Gothenburg fined for missing renewable energy goal. Here’s why it’s happy to take the hit

The Swedish city of Gothenburg has put itself in the unusual situation of being fined for missing environmental targets.

Sweden’s second biggest city is believed to be the first local government in the world to take out a "sustainability linked loan" or SLL. This type of financing requires the borrower to meet agreed environmental and social goals each year or face financial penalties

Under the terms of the arrangement the City of Gothenburg made with six banks in 2022, it must do three green things: reduce energy use in all premises, decarbonise its vehicle fleet, and increase renewable district heating. Its fourth social goal is to improve the city’s poorest areas. 

Having missed its target for switching to renewable energy in 2024, the council is about to be fined around 100,000 kroner (€9,000). However, this is offset by the discounts it is getting - on the annual fee it pays for the loan - by hitting the energy usage and social improvement targets. 

Although the council missed its vehicle electrification goal too, it didn’t do so by enough to be fined.

"The purpose of this type of loan is to show how good the city's sustainability work is, and to measure it every year,” explained Fredrik Block, who is in charge of the City of Gothenburg's debt portfolio.

“It will be a stamp of quality and it makes it easier for us to get capital, as we continuously borrow via the capital market, mainly by issuing green bonds," he told Vårt Göteborg, the council’s official newspaper.

This is the third year in a row that the city has received a discount, which can be a maximum of SEK 400,000 if all four goals are met. But the savings have decreased every year, Block notes, and are now at their lowest level.

The local authority deliberately