In pursuit of green municipalities : An exploratory research of green bonds in the transition towards sustainability in Swedish municipalities

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In pursuit of green


An exploratory research of green bonds in the transition

towards sustainability in Swedish municipalities

Jönköping, May 2021

BACHELOR THESIS WITHIN: Business Administration


PROGRAMME OF STUDY: Sustainable Enterprise Development AUTHORS: Sam ter Woort, Lucia Tydén, Casper Johansson TUTOR: Guénola Nonet




“The best years of your life will be those spent at university” is an expression that has followed us along our lives and one that naively, was difficult to fully understand. Now having had studied a triennial at the university of Jönköping, and if truth be told, that phrase does not sound so uncanny anymore. An opportunity was provided to us to live, study and be part of a vibrant student community in the wonderful city of Jönköping. For this matter, we wished to contribute with our acquired

sustainability expertise to the place we can always call home.

A big acknowledgement followed with an immense gratitude has to be expressed to our tutor, Guénola Nonet, for guiding us throughout this project and for giving us insightful feedback all along. Following, we want to thank Mark Edwards giving us a helping hand in the initial stage of the project and Ziad El-Awad for his advice in the research methodology process. Along this line we want to show appreciation and thank Otto Hedenmo for his engagement in insightful discussions and his support with his research expertise. We thank Andreas Olsson for his mentoring, his enthusiasm linked to the topic, for providing us with the needed contacts and for whom without his help the research would have taken a completely different route.

We wanted to give a warm thank you to all the interview participants, for whom this study would have been impossible to conduct without their input and assistance. A last thank you is sent to our friends and family for their love and support all these past months.



Bachelor Thesis in Business Administration

Title: In pursuit of green municipalities: An exploratory research of green bonds in the transition towards sustainability in Swedish municipalities

Authors: Sam ter Woort, Lucia Tydén, Casper Johansson

Tutor: Guénola Nonet

Date: 2021-05-21

Key terms: Green bonds, green finance, municipalities, sustainability transition


Background: Entering a new geological epoch where humans are the main force

shaping of the biosphere, have forced an immense stress onto society and the Planet with regards to sustainability. The United Nations and the Paris Agreement have strongly emphasized the urgent need to allocate finance onto urgently mitigating climate change. The financial sector has confronted this challenge through providing sources of finance to meet sustainability requirements. Thus, green bonds emerge as an instrument aimed to cooperate in the transition towards advancing sustainability.

Purpose: Given the ambiguity of green bonds impacts on environmental sustainability,

this study explores the contributions of green bonds towards a fruitful transition towards sustainability. Being crucial stakeholders in the transition towards sustainability, these contributions have been examined in the context of Swedish municipalities

Method: To examine the contributions of green bonds in the given context, an

exploratory research was conducted using a multiple case study design. Five municipalities, two investors and a municipal funding agency were interviewed though semi-structured interviews. A thematic analysis was performed on the empirical data. First, a within-in case analysis was conducted following a cross-case analysis allowing to find emergent and common patterns.

Conclusion: The green financial instrument does not appear to be a main driver of

sustainability, nor does it have a significant influence on the environmental impact of the municipalities’ investment projects. Nevertheless, the study finds that green bonds contribute to advancing sustainability in municipalities through three main areas: Financial impetus, organizational effects and structure and requirements. Thus, the municipalities studied provide evidence that green bonds grant a small reduction in the cost of capital, produce organizational effects like increasing collaboration between the environmental and financial department and enhances transparency through its structure and requirements.



Table of Contents


1.1 BACKGROUND ... 1














2.2.1 GREEN FINANCE ... 11

2.3 GREEN BONDS ... 12



2.3.3 FOR INVESTORS ... 15







3.8 INTERVIEWS ... 24

















5.6.2 COOPERATION... 51














Figure 1 The project categories for the investment projects funded by green bonds (Kommuninvest, 2021) ... 13

Figure 2 The 'Research' onion by Saunders et al. (2019)... 19

Figure 3 Overview of the data analysis process. ... 29

Figure 4 Areas of contribution ... 55


Table 1 Interview information of the five municipalities... 26

Table 2 Interview information of the three external experts ... 26

Table 3 Codes, themes and aggregate dimensions of Borås municipality ... 27

Table 4 Municipalities and study participants overview ... 33

Table 5 Comparison of the aggregate dimensions of the five municipalities ... 50



1 Chapter: Introduction

In this chapter, the researchers introduce the reader to the subject of the research by explaining the study’s background, problem discussion, purpose of the research, research questions, delimitations, and terminology.

1.1 Background

Since the dawn of our time our planet has been everchanging. In the last 10 000 years it is been our fortune to live in a period of stability, a geological era called Holocene, which provided humanity the conditions to thrive. However, since the industrial revolution humans started to have a global impact on planet Earth, which could disrupt these favorable conditions (Rockström et al., 2009b). This is referred to as the Anthropocene, which describes a geological era, where humans became a global geological force shaping the biosphere. As a matter of fact, human activity is affecting the biosphere, which could jeopardize the supporting system for life on Earth (Steffen et al., 2011). Some of our planetary boundaries have been transgressed, which threatens to cause unacceptable environmental change. A commonly known one is climate change. While it is a crucial planetary boundary, it is unwise to neglect the large number of other biophysical subsystems that are affected by human activity (Rockström et al., 2009a). To stress the severeness of the situation, the Intergovernmental Panel on Climate Change (IPCC, 2018) has established an urgent need to reduce greenhouse gas emissions, as the rising global temperature could have detrimental effects on human and natural systems (IPCC, 2018).

As a response, in 2015, 196 countries signed the Paris agreement with a long-term goal to keep global temperatures below 2°C and preferably less than 1.5°C, compared to pre-industrial levels (United Nations, 2015a). Additionally, the global sustainable development goals (SDGs) were developed, which aim at balancing the social, economic and environmental goals and which, provide an important guidepost in reaching for environmental sustainability (UNDP, 2021). Both the UN SDGs and the Paris agreement emphasize the importance of allocating financial resources for


2 mitigation and adaptation purposes (United Nations, 2015a; UNDP, 2021). In fact, in order to reach the climate targets, large investments would be needed to phase out the use of fossil fuels while increasing the production of renewable energy. One estimate from the (OECD, 2017b) shows that USD 6.9 trillion need to be invested in low carbon alternatives per year in the next 15 years to make our economy climate compatible. Undoubtably, large investments from the private and public sector are needed to fund this transition (Banga, 2019). The gap between the demand for infrastructure and the projected spending has been estimated between USD 39 to 51 trillion. The sustainable infrastructure gap differs by the income class of the country. To give an example, for upper-middle income countries the demand is 2,5 times higher than the projected investment (Bielenberg et al., 2016).

This enormous financial gap is evident, and the transition into a low carbon economy is not deemed possible without the support of the private financial sector (Sullivan, 2014). Therefore, the financial sector has addressed the need by establishing green finance, a financial product that aims at funding the efforts to meet the global environmental challenge (Migliorelli & Dessertine, 2020). Debt is currently financing the largest share of infrastructure investment (OECD, 2017a). Hence, due to the need to transition capital from high-carbon to low-carbon investments, an urge to find an accessible source of finance emerges that meets sustainability requirements of risk-return investments (Nassiry, 2018). Several green financial products have emerged in recent times like green bonds or climate bonds, green asset-backed securities, green loans, green funds, green project financing operations and green indices. The green bonds market is currently the largest and the most important innovation within green finance (Migliorelli & Dessertine, 2020). Green bonds are a debt instrument that provide funds to assets and projects that are green and climate friendly (Climate Bonds Initiative, 2018). Green bonds typically fund projects and assets within energy efficiency, pollution prevention and control, sustainable management of living natural resources, land use and green buildings (ICMA, 2018). This green financial instrument has been used by different actors in society like banks, large companies, governments and municipalities (Banga, 2019).

Sweden is one of the largest green bond issuers (Banga, 2019). In fact, the City of Gothenburg won the UNFCCC’s Momentum for Change award because of their green


3 bond program which intends to fund projects that mitigate climate change and support sustainability initiatives based on the green bond’s framework (Nassiry, 2018). The municipal sector is one of the largest issuers in Sweden (Kommuninvest, 2021), and as society becomes rapidly urbanized, cities and municipalities develop into a critical pillar in minimizing climate risks and mobilizing low-carbon and climate-resilient investments (Nassiry, 2018).

1.2 Problem discussion

Green bonds is still a nascent field of research, as the first green bond was only issued in 2007 by the European Investment Bank (EIB) (Banga, 2019). Previous studies have not acknowledged in detail the wide range of contributions to advancing environmental sustainability that green bonds might have. They have focused more on the financial aspect, whether green bonds provide a cheaper source of finance due to a negative premium associated with the green label of the bond (Gianfrate & Peri, 2019). On the other hand, investors and issuers have pointed out that green bonds could also have other indirect or secondary effects on their environmental sustainability, for example raising their sustainability ambitions (Maltais & Nykvist, 2020). More recently, there seems to be an awareness amongst scholars with regards to additional contributions towards sustainability that do not solely encompasses the financial aspect. Such recognition has been approached by investigating the role of green bonds in reaching UN SDG goals and lowering carbon emissions (Lagoarde-Segot, 2020; Sartzetakis, 2020; Tuhkanen & Vulturius, 2020). In fact, a recent study has shown that after issuing green bonds, firms had a lower environmental footprint (Flammer, 2020). Given the ambiguity regarding the influence green bonds have towards environmental sustainability, there is a need to conduct a study that further investigates how green bonds could contribute to a fruitful transition towards sustainability. The study focusses predominantly on the contributions towards environmental sustainability, nonetheless, it acknowledges the interdependency with the social and financial pillars of sustainability.

Furthermore, to fund the transition to a less carbon intensive and more sustainable economy, large investments are needed from the public sector. (Banga, 2019). Within


4 the public sector, municipalities are substantial actors regarding climate change and sustainable transition (Carvalho, 2018), as they are responsible for a large variety of public services and infrastructure like building hospitals, schools, housing, waste management and water and energy supply (Sveriges Kommuner och Regioner, 2020). By being responsible for this infrastructure and these services, the municipal sector is thereby also responsible for a large share of the investments in reaching a sustainable society (Kommuninvest, 2021).

As municipalities are a critical stakeholder with regards to mitigating climate change and are large issuers of green bonds, more research has been deemed necessary on green bonds within municipalities. This highlights the opportunity to investigate further the wider range of contributions of green bonds in municipalities on advancing sustainability.

1.3 Purpose of the Research

Considering what has previously been mentioned, the purpose of the study is to explore, identify and understand the contributions green bonds provide in advancing sustainability within Swedish municipalities and its public sector. Hence, being conducted as an exploratory research, it is within the purpose of the study to embrace a wide scope of contributions.

1.4 Research question

The research is guided by the following research question:

o How do green bonds contribute to advancing sustainability in municipalities in Sweden?

1.5 Delimitations

As this is a nascent field of research, the study will adopt an exploratory approach. This includes investigating both the contributions of the financial spectrum of the


5 bond and the added value it provides by being “green”. It is to note, that the study will only investigate the contributions of green bonds, and not the impact of green projects with regards to sustainability in municipalities. Given the purpose of green bonds, the study will focus on the contributions of green bonds to the environmental aspects of sustainability, however acknowledging the interconnectedness of the social, economic, and environmental aspect.

As mentioned in the problem discussion, the study’s point of convergence has been limited to the public sector at the municipal level in Sweden. It will therefore not examine the role of green bonds in relation to sustainability as a whole but focused on the chosen context. Hence, the study is restricted to Swedish municipalities on account of the data collection which has been acquired from Swedish organizations and Swedish municipalities.

1.6 Terminology

Sustainability - “The concept of sustainability explores the relationship among

economic development, environmental quality and social equity” (Rogers et al., 2012).

Sustainability awareness - “... Fully understand, recognize, and implement the

concept of sustainability” (Herremans & Reid, 2002).

Sustainability development - “Development that meets the needs of the present

without compromising the ability of future generations to meet their own needs” (Brundtland, 1987).

Green Bonds - “Are a debt instrument that fund assets or projects that are green and

climate friendly” (Climate Bonds Initiative, 2018).

Green Finance - “A strategic approach to incorporate the financial sector in the

transformation process towards low-carbon and resource-efficient economies, and in the context to adaptation to climate change” (GIZ, 2011).

Worldviews - “Is a set of assumptions about physical and social reality that may have



Greenwashing – It refers to the practice of falsely promoting environmental efforts

of an organizations and making the organization look more environmentally friendly than it is. (Becker-Olsen & Potucek, 2013).



2 Chapter: Frame of reference

In this chapter an analysis of existing literature on sustainability and green financing is presented. This analysis has been systematically collected in order to communicate the knowledge necessary for the progression of the study to be fruitful.

The first part of the frame of reference builds a thorough understanding on the topic of sustainability including worldviews, introducing concepts like the doughnut economics and the SDGs, and putting sustainable development in the context of cities and municipalities. Thereafter, it will review literature on green bonds, introducing the concept, illustrating its advantages and disadvantages, and looking into the recent research of green bonds and sustainability. The different sections will provide initial insights into the relationship between green bonds and sustainability.

The frame of reference for this study contains both relevant theories and previous research. Therefore, the first part of the frame of reference is to a large extent guided by the relevant models and theories related to sustainability. The frame of reference is a result of a systematic review of literature, which summarizes, analyses, and synthesizes the existing literature. A funnel approach was employed for the literature review to move from the broader to the narrower subject fields. The literature review utilizes peer-reviewed articles and takes special notice of articles published in the last 5 years, articles with a high number of citations and articles published in highly ranked journals. However, due to the nascent state of the research field, these were not applied as exclusion criteria, but merely to guide the focus to the most relevant articles. Other sources of the frame of reference were academic books and official websites. The literature review was a process of two months, which in the initial stage served the purpose to establish a relevant research purpose and then later to guide and provide a background for the study.

For a more global view on the research topic and to introduce core theories the search engine Google scholar and Primo from Jönköping University's library were utilized. When reviewing specifically the literature linking sustainability to finance, the search was performed in one of the prominent journals in the field called “Journal of


8 sustainable investment & finance”. Since green bonds are rather new as a financial instrument, articles are mostly recent and there is a manageable number of articles. On that account, the database Scopus was used to filter all the peer-reviewed articles that contained “green bonds” or “green bond” in their title, keywords or abstract. This resulted in 214 results, which were sorted after the most cited ones, and subsequently reviewed to select the most relevant ones to create the sections on green bonds. Other keywords used in the different databases and search engines were “green finance”, “sustainable finance”, “green bonds municipalities”, “sustainable cities”, “finance and sustainability”, “doughnut economics” and “planetary boundaries”.

2.1 Sustainability and sustainable development

Sustainability as a term originates from ecological sciences, which describes the conditions that an ecosystem needs to endure over a longer period of time (Holden et al., 2014). This concept of sustainability was only used later to describe the relationship between the economic, social and environmental aspects that are all substantial to achieve sustainability. The three components environmental, economic and social are referred to as the triple bottom line (Rogers et al., 2012).

The Brundtland report (1987) is a source often used when attempting to define sustainability and sustainable development. The report also named “Our Common Future”, is recognized as the first report that defines sustainable development as a concept and bringing it to the public sphere. It was issued by the Brundtland commission, which aim it was to bring together countries for a united sustainable development. The Brundtland report (1987) defines sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their needs”.

2.1.1 Sustainability worldviews and economic approaches

Sustainability can be looked at from an anthropocentric and ecocentric worldview, which describe how humans relate to the natural environment. The ecocentric worldview emphasizes the intrinsic value of nature and the anthropocentric only the value that nature provides for humans (Gagnon Thompson & Barton, 1994). These


9 worldviews are also classified into strong and weak sustainability (Hussen, 2018). Weak sustainability allows substitutability of natural and human-made capital and transfers of resources between generations, whilst strong sustainability, takes into account the scientific laws of thermodynamics and recognizes the environmental limits to economic activities (Landrum, 2018).

Economics materializes as a main tool to eradicate global poverty, as well as becoming a catalyst of sustainability for the planet. Nonetheless, traditional economics has yet been reluctant to embed sustainability as a foundational actor within the spectrum of economics. A great extent of traditional economic theories are based on 19th century

economists that follow a neo-classical worldview, hence believing that the natural ecosystem is exogenous to the human economy (Raworth, 2017). This results in disregard of the environmental threshold, Earth’s assimilative capacity and emphasizing profit over social or environmental sustainability as verification of prosperity within the economy.

2.1.2 Doughnut economics

Doughnut Economics is a compass constructed of social foundations and ecological boundaries. The essence of the doughnut framework is to increase resilience thinking by depicting critical ecological boundaries where society must not reach beyond and illustrating basic rights of life where there should be no shorts-falls in order to reach a dynamic balance within the framework (Raworth, 2017). In essence, the economy will ensure true sustainability only if it is positioned within the ecological and social boundaries (Stopper et al., 2016). The Doughnut Economic Framework draws on the notion of the Planetary Boundaries supported and developed by Rockström et al. (2009a).

2.1.3 Planetary Boundaries

Planetary boundaries refer to the level set or determined by humanity emphasizing that society would reach a dangerous level (Rockström et al., 2009a). Thus, surpassing a threshold could potentially force irreversible consequences on the planet, as it holds a level of uncertainty of potential outcomes due to society’s actions. There are nine current planetary boundaries in which climate change and ocean acidification prevail (Rockström et al., 2009a). The concept of Planetary Boundaries is one developed for


10 the purpose of setting limits for humanity’s deterioration capacity on Earth. These boundaries recognize the set of principles from the school of ecological economics. Thus, emerging the urge to prioritize natural capital in order to fulfill the goal of intergenerational equity amongst other targets (Hussen, 2018).

2.1.4 Sustainable development goals

The sustainable development goals (SDGs), which are part of the United Nations Agenda 2030, were created as a guide to tackle poverty, protect the environment and ensure peace and prosperity (UNDP, 2021). Previous to the SDGs the Millennial development goals (MDGs) were used, which consisted of 8 goals that focused more on the social and economic development of societies (Bebbington & Unerman, 2018). Whereas the SDGs consider the triple bottom line of human wellbeing, which is the social, environmental and economic sustainability (Sachs, 2012). They consist of 17 goals with 169 targets, which provide a conceptualization of sustainable development (United Nations, 2015b). The Stockholm Resilience Center interpreted the SDGs by creating the wedding cake model, which groups together the goals into nature, economy and society and layers it like a wedding cake (Obura, 2020). It wants to illustrate how the economy and society depends on and are embedded in the biosphere (Rockström & Sukhdev, 2016).

2.1.5 SDGs in municipalities

Simultaneously, in Sweden, a vast proportion of sustainable initiatives and activities take place in municipalities. Nonetheless, sustainability objectives vary depending on the municipal size, resources, employment patterns and municipal administrations. Thus, a bigger municipality may emphasize clear detail of their sustainable objectives due to having enough strategic resources and capital to conduct such planning system whilst a smaller municipality may have limited funding and guidance. Therefore, a need to provide smaller municipalities with resources to deal with sustainability initiatives is crucial in the process to support sustainable development at the local level (Keskitalo & Liljenfeldt, 2012).

With regards to Jönköping County, the municipality has created a set of objectives in line with Agenda 2030 and the 17 Global Goals in its course to achieve becoming a surplus-energy county, establishing sustainable consumption and production and


11 moving towards achieving the 1.5 degrees target from the Paris Agreement (Jönköping County, 2020).

2.2 Finance and sustainability

The financial sectors’ interest in sustainability has been growing and scholars have increasingly been examining the relationship between finance and environmental sustainability. The relationship can be studied in a number of different ways (de Carvalho Ferreira et al., 2016), examples include the environmental, social and governance criteria in finance (Friede et al., 2015), impact investments and responsible investments (Hebb, 2013) and climate finance (Kawabata, 2019). Further, the financial sector’s engagement to contribute to sustainability can be observed by the number of different financial products that are aimed at sustainability that were launched, including socially responsible investment, environmental and carbon finance, microfinance and social impact bonds (Wiek & Weber, 2014).

2.2.1 Green finance

Green finance, one of the financial products that aim at sustainability (Wiek & Weber, 2014), has received increased attention due to the recognition of the importance of environmental protection, the focus on sustainability and climate change and the development of the SDGs (Akomea-Frimpong et al., 2021). Green finance is a broad term describing the financing of efforts dedicated to the global environmental challenge (Migliorelli & Dessertine, 2020). To avoid confusion, it is to note that sustainable finance, environmental finance, climate finance and green investments are all terms that refer to green finance (Akomea-Frimpong et al., 2021). Despite many internationally recognized actors attempting to provide a definition, green finance still lacks a universal definition (Migliorelli & Dessertine, 2020). The German government defines green finance as “a strategic approach to incorporate the financial sector in the transformation process towards low-carbon and resource-efficient economies, and in the context to adaptation to climate change” (GIZ, 2011). The Paris agreement and the SDG framework are useful in defining the objective of green finance. Green finance can be seen as a financial instrument to achieve the climate targets and the environment-related SDGs (Migliorelli & Dessertine, 2020). This rationale has also


12 been acknowledged by the United Nations development program (UNDP), as they launched the UNDP SDG Finance Taxonomy in 2020 to provide key indicators to assess investments projects’ contribution to the SDGs (Nedopil Wang et al., 2020).

2.3 Green bonds

2.3.1 The concept and function of green bonds

Throughout the literature review it becomes apparent that the literature body around green bonds is still in an early stage of development. While this could be explained by the green bond market still being in its infancy (Gilchrist et al., 2021), green bonds are one of the most important innovations in the area of green finance (Migliorelli & Dessertine, 2020). The non-governmental organization (NGO) Climate Bonds Initiative (2018) defines green bonds as a debt instrument that funds’ assets or projects that are green and climate friendly (Climate Bonds Initiative, 2018). The main actors in the bond market are the issuers (they borrow the money), the underwriters (they are responsible for the public issuance and distribution of the bond), the external reviewers (they check whether the green bond follows the standards and guidelines) and the investors (they buy the bonds to receive return) and other market intermediaries and index providers (Cochu et al., 2016). Just like conventional bonds, green bonds raise capital based on the risk profile of the issuer and the interest rate. It provides both the opportunity to finance new projects or assets or to be used for refinancing purposes (EU TEG on sustainable finance, 2019). A large amount of capital is needed to fund climate change mitigation and overall transition towards sustainability, green bonds aim to provide a mean to mobilize private capital and has been primarily designed to appeal to institutional investors, as they have a large asset base (Reichelt, 2010). The first green bond was issued in 2007 by the European Investment Bank (EIB), which was then followed by the World bank. The green bond market has since then, been growing from 1 billion USD in 2007 to 221 billion USD certified green bonds in 2017. Organizations issuing green bonds include municipalities, national governments, large companies and banks (Banga, 2019).

The definitions and requirements on green projects that are financed by green bonds, provide the basis to develop a credible green bond market, which attempts to avoid


13 “greenwashing” (OECD, 2017a). Therefore, the International Capital Market Association (ICMA) created the Green Bond Principles (GBP), which are voluntary process guidelines that aim at ensuring the integrity of the green bond market. These principles are mainly aimed at the issuers and focus on the use of proceeds, the project evaluation and selection, the management of proceeds and the reporting. According to the GBP the green projects should help to achieve environmental targets within climate change, natural resource conservation, biodiversity conservation and pollution prevention and control. Hence, some proposed eligible project categories from GBP are renewable energy, energy efficiency, pollution prevention and control, sustainable management of living natural resources and land use and green buildings (ICMA, 2018). Many green bond issuers, like for instance the municipal funding agency Kommuninvest, base their green bond framework and guidelines on the GBP. To exemplify, figure 2 displays Kommuninvest’s project categories for the investment projects that can be funded with green bonds (Kommuninvest, 2021). To further establish credibility in the green bond market, the Climate Bonds Initiative (2019) has created a standard and taxonomy to label bonds that contribute to addressing climate change. More recently, the EU commission created a technical expert group on sustainable finance and a taxonomy called the EU Green Bond Standard (GBS) to further develop the green bond market (EU commission, 2019).



2.3.2 Advantages and disadvantages of green bonds

For issuers

For issuers the use of green bonds can provide reputational benefits, where for instance, provides credibility for its sustainability strategy (OECD, 2015). Flammer, (2021) examined different rationales for issuers to engage in the green bond market and found that the main rationale for corporations to issue green bonds is to signal a credible commitment to the environment. The study showed that “greenwashing” and a benefitting from a lower cost of capital was not a rationale to issue green bonds (Flammer, 2021). Further, green bonds can lead to a more diversified investors base, which could make the investor less prone to demand fluctuations. Another advantage is that green bonds have been associated a lower bond volatility in the secondary market (OECD, 2015).

In many cases green bonds enjoy high investors demand, which provides the issuer with the opportunity to increase the bond size (OECD, 2015). Additionally, this oversubscription can also lead to more advantageous loan terms for the issuer (Gianfrate & Peri, 2019). A commonly cited disadvantage of green bonds is the additional transaction cost. This results from increased administration, and certification, reporting and verification associated with issuing green bonds (OECD, 2015). The high costs associated with the external review procedures and the reporting have been identified as some of the barriers for the development of the green bond market (EU TEG on sustainable finance, 2019). However, Gianfrate & Peri (2019) argue that despite that green bonds come at an initial higher transaction cost, green bonds are overall more financially convenient due to the lower interest rate it provides. The existence of such a premium is still debated and will be discussed in the following section, as it has been taking up much of the attention on the research around green bonds (MacAskill et al., 2021).

As much as green bonds are associated with reputational gain, they may also represent a reputational risk (OECD, 2015). This could be the case if the projects financed are subject to “greenwashing”. Further, the different requirements for accessing financial markets, like for instance being rated by a credit rating agency, could be barriers to engaging in the green bond market. This is the case for many municipalities, for which these barriers inhibit the financing from green bonds, despite having a need for a green


15 project (Carvalho, 2018). In the context of Swedish municipalities, this issue has been addressed by Kommuninvest by offering municipalities green loans that they then combine into an aggregated portfolio in order to issue green bonds for the municipalities (UNFCCC, 2021).

2.3.3 For investors

For investors an advantage is that they are in a better position to evaluate the financial benefits against the environmental benefits. Further, many institutional investors have Environmental, Social and Governance (ESG) requirements, that they can fulfill by investing in green bonds. The increased information about the projects that are funded with the bonds, provides several benefits. It increases transparency, improves risk assessment and the dialogue about sustainability related issues provides a more complete credit profile of the issuer. The small and nascent bond market, which translates into a less liquid market, and the small bond sizes are limitations of green bonds from the investor’s perspective. The lack of unified standards and the voluntary nature of green bonds can represent a risk to the reputation and the green integrity (OECD, 2015). This also translates into that issuers and investors are in doubt about which assets and expenses can be financed with green bonds (EU TEG on sustainable finance, 2019).

2.3.4 The green premium

As mentioned in the previous section on advantages and disadvantages of green bonds, the potential advantage of a green premium associated with green bonds has been studied by a large number of scholars (Gianfrate & Peri, 2019; Hachenberg & Schiereck, 2018; Nanayakkara & Colombage, 2019; Partridge & Medda, 2020; Sheng et al., 2021; Zerbib, 2019). The green premium, also called “greenium” in the literature, refers to investors accepting lower yields for a green bond than for a conventional bond with similar characteristics (MacAskill et al., 2021). As this would reduce the cost of capital for issuers it could be a potential motivation for issuers to engage in the green bond market (Flammer, 2021). Since there has been a large number of studies on the green premium with different outcomes utilizing various methodologies, there is no common consensus about the existence of a green premium (MacAskill et al., 2021). For instance, a study conducted in China by Sheng et al. (2021) showed evidence


16 for a green premium for state-owned enterprises. Contrary, a study by Karpf & Mandel (2017) on green US municipal bonds, suggested that the market rather penalizes the green bonds compared to conventional bonds.

A reduced cost of capital is an incentive for issuers to raise capital through green bonds, while investors have the opportunity to diversify (Nanayakkara & Colombage, 2019). Zerbib (2019) concludes that a small green premium does not translate in a disincentive for the investors to contribute their part in expanding the green bond market. Further, estimating whether issuers can access capital cheaper through the means of green bonds is of paramount importance as the most significant driver in investment decisions is the funding cost (Gianfrate & Peri, 2019). Thus, since municipalities are issuers of green bonds, the green premium is substantial for cities and municipalities to have access to more and cheaper capital for sustainable infrastructure projects (Partridge & Medda, 2020).

2.4 Green bonds and sustainability

Green bonds relation to sustainability is unquestionable as it is embedded in its purpose of being a financial instrument aimed reaching the targets of the Paris climate agreement and the environmental related SDGs (Migliorelli & Dessertine, 2020). Only recently the relationship between green bonds and sustainability has come to scholars attention, despite being one of the financial instrument that funds green and climate friendly asset and projects (Climate Bonds Initiative, 2018). The study of Hanif et al. (2019) emphasizes that expanding the green bond market has the potential to help mitigate carbon emissions. In fact, green bonds have shown to have a positive impact on companies’ environmental performance. After issuing green bonds, Flammer (2021) found that these companies had reduced their carbon emissions and improved their environmental ratings. Nevertheless, within the context of the corporate transition to carbon neutrality Tuhkanen & Vulturius (2020) assessed that green bonds were not rigorous enough as the issuer’s green bond frameworks were lagging behind the issuer’s climate targets and the reporting after issuance fell short. They argued that more external pressure was necessary for green bonds to lead to an outcome that is within our planetary boundaries.


17 Furthermore, the “additionality” of green bonds or the added value that green bonds provide has been questioned, as green bonds might not change how the capital is allocated (Maltais & Nykvist, 2020). On the other hand, the EU TEG on sustainable finance (2019) argues that the concern about the added value of green bonds comes as a result of a misunderstanding of the refinancing role of green bonds. The expert group stresses that green bonds provide certain requirements for the issuer when it is used to refinance an asset or project, as green bonds are linked to the sustainability targets of the issuer (EU TEG on sustainable finance, 2019). Yet, green bonds could be perceived as more effective than they actually are, as their environmental benefits are emphasized by the issuers. This could create the perception that green bonds shift capital to new investments, which is mostly not the case. (Maltais & Nykvist, 2020). A recent study by Maltais & Nykvist (2020) investigated the role of green bonds in advancing sustainability by interviewing investors and issuers from both the private and public sector in Sweden. The study indicates that green bonds provide some financial incentives, but mostly emphasized the influence green bonds had on integrating sustainability in the internal operations of issuers and raising sustainability ambitions of the organization. The respondents of the study also highlighted benefits like signaling effects and advantages in attracting customers and staff. An increased dialogue around sustainability between investors and issuers had also been observed. Finally, green bonds have been correlated with more investment into environmental performance (Maltais & Nykvist, 2020). Simultaneously, strong reasoning to believe that green bonds have become a captivating and an efficient financial instrument to address sustainable development derives from the OECD, which distinguishes several environmental improvements with regards to this green financial strategy. Some of these including promoting higher transparency and having the potential of a cost advantage in contrast to “brown” or in other words, conventional bonds (Sartzetakis, 2020). In fact, Carvalho, (2018) concludes in his study comparing the main climate finance instrument options for Canadian municipalities that green bonds are a transparent and accountable alternative, which can be reinforced through external monitoring.

The literature review aims at providing the reader with the current state of knowledge about the contributions of green bonds towards sustainability. While scholars have


18 largely been focusing on the financial contributions, the studies mentioned in the last paragraph, provide first insights about the non-financial contributions of green bonds towards sustainability. Thus, the different contributions found in the literature will serve as guideposts for this study. Nevertheless, more investigation is needed to understand the whole scope of contributions of green bonds to advancing sustainability. This study will investigate this phenomenon in the context of municipalities.



3 Chapter: Methodology

In the attempt of describing our research methodology and the methods used in our research in the most understandable way possible, the structure of this chapter is guided by the diagram below, which organizes the fundamental methodological choices into layers starting from the outer layer (Saunders et al., 2019). Thereafter, it will provide arguments for the quality and trustworthiness of the study and outline the ethical considerations taken when conducting the study.

Figure 2 The 'Research' onion by Saunders et al. (2019)

3.1 Research Paradigm

By discussing the research paradigm utilized, this section aims at clarifying the underlying assumptions and set of beliefs that the research rests on. To provide a brief overview, the two extremes of a continuum of paradigms in research are called positivism and interpretivism. Within this spectrum several other research paradigms have emerged over the years. Positivism, having its origin in the natural sciences, mostly employs quantitative data and a deductive approach and rests on the premise


20 that reality is singular and objective. Whereas interpretivism mostly is associated with qualitative methods and rests on the assumption that there are multiple subjective realities. This paradigm acknowledges the perception of study participants and aims at studying a social phenomenon through interpretative means. (Collis & Hussey, 2014). Positivism and its deductive approach, often operating in established research fields with existing theories, was perceived as inadequate for the endeavor of this research (Collis & Hussey, 2014). An interpretivist paradigm was adopted to fulfill the purpose of the study. Its inductive approach allows a wide array of emergent knowledge to be taken into consideration, which can be applied to a theoretical foundation (Bhattacherjee, 2012). Interpretivism provides the opportunity to account for the distinct traits and context of the cases being studied, which is a substantial aspect of this research (Bhattacherjee, 2012). Additionally, employing such a paradigm allows for a more in-depth study of the phenomenon to uncover latent knowledge and create richer understandings, which is crucial to answer the research question of this study. From an epistemological and axiological perspective, the study relies on interviews with experts in the field, which implies a certain degree of subjectivity, both from the participants perspective and from the researchers conducting the study. Another advantage of using this paradigm concerns its ontological assumptions, which acknowledges study participants providing heterogenous answers to the inquiry (Collis & Hussey, 2014).

3.2 Research Approach

Due to the need of empirical data observation for the study’s purpose, inductive research being a method of theory building becomes the most accurate approach to employ. Given the lack of theorizing in this domain, the authors see necessary to engage in an inductive study where they can contribute to new insights. Undertaking an inductive reasoning allows the development of theory through observation of multiple sources (Collis & Hussey, 2014). This reasoning becomes crucial as the main purpose of this study is to allow emergent research findings from frequent, dominant, or significant themes in the empirical data (Thomas, 2006). The motive behind utilizing an inductive reasoning rather than a deductive one, stems from the impetus


21 of the study. This research involves developing theory from the empirical data rather than testing already developed conceptual and theoretical structures from the literature that will then, be compared and examined by empirical observation (Collis & Hussey, 2014).

3.3 Methodological choice

A study can employ either a qualitative or a quantitative method. Acquiring qualitative data entails collecting and analyzing empirical evidence through for example, interviews, along with the use of other non-numerical and interpretative methods. Whilst quantitative data in contrast, focuses on the collection of quantifiable data through analyzing and testing in a statistical manner the data under consideration (Collis & Hussey, 2014), which is not recommendable for this nascent research field due to the lack of statistical data allowing no logical comparative studies. In line with the purpose of the study, the most appropriate research method to proceed with and the one chosen, has been to use a qualitative method. This one aims at investigating the participants perceptions and understandings, concerning the contributions green bonds provide in advancing sustainability in municipalities. In other words, exploring the relationship between sustainability and green bonds. By choosing to use a qualitative method, the research reaches a subjective conclusion which allows the researchers to identify assumptions, whether individual or shared, that shape realities anent to the research purpose (Silverman, 2020).

3.4 Research design

Under the spectrum of the interpretivist paradigm there are several research designs, which serve different purposes and can differ slightly in terms of their philosophical assumptions (Collis & Hussey, 2014). A case study design is advocated for, as the contributions from green bonds to sustainability can be latent and context dependent and it is substantial to obtain in-depth knowledge that acknowledges the study participants context. Case studies can be performed as a single case study or multiple-case study, which in the latter alternative involves more than one multiple-case (Collis & Hussey,


22 2014). This research was conducted as a multiple case study on five Swedish municipalities. A multiple-case study design was preferred above a single case study since the data collection from several municipalities would lower the risk of misrepresentation and provide more compelling and robust evidence. Moreover, the study adopts a holistic approach towards each case, which means that subunits of the cases are not specifically addressed, and a global standpoint is taken towards each of the cases (Yin, 2018).

Finally, an exploratory case study design was deemed to be an adequate approach to satisfy the exploratory purpose of this study. Focusing on investigating the relationship between green bonds and environmental sustainability advancements. Utilizing such an approach provides the needed flexibility and independence concerning the research design and data collection. This is a suitable approach, as there are few theories and a deficient body of literature in this field of research. Hence, the study wants to define the relevant questions, research directions and clarify assumptions to provide a foundation that subsequent research can build on (Mills et al., 2010). The multiple cases are important in the context of this exploratory case study to provide an augmented understanding of the phenomenon that has not been defined by prior research. Utilizing several cases can provide more depth to the findings or a broader range of findings, which helps filling gaps and overcoming some of the shortcomings of individual cases (Saunders et al., 2019).

3.5 Time horizon

The research was conducted over a period of one university semester by three researchers. Having a relatively short time frame, it was crucial to work on sections simultaneously and thoroughly plan the process to overcome some of the time constraints. Being three researchers allowed for a larger number of cases to be used and the research to cover a broader scope than would have otherwise been possible. Given the mentioned time frame, this research is designed as a cross-sectional study, which means conducting the research on a phenomenon at a particular point in time. Using a metaphorical explanation, the study merely provides a snapshot of the


23 phenomenon and does not consider the changes and development of the study participants that occur over time (Saunders et al., 2019).

3.6 Data Collection

For this study, an interview method was conducted as a form of collecting primary data from first-hand sources. Collecting data through an interview method is done with the intention to understand the subjective meaning behind the experiences of the participants. The researchers aim to understand new and unforeseen insights upon a phenomenon instead of imposing assumptions previously collected through secondary data (Qu & Dumay, 2011). By following a qualitative approach, the need to contextualize is crucial for the validity of the study, hence background information about green bonds must be gathered in order to proceed with the research and therefore, understand the data within its context (Collis & Hussey, 2014). The secondary data utilized for the study consisted of textbooks, peer-reviewed articles, reports, and internal documents provided by the participants under the study, allowing the researchers to acquire enough knowledge upon the phenomenon under study to guide the data collection and later the analysis.

3.7 Sampling Method

The sampling for the data collection was assisted by a first-hand intermediary from the Climate Council of Jönköping municipality. One of the researchers had already worked with the Climate Council in Jönköping on a project on green bonds, and therefore a contact to the administrator of the Climate Council was already established. The Climate Council has several focus groups, one of them being on sustainable investments, which includes several professionals from the public and private sector in the county of Jönköping. This initial pool of individuals being active in the field of sustainable finance served as a springboard to access the individuals that would be in close contact with the research phenomenon and have the right knowledge. Through the recommendations of these individuals, the researchers received further contact to professionals working with green bonds in different municipalities and experts in the


24 field, which in turn provided further contacts for potential interviewees. Thus, a snowball sampling method was utilized as it ensured accuracy on the data collection, to identify individuals who would meet the sampling criterion, instead of the researchers improperly choosing samples which may not entail for the study. Nonetheless, it is recognized and understood by the researchers that asking study participants for potential contacts could compromise the sample frame (Ritchie et al., 2013). The data collection process concluded by drawing data from five different municipalities and three external informants who contributed to strengthening the study’s findings.

3.8 Interviews

By reason of the COVID-19 pandemic, physical interviews were eluded. Thus, the contact process with the participants fell strictly under online methods such as “Microsoft Teams” calls, telephone calls, e-mails, and the like. Nonetheless and because of the importance of the subjectivity from the interviews, video calls through the “Microsoft Teams” platform were performed to recognize to a full extent the human behavioral patterns the researchers would not manage to discern otherwise. The primary data was collected through other ways such as e-mails or phone calls. The aim of interviewing the participants was to explore and understand from a firsthand experience the possible contributions green bonds provide in municipalities to advance sustainability. The design of the interview questions was constructed in three different sections (Appendix A). At the start of the interview, specific questions were asked to understand the participants professional positions within the municipalities. Following their relation and experience with green bonds or green loans. These focused personal questions were placed as introductory questions to start the interview broadly and avoid directing the conversation onto the actual contributions in question. This design was to facilitate the researchers to follow up the volatility of the conversation to ask the correct questions dependent on where the conversations were headed. With respect to the participants field of work, questions were asked in an aim to perceive the initiatives to having worked with green bonds, for what reason and to grasp how these influenced the municipalities to work in a


25 transition towards sustainability. These types of questions were designed to be in the middle section to allow a greater in depth of investigation, where emergent questions and probes would raise if needed in response to the interviewee’s answers (Collis & Hussey, 2014). Lastly, the interview process finalized with concluding questions which permitted the interviewee to rethink and reflect upon additional attributions of green bonds in the case they might not have thought off previously. During the interview it was important to avoid any personal influence from the researchers onto the participants, which could cause biased answers. The interview questions were also guided by a replication logic, by using the same interview guide in each of the municipal cases and keeping the timeframe of the interviews similar to one another.

Due to the research being done in English but performing it in Sweden as a study area, the possibility to conduct the interviews in Swedish was offered to avoid potential misunderstandings. As a result, two of the five case studies accepted such offer and proceeded the interviews in the Swedish language. Additionally, three other respondents accepted to be interviewed to assist the research with supporting evidence, which interviews were conducted in English.

3.8.1 Semi-structured interviews

Due to the nature of an interpretivism approach, a need surged to understand divergent interpretations. Thus, to conduct an interview with the attempt to explore emergent themes, understand the participants interpretations and experiences and to acquire deeper insights, a semi-structured interview method is utilized. This method is conducted where a set of predetermined questions are asked as well as follow-up questions, that can emerge granting a chance to further explore underlying assumptions of an important manner to the participant. Thus, ensuring flexibility to the issues addressed (Clifford et al., 2016). A set of systematic and consistent themes are brought throughout the interview, however, by employing a semi-structured interview, probes can be raised leading to a wider spectrum of responses (Qu & Dumay, 2011).


26 Table 1 Interview information of the five municipalities

Municipalities Participants Position Duration

(min) Date

Skövde Bas Tijssen Finance Controller 56:12 March 11, 2021 Göteborg Fredik Block Portfolio Manager 50:48 March 11, 2021 Borås Susanne Arneborg Strategic Planner 53:05 March 16, 2021 Jönköping Eva Nilenfjord & Antonio Cala CFO & Finance manager 43:54 March 17, 2021 Vaggeryd Jörgen Hansson CFO 01:01:47 March 18, 2021

Table 2 Interview information of the three external experts

Organizations Participants Position Duration

(min) Date

Kommuninvest Björn Söderlundh Finance Controller 30:33 March 10, 2021 Länsförsäkringar

Jönköping Jesper Rundbäck CFO 27:08 March 12, 2021 Region

Jönköpings län Mattias Olsson Finance Manager 45:01 March 18, 2021

3.9 Data analysis

Once the interviews had been conducted, the recordings of the interviews were transcribed verbatim rather than re-writing it into a written and more formal form. More detailed speech patterns like intonation and emotional expressions were not included, as it would not provide additional information to answer the research question. Based on the interview transcripts the data analysis was performed through an inductive thematic analysis. This method aims at identifying, analyzing, and revealing patterns from textual data, which is referred to as, themes. As opposed to a theoretical thematic analysis, where themes are determined prior to the data collection, the inductive thematic analysis is close to the data and adopts an approach, where the themes emerge from the collected data. Further, the analysis was performed on an


27 explicit level, focusing only on what the interviewee had said, rather than on a latent level, which goes beyond and examines underlying ideas and assumptions (Saunders et al., 2019).

The first stage of the data analysis consisted of reducing the data, which was initiated by coding the interview transcripts. First, the three researchers conducting the study read through the transcripts several times for a general overview of the collected data. Then, in a systematic manner the researchers gave labels to passages in the transcripts that were of interest for the study. During that process reflections and observations were noted as well as reoccurring patterns to facilitate the further analysis. Notes were taken next to the codes to aid the allocation to themes. Following this, for each individual case the data analysis moved the codes to more abstract levels of aggregate dimensions (Appendix G). For illustrative purpose this process is shown in the table below for the case of Borås municipality.

Table 3 Codes, themes and aggregate dimensions of Borås municipality

1st order category 2nd order themes Aggregate


…how you can show investors what the green bonds have done

…how much CO2 and how you should calculate and to be transparent exactly how you calculate that and how we should do our reports

Provide transparency Transparency

…it has been lots of fun to work with economics department and to get to know each other and develop the same language

…the first thing that happened when we got a loan was that I met the chief of economy for the first time Cross collaboration between departments Collaboration between departments

…the green bond framework from

Kommuninvest sort of gets a framework for us too and then we could in our investment plan …and the energy bill should be like this and this we took from Kommuninvest

…use it as a help deciding the energy level

Guide for

municipality standards



…but then we also say within 4 years everybody has to be within this framework

…a way of showing what the politicians want, we want everybody to have green projects and this is our framework and you have to be within this limit

Setting targets & Tool for implementing green agenda

…its cheaper but that is so little so it is not a big deal

…we have a green loan so they also get a cheaper loan from the municipality

Lower interest rate Financial incentives

…we have asked several municipalities, how are you working with the climate issues and the carbon budget

Discussion between

municipalities Knowledge exchange

…show their own politicians and inhabitants that our project is a green project

…it is sort of a stamp

Signaling Signaling

The data was first analyzed internally by doing the coding and categorization process described above for each individual case. This allows the patterns of each of the cases to be identified before they are generalized across the cases (Eisenhardt, 1989). The rationale of such an approach is to keep the integrity of each case and only thereafter synthesize the patterns across the cases. Hence, in the next step the cases were analyzed externally to examine patterns across the cases. This also entails investigating the literal replication of the within-case patterns expressed in themes and dimensions (Yin, 2018). The previous research on green bonds and sustainability outlined in the frame of reference was used as an analytical framework to interpret and reflect on the empirical findings both in the within and cross-case analysis. One of the main reasons for conducting a cross-case analysis was to avoid taking false conclusions because of information-processing biases. The tactic used for the cross-case analysis was to select dimensions to assess the similarities and differences across the cases. These dimensions emerged from the most reoccurring themes across the cases: Financial incentives, cooperation, communication and awareness, and structure and requirements. Overall, the process of data analysis was an iterative process going back and forth between the data and the internal and external analysis and the associated themes and dimensions (Eisenhardt, 1989). Finally, the authors created a model to visualize the broad areas of contributions of green bonds towards sustainability, which facilitated the process of


29 crafting a conclusion. For a clearer understanding of the data analysis the steps were summarized in the figure below.

Figure 3 Overview of the data analysis process.

3.10 Quality of research

To display the quality of this research, this section is going to outline the extent that the study is meeting certain quality criteria. These criteria aim both at communicating how rigorous this study has been conducted and how it can be used or generalized. The traditional way of assessing the quality of research uses criteria such as validity and reliability, which corresponds well to quantitative research, but is of limited applicability for qualitative research (Saunders et al., 2019). Since the aforementioned criteria do not sufficiently consider the interpretive traits and assumptions of qualitative research, parallel versions of these criteria were used to suit the specificities of qualitative research, which are outlined in the sections below (Saunders et al., 2019).

3.10.1 Credibility

The credibility refers to whether findings of a qualitative research are plausible (Zach, 2006) and consists of a range of strategies to ensure that the findings correctly reflect the information conveyed by the study participants (Saunders et al., 2019).

Firstly, to strengthen the plausibility of the findings it was thought necessary to opt for a multiple-case study, rather than a single case study. Thus, the findings are grounded in multiple sources of empirical evidence. The data collection follows all the indispensable steps required from a multiple-case study based on interviews. Likewise, the data analysis has been carefully designed to use an appropriate method and considers the requirements from the thematic analysis and the internal and external analysis, which are widely accepted by the research community to analyze multiple-case studies (Eisenhardt, 1989).

To ensure further credibility of the findings the multiple-case study followed a literal replication design, which Yin (2018) refers to as selecting cases that are predicted to





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