We are ready to take financial risks if there is a green upside
Nefco’s main priority is to invest in economic activities that lead to positive and tangible environmental or climate impacts. These include saving energy and reducing emissions, pollution, harmful discharges or hazardous waste. We also look for activities that generate economic and social impacts such as business growth, a stronger competitive edge and job creation.
Additionally, we finance feasibility studies and technical assistance through various trust funds to facilitate capacity building and development of sustainable business solutions. These do not lead to immediate environmental impacts but rather facilitate project implementation in the near future.
EU Taxonomy assessment
For projects approved in 2022, Nefco has actively used a full EU Taxonomy alignment analysis on a best-effort basis for its investments, evaluating Eligibility, Substantial Contribution (SC), Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS) criteria. Of these investments, 83% were EU Taxonomy eligible and 63% considered partly aligned. Note that ‘green’ is not defined by the EU Taxonomy alone. For economic activities that are not yet covered by the EU Taxonomy, we use our own definitions based on the spirit and logic of the EU Taxonomy.
Read more in our Impact Report 2022.
Project activity impact in 2022
Our impact in 2022
Nefco's impact report
In 2022 almost 80% of our Nordic SME financed were EU Taxonomy eligible, we initiated a pioneering Biodiversity Pilot Programme, we began recovery actions to build back greener and better in Ukraine and activities in the funds we manage increased.
Focus on projects with high demonstration value
An essential objective of Nefco’s financing activities is to support the scale-up of new transformative technologies and solutions. We primarily finance small and medium-sized projects that demonstrate new technologies or solutions with the potential to be replicated. Our financing supports the testing of green innovations in new markets. This is what we refer to as high demonstration value.
Projects with a high demonstration value have the potential for environmental impacts worth many times Nefco’s initial investment. A demonstration project provides an indication of how well a solution can be adopted at scale and what kind of impact it can generate. Trying and testing is a bottom-up approach. It’s a real-life alternative to top-down spending. The ultimate goal is to accelerate the green transition.
Providing high additionality
As an international finance institution, Nefco’s role is to fill a financing gap that cannot be covered by other financiers for projects that meet Nefco’s criteria. The goal is to promote new solutions, reduce implementation time and accelerate the green transition. When there is a green upside, we can take greater financial risks than are normally accepted by commercial banks and financiers; in many cases, projects would never be implemented without our financing. This is referred to as additionality.
Our higher risk tolerance for financing small projects and growth-phase companies makes projects bankable and often mobilises other financiers to invest, building capacity for the future needs of project owners.
Environmental and social risks
Nefco applies risk-reduction measures in its operations. We apply the mitigation hierarchy, which aims to avoid, minimise and restore adverse impacts in project design and during operations.
All projects should be carefully designed and implemented to sufficiently mitigate their potential environmental and social risks. In certain cases, clients are requested to prepare an Environmental and Social Action Plan (ESAP). The purpose of the action plan is to reduce sustainability risks to an acceptable level and improve clients’ sustainability practices. Action plans must be approved by Nefco and form part of financing agreements.
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