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What is the Nordic Environment Finance Corporation (NEFCO)?
In this article, we'll explore the Nordic Environment Finance Corporation (NEFCO), an international green bank founded by the Nordic countries. We'll delve into how NEFCO finances small and medium-sized enterprises (SMEs) in the Nordics, contributing to global environmental solutions. We'll also examine NEFCO's broader impact, from enhancing environmental practices in Eastern Europe to fostering sustainable development in Sub-Saharan Africa and improving the Baltic Sea's ecological health.
👉 This article explores the role of NEFCO in funding climate initiatives both in the Nordics and internationally.
What is NEFCO?
The Nordic Environment Finance Corporation (NEFCO) is an international green bank established by the five Nordic countries. NEFCO primarily focuses on funding Nordic green solutions led by small and medium-sized enterprises (SMEs) that might otherwise miss out on financial support. Through the provision of this financing, NEFCO supports international climate targets and facilitates the global scale-up of Nordic green solutions for further reach and impact.
In addition to supporting and up-scaling Nordic SMEs, NEFCO also focuses on the following priorities:
- Assisting towns and cities in Eastern Europe, especially in Ukraine, in adopting more environmentally friendly practices;
- Enhancing and preserving the Baltic Sea's ecological health by experimenting with innovative technologies, solutions, or concepts;
- Promotion of business models that expand the availability of clean, off-grid energy and contemporary cooking solutions in Sub-Saharan Africa.
👉 Learn more about how the Nordic countries are tackling climate change together.
NEFCO specialises in identifying and nurturing high-impact projects that may be too risky for traditional financing methods. This approach has enabled a wide variety of initiatives, from reducing pollution and enhancing renewable energy sources to protecting biodiversity and addressing climate change. NEFCO's success lies in its ability to bridge the gap between environmental needs and practical financial support, making it an important body in the international effort to build a more sustainable future.
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NEFCO’s funding and focus areas
The Nordic Environment Finance Corporation (NEFCO) was founded in 1990 by five Nordic countries: Denmark, Finland, Iceland, Norway, and Sweden. These countries provided capital to the fund, which is used for lending and equity-type financing. Funding continues to be supplied by the capital provided by these Nordic countries as well as through trust funds financed by various contributors.
💡 All earnings are reinvested in new projects: The initial paid-in funding from the Nordic countries amounted to EUR 113.4 million, however, NEFCO has been able to invest EUR 375.5 million thanks to profits - this is 3.3 times its original capital!
Believed to be the world’s “first green investment bank” NEFCO mainly offers financing to small and medium-sized Nordic enterprises that are traditionally seen as too risky for commercial banks. NEFCO however, is willing to take a risk where there is potential for up-scaling and some kind of environmental benefit. The ultimate aim of the fund is to “generate direct or indirect environmental or climate-related benefits”.
Additionally, NEFCO aims to leverage its investments to attract additional financing, thereby amplifying the impact of its projects. NEFCO's “high risk tolerance for financing small projects and growth-phase companies” makes the projects more attractive to other lenders and motivates other financiers to invest.
👉 Discover the role that investment plays in the green transition on our blog.
NEFCO’s mission
At the heart of the Nordic Environment Finance Corporation (NEFCO) is its ambition to facilitate environmental improvement and sustainable development. Its goals are aligned with the Nordic Vision 2020, the EU Green Deal, the Paris Agreement, and the Kunming-Montreal Biodiversity Framework. NEFCO's core objective is to generate positive environmental results through financing and investment, though it also performs a fund manager role and helps to implement and support projects through its partnerships.
Although financing is primarily focused on Nordic SMEs, NEFCO also supports projects that impact Eastern Europe, emerging countries, and LDCs (least developed countries). Its three business focus areas are:
Global scale-up of Green Nordic SMEs
NEFCO offers financing to Nordic small and medium-sized enterprises (SMEs) with environmentally friendly solutions, helping them to expand globally and contribute to the green transition. Their assistance includes market-rate loans, equity-type funding, and support for feasibility studies focused on international growth. For SMEs with proven green solutions ready for scaling up internationally, NEFCO's financing options can facilitate this growth.
Municipal financing in Eastern Europe
NEFCO has a history of creating positive environmental impacts in Eastern Europe through green investments. With significant experience in collaborating with municipalities, NEFCO finances various projects, aids in capacity building, and monitors outcomes. As an international financial institution, it manages risks associated with lending to medium-sized and small municipalities. Currently, NEFCO is financing projects in Georgia, Moldova, and Ukraine, utilising both loans and grants. These projects vary from energy-saving initiatives to green recovery efforts in Ukraine. Additionally, NEFCO offers technical assistance for feasibility studies and support for project implementation linked to the projects it finances.
Special funds for international development initiatives
NEFCO helps finance and implement groundbreaking projects across the world that focus on climate action supporting a healthier Baltic Sea, and the promotion of sustainable development in Sub-Saharan Africa. Examples of initiatives include:
- The Beyond the Grid Fund for Africa (BGFA) - this project supports clean and affordable off-grid energy solutions in Sub-Saharan Africa.
- The Modern Cooking Facility for Africa (MCFA) - this initiative uses green financing to help up-scale access to modern energy green solutions, impacting over 3 million people.
- The Baltic Sea Action Plan Fund (BSAP) - this project improves the ecological health of the Baltic Sea through a number of different initiatives.
- The Nordic Initiative for Cooperative Approaches (NICA) - through international partnerships, this initiative demonstrates how cooperation can scale up and accelerate climate action, as well as mobilise private sector finance.
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NEFCO’s role as trust fund manager
NEFCO not only manages its own funds, it also manages funds for various donors, including Nordic governments and the Nordic Council of Ministers. The total value of these funds stood at EUR 653 million at the end of 2023.
These funds are often used to facilitate project implementation, for example, they may fund feasibility studies or help provide technical assistance. They also focus on capacity building and supporting the development of sustainable businesses and solutions in new markets.
In some cases - mainly projects focusing on the municipal sector in Eastern Europe - the funding is mixed, combining both loan financing and financing from a trust fund.
NEFCO trust fund projects are also notable for their wider focus, in addition to environmental and climate objectives, they may incorporate social impact objectives such as job creation and gender equality.
NEFCO’s role as implementing agency
NEFCO works as an implementing agency for various global partnerships and organisations, helping to speed up the shift to green energy and sustainability. Notable partnerships include:
- European Union - NEFCO has been involved in environmental projects co-funded by the EU. It passed the European Commission’s Pillar Assessment in 2016, qualifying to manage EU funds. In 2022, NEFCO also met new EU Financial Regulation standards. This allows NEFCO to combine EU funds with its loans, aiding smaller and financially limited cities in Eastern Europe to become more sustainable. In Ukraine for example, EU-funded efforts are focused on green recovery through grants.
- E5P -The Eastern Europe Energy Efficiency and Environment Partnership (E5P), started in 2009 under the Swedish EU Presidency, promotes energy efficiency and environmental projects in Armenia, Georgia, Moldova, and Ukraine. E5P grants motivate municipalities to seek loans for these projects.
- GCF - NEFCO was recognised by the Green Climate Fund (GCF), the world's largest climate fund, in 2018. This accreditation enables NEFCO to mix its financing with GCF funds and other trust funds, helping to create financial solutions for sustainable growth in developing countries.
NEFCO’s projects
The Nordic Environment Finance Corporation (NEFCO) has made a significant impact through its projects, enhancing sustainability and benefiting local communities in the process. Let’s take a look at some of the projects that NEFCO has supported:
Upgraded street lighting networks in Ukraine
In Zhytomyr Oblast, Ukraine, NEFCO managed EU grant funds to modernise street lighting in the municipalities of Andrushivka and Radomyshyl. Despite challenges posed by the ongoing war, these projects enhanced community safety and energy efficiency.
In Andrushivka, about 400 street lights were upgraded, and in Radomyshyl 700 street lights were modernised, improving energy efficiency and helping to improve visibility, and contributing towards safer driving conditions.
Reduced shipping emissions with rotor sails
Norsepower, a Finnish innovation, has partnered with NEFCO to reduce emissions in the shipping industry using its rotor sails technology. These sails, capable of reducing fuel consumption by 5–25%, address the significant CO2 emissions produced by maritime transport.
NEFCO's funding also enabled Norsepower to establish a factory in China, enhancing its global reach during a challenging economic period. As a result, Norsepower is positioned to make a significant impact in reducing the environmental footprint of the shipping industry, demonstrating the power of innovative technology and strategic financing in tackling global climate challenges.
Energy-efficient school in Ukraine
Through a joint effort by the European Union and NEFCO, the Susk lyceum in western Ukraine has undergone significant energy efficiency upgrades. This project has revitalised an old school building, benefiting nearly 200 students and staff, including Internally Displaced Persons (IDPs). The improvements have created a healthier and more comfortable learning environment, addressing the school's outdated heating system, poor ventilation, and energy inefficiency.
The renovation, which began in 2021 and was completed in 2023, included enhancing insulation, modernising the heating system, and introducing mechanical ventilation. These changes not only reduced energy costs and reliance on fossil fuels but also significantly improved indoor air quality. The project's success goes beyond energy savings, deeply impacting the well-being of the school community. This initiative is part of NEFCO's broader efforts to support Ukraine's green recovery and resilience.
Weather stations for offshore farms
Norwegian company Automasjon og Data, known for weather station technology, expanded into the offshore wind power market with NEFCO's funding. This shift allows them to provide vital weather data for maintaining offshore wind farms. Their expansion into the UK and Southern Europe, aided by NEFCO, marks a significant move from the oil and gas industry to renewable energy.
👉 Learn more about green banks in our article.
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