21.04.2023 | Insight
There are significant export opportunities for Danish niche companies contributing to the green transition. Nefco finances the initial scale-up of Danish green solutions in new international markets.
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Denmark is renowned for its wind power industry, which has made a lasting mark on energy systems worldwide and developed into a major source of exports for the country. Nefco – the Nordic Green Bank – has financed several wind energy projects through the years but is now turning its attention to the many niche Danish companies that are contributing to the green transition, working on everything from green mobility to the production of carbon-negative biofuel.
Funding for upscaling in new export markets
Nefco – the Nordic Green Bank – provides risk capital to Danish SMEs, aiming to bring green technologies and sustainable solutions to new international markets. According to Bo Eske Nyhus, Investment Director at Nefco, the Danish market has developed significantly, inspired by the ever-increasing focus on the climate and environment and the success of the wind industry as an exporter.
“Sustainability has become a driving force of the business agenda and company strategies, whereas previously the focus was mainly on reducing costs,” says Nyhus. “Again, wind energy is a good example. Technological advancement in the sector took off following the oil crisis and runaway energy prices in the early 70s. Today, companies in all sectors of the economy have started integrating sustainability into their activities. In Denmark, many new niche companies have been established whose entire business models are built around contributing to the green transition.”
The more niche a company’s focus, the more important it is to take an international perspective.
Nefco’s financing is mainly for Nordic growth companies that want to scale up their green solutions and establish themselves in new export markets outside the Nordic region. Nefco provides financing on market terms but is ready to take greater risk than commercial banks – provided a project can provide sufficient green benefit. Nyhus explains that Nefco has financed several wind and solar energy projects but that its current focus lies elsewhere. The reason being that the market for these more established energy technologies has become mature enough for companies to obtain financing from other sources.
“In a Danish context, the most relevant area for Nefco is the many niche companies that supply a wide range of industries and sectors and are part of the green transition. That’s also how we identify the most promising companies that have the potential and capacity to grow internationally.”
International outlook provides volume
Nefco only funds projects that benefit the climate and environment. The institution offers standardised fast-track loans of up to EUR 500,000 to Nordic SMEs, while larger loan agreements are tailored to the individual company. Nefco provides loans and equity-type funding of up to EUR 5 million. According to Nyhus, the international aspect is crucial.
“What matters in terms of nature and the climate is volume. Without volume, there’ll be no real impact. The green solutions we finance must thus be scalable and introduced to global markets. The more niche a company’s focus, the more important it is to take an international perspective. Otherwise, the market for their products and services would not be large enough.”
Among the Danish growth companies that Nefco has financed is the bicycle-sharing service Donkey Republic. The company has grown from having just a few shared bikes on the streets of Copenhagen to offering more than 12,000 of its distinctive orange bikes in more than 70 cities worldwide. GreenMobility has also secured green financing from Nefco to expand its electric car-sharing fleet in Helsinki, Finland, while bioenergy company MASH MAKES has received capital to scale up its production of carbon-negative biofuel in India.
Another example is the Danish family enterprise Engbakken, which has developed a machine for sustainable soil and turf treatment for public parks and other green urban spaces. Engbakken received financing through Nefco’s special loan programme, which helps Nordic SMEs continue their internationalisation plans following the COVID-19 pandemic. This funding paves the way for the company’s expansion into Germany and the US.
Furthermore, several companies in Denmark have received support from Nopef, the Nordic project fund managed by Nefco, to investigate the feasibility of establishing themselves in new markets outside the Nordic region. One of these companies is Social Cities, which is implementing circular water solutions in the Atacama desert in Chile, using greywater to create green spaces for the benefit of the local population.
“Just ten years ago,” Nyhus says, “Nefco was the only financial institution in the Nordics that focused on sustainability. Much has changed since then, and even commercial banks in the Nordic countries have followed our lead. This places greater demands on both Nefco and the companies it finances.”
At Nefco there’s room to fall for an idea that benefits the environment, and then you look into the possibilities of building a profitable business from it.
“It’s no longer enough for companies just to state that they’re greener or use fewer resources,” says Nyhus. “We test them on their sustainability impacts and ensure that everything can be traced and documented. In that way, obtaining financing from Nefco is also a business development process that greatly improves the chances of securing additional funding elsewhere.”
Moreover, the process allows companies to tap into a vast network of environmental experts and companies facing similar challenges – or providing similar solutions – in the environmental field. In Denmark, Nefco works closely with, among others, the Confederation of Danish Industry (DI) and the regional business hubs in the country’s five regions: Erhvervshus Hovedstaden, Zealand, North Jutland, Central Jutland and South Jutland. For many years, Nefco has also had a close partnership with the Trade Council under the Ministry of Foreign Affairs of Denmark, the Investment Fund for Developing Countries (IFU) and Denmark’s Green Investment Fund, which at the beginning of 2023 merged with the Danish Growth Fund and EKF to form what is now Denmark’s Export and Investment Fund.
According to Nyhus, the approach to innovation and business development is more value based in Denmark and the Nordics than elsewhere in the world.
“In most places, investors are happy as long as the financial return is high enough. At Nefco, however, there’s room to fall for an idea that benefits the environment, and then you look into the possibilities of building a profitable business from it. There’s no doubt that this way of thinking gives us a competitive edge in accelerating the green transition.”
Nefco is more than willing to take on market risk as long as a project can benefit the environment.
The green transition – a sustainable business
Nefco – the Nordic Green Bank – has an essential role to play in achieving the Nordic vision of becoming the world’s most sustainable and integrated region by 2030. A central part of that task is promoting the internationalisation and export of green technologies and solutions that contribute to overcoming the daunting challenge that lies ahead – both at home and globally. However, Nyhus says that before Nefco can consider financing a company, it must have developed and tested its technology on the domestic market.
“We need to know that a technology works and that there’s a high probability of it delivering the desired impact. However, we’re more than willing to take on market risk as long as a project can benefit the environment,” he says, adding that Nefco’s processes, dialogue and focus are entirely different from Danish banks. “We cannot put a penny on the table if the project does not promise sufficient green benefit. Nevertheless, we must also be sure that we can recoup our money to allow us to invest in even more green companies in the future.”