31.10.2022 | Insight
With some of the most ambitious green-economy policies in the world and the European leader in impact start-ups, Sweden is the origin country of a great number of sustainable growth companies and technologies. What is Nefco’s role in the Swedish impact investment sector and how is the Nordic Green Bank planning to grow and build partnerships in Sweden?
Swedish small and medium-sized companies (SMEs) that are looking to scale up their green technologies account for an increasing share of Nefco’s active portfolio in the Nordics. For them, Nefco offers scale-up financing, fast-track loans and financial support for feasibility studies into internationalisation. In general, Nefco’s focus is on spearheading environmental technologies. In addition to more traditional green sectors, such as solar or wind energy, Nefco is looking to finance technologies that have not yet gained interest from other Swedish cleantech or green financiers in the scale-up phase.
Although the last couple of years have seen record flows of investments into green tech, current market turbulence is likely to reduce the willingness of companies and investors to take short-term risks. “The role of Nefco is now even more important as we cannot afford to put the green transition on hold. We want to ensure that crucial environmental technologies are being deployed where they can have the biggest impact,” says Fredrik Larsson, Nefco’s Senior Investment Adviser in Sweden.
Impact investment in Swedish SMEs
In general, Nefco is interested in companies that have the potential to become technology leaders in their industries, some of which have been previously overlooked by other investors. “Nefco is ready to take greater financial risk where there is the potential for green impacts. This means that we can finance companies whose risk profile is not suitable for other financiers,” Fredrik says.
What Nefco can bring to the table is a unique way of financing. When a company is ready to grow internationally, we can take greater financial risks.
Nefco’s portfolio in Sweden includes versatile circular solutions for various sectors. Coloreel, a textile innovation company from Jönköping, has developed technology for automated on-demand thread colouring, and its fully recycled materials reduce the environmental impact of embroidery. Cleantech company Pharem Biotech develops circular, enzyme-based water treatment solutions to remove organic pollutants in municipal treatment plants and industrial processes. Gothenburg-based Scandinavian Enviro Systems’ (Enviro) patented pyrolysis technology makes tyre recycling more efficient and helps recover valuable resources from waste tyres. Enviro’s technology is in use at a tyre recycling plant in Chile, where the company set up a local company with Michelin in 2021 following a feasibility study supported by Nopef, a fund managed by Nefco.
Other examples of Nefco’s portfolio companies in Sweden include Elonroad, which has developed a road-based charging solution for electric vehicles, and Baseload Capital, whose technology generates electricity from waste heat and geothermal heat. As for solutions for climate change adaptation, NOAQ Flood Protection’s flood protection barriers are a sustainable alternative to sandbags in urban environments. Based outside Hudiksvall, Hälsingland, the company’s international scale up was co-financed by Nefco and Almi Företagspartner.
From the start-up to scale-up phase
Sweden leads Europeʼs growth when it comes to impact-focused start-up innovation and venture capital invested in impact start-ups. In 2021, Swedish impact start-ups raised over half of the country venture capital funding.
“Even though Nefco does not finance start-ups, we keep many interesting impact start-ups and companies in the early scale-up phase on our radar. By following these companies closely, we can gain crucial technological insight and be prepared when they are ready to grow internationally,” Fredrik says.
Although there has been a sharp increase in start-up financing in Sweden, scale-up financing, particularly for internationalisation, is still lagging. “That’s our sweet spot. Nefco provides growth financing for the critical phase when companies are too mature for start-up investors but not mature enough for commercial banks.”
As a pioneer in impact investment, Nefco welcomes the current trend for investors being climate focused and targeting CO2 emission reductions. Fredrik sees that the Swedish market has matured, and sustainable financing is now strongly established in Sweden – green investment experts have been joined by sustainability and ESG experts and most larger companies now have their own EU Taxonomy experts.
The fact that other investors and financiers have also shifted towards green makes it easier for Nefco to collaborate with financiers. “Now that green has become more mainstream, we can further increase our efforts to achieve even bigger impacts, for example within circular solutions and biodiversity,” Fredrik adds.
Pushing companies towards dark green
The Swedish market seems to be teeming with new environmental and climate solutions. One hot topic is hydrogen applications, i.e. different ways of producing hydrogen, which has the potential to power energy-intensive sectors with relatively low greenhouse gas emissions. Currently, Sweden, together with the other Nordic countries, is positioning itself as a leader in green hydrogen innovation.
We want to ensure that crucial environmental technologies are being deployed where they can have the biggest impact.
In some more traditional renewable energy sectors, such as wind energy, the current focus for many Swedish companies is increasing specialisation, circularity and efficiency. Energy storage and related solutions will be one of the key industries coming out of Sweden, according to Fredrik. “When it comes to grid or off-grid solutions for energy storage, for example, Sweden has the potential to become a market leader.”
Financing is increasingly flowing towards sustainable business models, digital solutions and services. Even though Nefco has a strong portfolio in technologies that have a direct positive impact on the environment, more enabling technologies could be scaled up internationally to pave the way for structural and behavioural transitions towards a sustainable society.
“By including both more traditional hardware-based technologies and solutions that enable change, Nefco is one of the few leading forces that can push companies towards darker green by way of financing,” Fredrik says.
Co-financing and collaboration
In Sweden, Nefco focuses on forming strategic alliances with investors that are at the forefront of green financing. Public-private partnership models are also possible. “Our partners include all members of Team Sweden, for example Almi, the Swedish Energy Agency, Business Sweden, SEK, EKN and several other regional organisations that promote exports.”
“What Nefco can bring to the table is a unique way of financing. When a company wants to grow internationally, we can take greater financial risks and bridge ‘the valley of death’, the financing gap often experienced by scale-ups when expanding internationally,” Fredrik explains.
Co-financing is common in Nefco projects. “In Sweden, we have good examples of co-financing projects with both private and public financiers. When Nefco gets involved, we want to be an enabler by taking a different type of risk to what is traditionally possible.”
Most international growth companies are developed in or around large cities, such as Stockholm, Malmö or Gothenburg. However, Nefco is also actively looking for potential investment opportunities in other regions. “Sweden is a diverse country. There are a great number of candidate companies for Nefco financing regionally – we just need to find each other,” Fredrik concludes.
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