
MuniFin introduces a new sustainability-linked loan, offering favourable financing to municipalities to help Finland achieve its emission reduction targets. The new loan functions as a budget loan that municipalities can use as they see fit.
“Municipalities are interested in financing for continuous climate action, and we want to provide said funding to advance ongoing efforts beyond construction and infrastructure projects,” says Rami Erkkilä, MuniFin’s Senior Specialist, Sustainable Finance.
According to the Finnish Environment Institute’s Senior Research Scientist, Santtu Karhinen, municipalities in Finland can directly impact only around 5–15% of emissions within their areas. However, they can indirectly affect regional emissions in a significant way through planning, information dissemination, and leading by example.
“Municipalities play a crucial role in Finland’s climate action efforts. They can actively lead local energy companies they have ownership in, and have significant influence through land-use planning, housing, construction, and transportation. Climate policy comes from the national level, practical implementations happen at the municipal level,” Karhinen says.
The terms of the loan emphasise strategic planning
Municipalities can apply for the loan if they have a climate plan prepared during the ongoing or the previous council term. Emission reductions must then be achieved in order to gain the benefits of the loan.
Emission reductions are guided by a roadmap extending to 2050, a municipality-specific target trajectory defined by the Finnish Environment Institute (Syke), a research institute governed by the Ministry of the Environment, and the Ministry of Agriculture and Forestry. Syke offers strong expertise and independent information on global phenomena such as climate change, biodiversity loss, overconsumption, pollution and eutrophication.
For each of the loan period years the municipality meets or exceeds its target trajectory, it receives a two-basis-point margin reduction on its sustainability-linked loan.
“Local climate conditions and both geographical and economic structures have an influence on which emissions a municipality can realistically reduce. For example, rural areas have agricultural emissions whereas urban areas have established multiple low-carbon solutions. To acknowledge these differences and ensure a fair process, the target trajectories are municipality-specific,” explains Karhinen.
Motivating climate action and financing municipal vitality
Finland’s current government has removed a statutory obligation for municipalities to prepare climate plans. Karhinen hopes that solutions like MuniFin’s sustainable development loan will encourage municipalities to continue prioritising climate work.
“Strategic planning is critical: research shows it accelerates climate action. While the government has removed the incentive with the repeal of the climate plan, the sustainability linked loan puts the reward back on the table,” Karhinen adds.
The sustainability-linked loan is structurally a familiar budget loan, but it also represents the new dialogue between MuniFin and municipalities about the importance of climate work. MuniFin seeks to do its part in supporting Finland’s climate targets.
“Financing always involves assessing price and risk. Climate risks play a significant role in this evaluation, and municipalities’ actions will be examined more closely in the future. When municipalities invest in climate resilience, it also strengthens MuniFin’s position as a low-risk and responsive counterpart in the funding market,” Erkkilä emphasises.
Sustainable finance and environmental sustainability are not contradictory.
“Strategic climate work is a tool to build vitality in municipalities. Committed climate action sends a clear message: we offer you a low-carbon environment to live and do business in,” Karhinen adds.