05.03.2020 | Insight
Having financed exclusively green projects for 30 years, NEFCO has vast experience of sustainable financing. Senior Manager Mikael Reims, Head of Origination at NEFCO, has worked for many years with Nordic companies aiming for growth on international markets with their green solutions. We discussed the recent trends and development of NEFCO’s financial instruments over the years.
How does NEFCO contribute to the upscaling of Nordic solutions globally?
“NEFCO does in fact have long experience of implementing Nordic private sector projects on global markets, even though the main focus of our investment activities has traditionally been on projects in Eastern Europe. Through NEFCO’s many Trust Fund assignments over the years, however, we have helped to implement Nordic environmental technologies and climate solutions on international markets. In 2017, NEFCO’s mandate was revised, which opened up for investments on a global scale. So far, our focus has been on upscaling solutions developed by Nordic small and medium-sized enterprises (SMEs) and midcap companies.”
“Our financing under the global mandate has been well received by our customers, and we are seeing great demand among Nordic SMEs for financing of projects that are being implemented outside the Nordic region and Europe,” explains Reims. “This instrument, which allows us to provide loan and risk capital, has in many cases served as a catalyst for getting other investors on board,” continues Reims.
“Our customers operate in a number of different sectors: energy, cleantech, water treatment and industrial services, as well as sustainable fishing and aquaculture. We also expect to see more of other areas such as circular economy solutions in the future.”
How does NEFCO’s financing create added value and growth for Nordic companies and their green innovations?
“Currently, we can offer financing throughout the internationalisation process, starting from grants for feasibility studies for the assessment of new markets to loans and equity-type financing for establishment and continued investments in these new markets,” Reims points out. “In the Nordic countries, there is a clear lack of risk capital for the environmental and cleantech sectors, in particular during the upscaling and early growth phase, something which was also made evident in the report An integrated and effective Nordic ecosystem for innovation and green growth, commissioned by the Nordic Council of Ministers in 2018.”
An important financier for Nordic companies growing internationally
NEFCO has an important role as a ‘gap filler’ by providing grants and risk capital for small and medium-sized projects that have difficulties securing funding from commercial banks and other institutions.
NEFCO provides grants for internationalisation to approx. 70 Nordic SMEs annually. How important is this support for the companies to establish operations on new markets?
“We can see that support to Nordic small and medium-sized companies in the early stages of their internationalisation process has a positive impact on Nordic exports and helps to secure workplaces in the Nordic region,” explains Reims. “With a track record of over 35 years, the Nordic
Project Fund (Nopef), which is funded by the Nordic Council of Ministers and administered by NEFCO, is probably the best-established SME instrument in the Nordic region. Since Nopef was founded in 1982, the instrument has financed more than 3,000 feasibility studies, which has resulted in over 1,000 foreign establishments and investments carried out by Nordic SMEs.
“The internationalisation grants allow the companies to put resources into exploring new and often very demanding markets, and to be better prepared than otherwise would have been possible,” says Reims. “The support also helps the companies to avoid unprofitable investments in markets that are not suitable for their products or services, as they have conducted an extensive mapping and risk assessment.”
“From this year, we have extended this support instrument to also cover feasibility studies for demonstration plants and commercial pilot projects for environmental and climate solutions on new markets. These projects also have the potential to create investments in core functions such as research and development in the Nordic countries,” explains Reims. “This opportunity is particularly important for so-called born global firms that need to invest internationally in reference and demonstration projects at an early stage.”
The annual survey NEFCO conducts among companies that have received internationalisation grants shows that the projects have created new jobs, increased Nordic exports and led to investments in the project countries. What trends and results does this year’s survey show?
“For small and medium-sized companies, growing and upscaling on a new market is often a slow process that demands persistence, risk tolerance and a long-term focus. However, we see that a clear majority, 91 per cent of our customers that have launched an international business, are still active in the project country three years after setting up local entities, which represents a very strong survival rate for these projects.”
“Our customer survey also shows that the grants we provide are playing an increasingly important role for the companies’ decisions to expand, with 71 per cent of companies stating that the support they have received has been crucial to their decision to internationalise,” continues Reims.
“The initial investment for Nordic SMEs setting up operations on a new market currently averages approx. EUR 1 million. These projects do however also contribute to additional effects through the use of Nordic subcontractors and suppliers. This year’s customer survey shows that as many as 80 per cent of the companies have used Nordic subcontractors in their investments.”
Contributing to the new Nordic vision
Our vision 2030 was adopted by the Nordic Council of Ministers in August 2019. The goal is to make the Nordic region the most sustainable and integrated in the world. The vision has three cornerstones: a green, a competitive and a sustainable Nordic region.
Can you describe NEFCO’s role in the new vision and how we contribute to it through our financing activities?
“The new vision provides inspiration and concrete objectives for NEFCO’s future work, in particular concerning how we can strengthen our role as a catalyst for Nordic companies to grow globally and to scale up Nordic climate solutions,” explains Reims. “The new vision is also very much in line with our existing activities, having worked with and promoted green investments and Nordic competitiveness since the very beginning when NEFCO was founded in the 1990s.
“For our part, it is also about cooperating with the other Nordic organisations and financial institutions in order to contribute to the vision together,” concludes Reims.
Have a look at our recent financed projects: