The Republic of Iceland may start issuing green or sustainable treasury bonds as early as the second half of 2021, having made strides in the preparation of its framework.

“Environmental and sustainability issues are vital for a country like Iceland, which is banking on sectors such as tourism, fisheries and so on,” said Sturla Palsson, director of market operations at the Central Bank of Iceland.

“We have to be second to none in terms of the demand that we put on ourselves to preserve nature, the environment, and sustainability. There is a general appetite within the ministry of finance and the government for Iceland to carve [out] its place and develop its presence in the ESG debt space.”

Iceland set up a task force, with the aim of exploring and analysing the feasibility of Iceland issuing socially responsible sovereign bonds.

The framework will be aligned with ICMA’s sustainable and green bond principles, as well as EU regulations.

“As a member of the EEA, when it comes to financial instruments, Iceland has to be fully compliant with EU criteria including the part of EU taxonomy framework that will be implemented into law and regulation,” said Palsson. “It goes without saying that we are following closely the developments on that side and see ourselves as having to be compliant to what is set forward there.”

In terms of progress, the working group is evaluating the eligibility of projects and expenditures in the budget that could comply with the framework, according to Esther Finnbogadottir, the head of funding and debt management at Iceland’s Ministry of Finance and Economic Affairs.

“Iceland has a fairly strong image when it comes to environmental issues because the bulk of our local energy consumption is renewable – hydropower and geothermal – though of course our aviation and fishing industries remain reliant on fossil fuel,” Palsson said.

“We have to find projects that are crystal-clear 100% in line with the framework, the Paris Agreement, taxonomy and also fulfil the eligibility criteria of the green/sustainable investor base, which we are very aware has had concerns about greenwashing,” he said.