Iceland consistently ranks as the most gender-equal country in the world, according to the World Economic Forum’s Global Gender Gap report. The “land of fire and ice” also has an abundance of renewable energy, with almost 100 per cent of energy consumed by the country coming from renewable sources such as geothermal energy.

But even countries that are in relatively good shape on gender and climate still need to tap the ESG bond markets, as Iceland’s minister of finance and economic affairs, Sigurður Ingi Jóhannsson, told The Banker. 

He was visiting the London Stock Exchange on May 31 where he opened the day’s trading to mark the occasion of Iceland’s inaugural green bond valued at €750mn, which it issued back in March under the country’s sustainable financing framework. The green bond attracted a record 280 investors, the biggest interest shown from investors in an Icelandic transaction, according to the Icelandic government.

Green, social and blue bonds can be issued by Iceland’s treasury through the framework, which it published in 2021, and updated last year. Jóhannsson spoke to The Banker about the country’s sustainable financing framework and its plans for future issuances, including a gender bond. 

The interview has been edited for clarity and brevity.

Q: Why did Iceland issue its first green bond earlier this year?

A: Iceland has worked on its sustainable financing framework and we have used the last few years to consider the latest news and developments on green bonds and how the market is responding. The sustainable financing framework that we were working on in 2021 was a little bit delayed initially due to a general election in Iceland and the Covid-19 pandemic. So you have to choose when you think is a good time to issue a green bond, and that time for us was now.

Being a very green country, it is also like a statement: We want to live up to our image. We started with a green bond because we aim to be carbon neutral by 2040 and totally get rid of fossil fuels by 2050. The bond will help finance the transition in Iceland. 

We have already done a lot in the past few decades — with 84 per cent of energy coming from renewables — but there are still a lot of things to invest in, such as roads, the maritime industry, green buildings and adaptation to climate change. We are looking to get funding on all of these areas within the framework. 

The green bond was welcomed by the market; there were over 270 investors taking part such as central banks and official institutes, bank treasuries, insurance companies and other institutional investors, mainly from northern Europe. The final issuance size was nine times what was initially offered — we have never seen anything like that. We also had broader investors than we have had before. It’s a high-quality investor group and the majority tend to hold it to maturity, so there’s actually more demand for it than supply. Proceeds from the bond issuance in March are for finance expenditures from 2024-2026. 

From northern Europe’s perspective, the green bond showed that the Icelandic economy is strong and that everything we are doing inside of the sustainability framework is good. The market is looking forward to what we are going to do next. 

Q: Does Iceland have plans to issue more bonds, and if so, what type?

A: There won’t be another green bond this year, but we don’t know about the future. We are also exploring gender bonds; that is our next step. Even though we are at the forefront [of gender equality], we want to lead by example. By doing this, we could encourage other countries to do the same.

Gender bonds will clearly help us in co-operation with other countries [such as support for other countries as they look to improve gender equality], but we will also find some interesting projects domestically in Iceland because even though we are at the top in terms of gender, we still do not have total gender equality.

But being at the forefront of gender equality for many years helps us in a positive way to gain more credibility with gender bonds because we have a story to tell about it. We anticipate a lot of investor interest when we issue a gender bond. [Jóhannsson gave no indication as to when a gender bond is likely to be issued.]

Blue bonds are also in our sustainability framework, so they are a possibility for the future. We are quite lucky with the sustainable fisheries policy that we have had for a few decades, which is probably the most efficient in the world, and means our oceans are still quite clean.

Q: What challenges does Iceland face when it comes to the energy transition?

A: The biggest transition challenges we face are in [the] road transport and maritime [industries]. We have done a lot in terms of electrification of cars. Last year, the majority of imported cars were electric cars. The challenge is more in heavier vehicles and maritime transport, even though they have succeeded in replacing the use of fossil fuels, almost by 43 per cent in the last 10 to 15 years.

For heavier vehicles and maritime transport, the biggest challenge is the lack of an alternative energy source: it could be hydrogen or ammonia. We have to invest in these alternative energy sources in Iceland, as well as in other countries producing them, because there will be much more demand in the next decade than we will be able to produce domestically. Green bonds can help fund the production of those energy sources. As a small nation, if we are able to produce hydrogen, for instance, for the maritime industry or for heavy vehicles, even for aeroplanes in the future, we could also export it to other countries.

We are on track to achieve carbon neutrality by 2040, but investment in the next few years is critical, and not only investments by the government, but also by municipalities and companies. I cannot not say with 100 per cent certainty that we will succeed. But without this goal, we will certainly not get there.

Developing the sustainability framework was also about gaining the verification and certification that what we are doing meets expectations, and that the policies we are working on, both environmentally and economically, point in the same direction. We are on a clear path to invest more in the green and just transition, which is where a gender bond could help.