What the Nordic model can teach cities about accessing affordable climate finance
By Kaj Embren and Matteo Bizzotto, ICLEI World Secretariat. Photo credit: ©SusanneHultman
Cities are under growing pressure to deliver climate-resilient infrastructure, accelerate decarbonization, and ensure a just transition. The tools for green finance exist. Green bonds, sustainability-linked loans, blended finance mechanisms, and transition instruments are no longer experimental. Yet for many local and regional governments, accessing affordable, long-term capital remains a structural challenge.
This is precisely why the ICLEI carbonn Climate Center Academy is launching its Green Finance Training program. Inspired in part by the Nordic model of collective municipal finance, the training focuses not only on financial instruments, but on the institutional architecture that allows cities to use them effectively.
To better understand how this architecture emerged, we spoke with Lars M. Andersson, founder of Kommuninvest, a Swedish local government funding agency, and long-time advisor on municipal finance across Europe and Africa.
When the problem is not the instrument, but the structure
In the mid-1980s, when Andersson began his career as a municipal finance director in Sweden, the lending market for local governments was neither competitive nor differentiated.
“Commercial banks charged similarly high rates for municipal loans regardless of credit risk,” he recalls. Competition was weak, and municipalities were treated as isolated borrowers, even when their financial positions differed significantly.
The issue was not a lack of capital in the system. It was how municipalities accessed it. Each city negotiated alone. Each carried its own transaction costs. Each faced similar pricing, regardless of performance. Andersson’s response was not to create a new financial product, but a new institutional model.
Pooling credit to unlock scale
The idea that eventually became Kommuninvest was simple in principle and ambitious in execution: Municipalities would pool their borrowing needs, present a combined credit profile to capital markets, issue bonds collectively, and lend the proceeds to member municipalities at lower cost. After a year of political discussion, Kommuninvest was formally established in 1986.
The structure Andersson helped design has since become a reference point in municipal finance reform. It rests on three core elements:
- Collective ownership. The institution is owned by local governments themselves, aligning incentives between borrowers and decision-makers.
- Joint-and-several guarantee. Members commit collectively to stand behind the institution’s obligations. To this date, this shared responsibility has never been called upon, but it reinforces market confidence.
- Clear separation between political governance and professional financial management. A cooperative board of elected representatives sets strategy and membership rules, while a professionally led financial entity manages operations under strict regulatory supervision.
The result is scale, standardization, and transparency. Today, Kommuninvest serves more than 90 percent of Swedish municipalities and manages a lending portfolio exceeding €45 billion. It holds an Aaa/AAA credit rating (the highest possible credit rating) and has become a major issuer of green bonds in the Nordic region.
For members, the advantages are lower borrowing costs, diversified access to capital markets, professional debt management expertise, and strong transparency requirements that benefit both investors and local democratic accountability.
As Andersson puts it, “Local government funding agencies show the power of cooperation: Access to liquid markets, lower costs, diversified risk, professional debt management, stronger credit incentives, and better transparency.”
A regional logic, adapted in different ways
Sweden is not unique. Across the Nordic region, local government funding agencies have developed in different legal forms but with similar logic.
In Norway, Kommunalbanken is wholly owned by the Norwegian government and provides long-term financing to municipalities, counties, and other local public entities, combining strong public backing with a clear mandate to support local investment.
Denmark’s KommuneKredit, founded in 1899, is an association whose members include all Danish municipalities and regions. Since March 2025, its funding model has given the Danish state a more direct role, with future funding provided via the state rather than through continued bond issuance in international capital markets.
In Finland, Municipality Finance (MuniFin) finances municipalities, joint municipal authorities, well-being services counties, and social housing production. Its model combines broad public-sector ownership with a dedicated guarantee structure, helping local actors access funding on favorable terms.
Each model reflects its national legal and political context. Yet all share core principles: Pooled credit, bond issuance, and on-lending to local governments within a strong governance framework.
Why this matters beyond Nordic countries
Financing sustainable local infrastructure is a global challenge. Rapid urbanization, aging infrastructure, climate risks, and social equity demands are reshaping the fiscal landscape for cities in every region.
In many contexts, municipalities face fragmented finance systems, limited fiscal space, small deal sizes, and high transaction costs. Even in high-income countries, coordination across departments and levels of government can limit a city’s ability to present credible, financeable project pipelines to investors.
The Nordic experience does not offer a ready-made export model. Legal systems, fiscal arrangements, and political cultures differ widely. What it does offer are adaptable principles:
- Aggregation can help overcome scale constraints.
- Shared guarantees and clear governance can strengthen investor trust.
- Standardized reporting reduces transaction costs and improves transparency.
- Professionalized debt management improves long-term resilience.
The emphasis is on discipline and structure, not on any single financial instrument.
For cities seeking to scale up climate investment, this distinction is critical. Green finance does not become routine because a city issues one successful bond. It becomes routine when institutions are built to make financing predictable, transparent, and credible over time.
From institutional logic to practical capacity
This institutional perspective is at the heart of ICLEI’s Green Finance Training program.
The five-week hybrid training, set to begin on 8 October 2026 with an international launch event
in Malmö, Sweden, combines Nordic green finance principles with practical modules on governance frameworks, financing mechanisms, project development, and future trends. Participants work through real-world cases, interactive exercises, and capstone presentations designed to translate theory into applied skills.
The objective is not to replicate Kommuninvest elsewhere. It is to strengthen the capacity of local governments to design context-specific financing ecosystems that attract affordable capital while maintaining public trust and advancing climate and equity goals.
Participants gain practical skills to originate, structure, and present financeable green projects. They deepen their understanding of pooled financing, blended finance, sustainability-linked instruments, and investor engagement. They also join a network of peers and experts working to bridge political ambition and financial discipline.
As climate risks intensify and infrastructure needs grow, the Nordic model demonstrates what becomes possible when municipalities cooperate, standardize, and build trust at scale. Through the Green Finance Training program, ICLEI aims to help cities around the world adapt those lessons to their own realities and accelerate the transition to resilient, low-carbon urban development.
