Gothenburg, Sweden’s second-largest city, is reinforcing its environmental commitments through financial initiatives. In 2022, it became the first local government globally to secure a sustainability-linked loan (SLL), a type of financing tied to annual environmental and social improvements agreed upon with banks.
The city has set four key targets: transitioning to 100% renewable energy for heat production, electrifying the municipal vehicle fleet, reducing energy consumption in public buildings like schools and hospitals, and enhancing conditions in its most underprivileged neighborhoods. Meeting these targets earns Gothenburg a 0.1% reduction in loan fees per goal achieved—equivalent to 100,000 kronor ($10,500; £8,000). However, missing a target beyond a certain threshold results in a penalty of the same amount.
While the city avoided penalties in 2022 and 2023, newly released 2024 data shows it fell short on its renewable energy transition, leading to a 150,000-kronor fine. However, this was balanced by discounts for achieving energy efficiency and social improvement targets. The city also missed its vehicle electrification goal, but not by enough to incur a penalty.
Fredrik Block, Gothenburg’s portfolio manager, emphasizes that the city set ambitious targets to drive progress. “We aim high to push the entire organization forward. Though we aren’t progressing as fast as expected, we’re moving step by step, with the goal of being nearly carbon-free by 2030,” he explains. More than financial incentives, the city sees the loan as a way to showcase its sustainability efforts globally.
The city’s social improvement initiatives are assessed through annual resident surveys, focusing on perceptions of safety and cleanliness. Efforts in crime-prone areas like Hjällbo and Biskopsgården include enhancing housing security, installing surveillance cameras, and increasing police presence. Public housing agency Framtiden, which owns much of the housing in these neighborhoods, sees itself as a key player in the city’s transformation.
However, some, like social worker Faduma Awil, criticize these measures. She worries that heightened surveillance and policing reinforce racial profiling and send a negative message to immigrant communities. She also questions the effectiveness of the resident surveys and argues that the city prioritizes environmental goals over addressing fundamental social needs. “People here need education, jobs, and food before they can care about the environment,” she says.
Securing an SLL is a complex process—Gothenburg’s took a year and involved six major Nordic banks. The difficulty of obtaining these loans contributed to a 56% global decline in SLL issuances in 2023, according to media. Mats Olausson, a senior sustainability advisor at SEB, Gothenburg’s lead lender, notes that some applicants are rejected for setting unambitious goals, while others struggle to meet their commitments, risking reputational damage.
Despite the challenges, some organizations successfully leverage SLLs. Danish consultancy Emagine, for instance, secured a £10 million loan in 2021, linking it to goals such as increasing female leadership by 16% and reducing employee turnover by 6%. Achieving these targets lowers their interest rates, while failure could result in financial penalties and reputational risks.
Gothenburg sustainability-linked targets extend through 2030. Block sees the city’s detailed SLL reporting as a way to attract investors by demonstrating the tangible impact of their funding. “I can’t change the city’s credit rating, but I can make our sustainability efforts appealing to investors,” he says.
