking to remove agency from conducting activities with adverse network effects; its original form is “if I don’t sell [insert substance of choice] to your kids, someone else will.”
