Sustainable investing has experienced significant growth in recent years due to a continued and increasing focus on environmental, social and governance (“ESG”) factors by investors. This trend is expected to continue, with global ESG bond issuances projected to exceed US$1.5 trillion during 2022. However, against this backdrop of increased demand for sustainable and green financing, the availability of investment products dedicated to addressing gender issues and promoting gender equality remains limited. Only US$17 billion in global assets relate to gender-labelled financial products. This is a tiny fraction of the global sustainable investment universe of over US$40 trillion.
On 16 November 2021, the International Capital Markets Association (“ICMA”), together with the International Finance Corporation and UN Women, published Bonds to Bridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality (discussed in more detail in our previous OnPoint released in November 2021), outlining how gender equality-focused bonds (“Gender Bonds”) are an important tool, which can be used to help narrow the gender gap. Since November 2021, the markets have seen an increase in Gender Bond activity.
On 3 March 2022, the ASEAN Low Carbon Energy Programme (funded by the UK’s Foreign, Commonwealth and Development Office) published its guide on Integrating Gender Considerations into Sustainable Bonds (the “Guide”), in collaboration with Gender Smart, the International Institute for Sustainable Development (“IISD”) and Kite Insights, which builds upon the ICMA and UN Women’s publication. The Guide notes that there is increasing investor demand for financial products which integrate gender-based factors such as women’s leadership, employment or consumption into investment strategy and analysis, and suggests that in a crowded sustainable bond marketplace, prioritising gender equality represents an opportunity for issuers to differentiate themselves and satisfy growing investor expectations in this area. With estimations that up to US$28 trillion, or 26 percent, could be added to global GDP in 2025 by closing the representation gap between men and women in the economy, the Guide makes it clear that gender equality will continue to be a key theme in debt capital markets in 2022 and over the years to come. In line with this view, in May 2022, the Luxembourg Stock Exchange and UN Women signed a memorandum of understanding to strengthen their cooperation and promote joint initiatives to advance gender finance.
To date, issuances of Gender Bonds have primarily been undertaken by multilateral development banks and corporations, and a sovereign issuance of a Gender Bond is yet to be seen. However, UN Women is working alongside governments across Asia, Latin America and Africa to develop frameworks for sovereign Gender Bond issuances, and certain sovereign issuers have already obtained the approvals necessary to conduct a Gender Bond issuance.
What are Gender Bonds?
Gender Bonds are bonds which integrate gender considerations into their objectives with the purpose of raising awareness of gender inequality and empowering women. The aim of Gender Bonds is to tap into investor interest in pushing for gender equality through bond issuances.
Like other bonds, Gender Bonds can be purchased by public, private, domestic or international investors. They can be used for a variety of projects, including those, for example, which support better pay for women, are aimed at getting women out of poverty or target the creation of a digital platform for women entrepreneurs.
There are two approaches to issuing Gender Bonds:
- The use-of-proceeds approach, which requires issuers to apply all the proceeds from the bond issue to implement the types of projects that were identified prior to the bond’s issuance; and
- The performance-based approach, which incorporates quantifiable key performance indicators to assess and benchmark impacts, as well as to assess improvements in its sustainability performance targets, by a given date.
Demand for Gender Bonds remains high among investors and is appealing to issuers as such bonds offer an opportunity to:
- Demonstrate their leadership in advancing gender equality;
- Diversify their investor base; and
- Leverage new sources of financing, with the potential to be included in sustainability indices. For government issuers, Gender Bonds can be used as a way to raise financing to address the structural causes and consequences of gender-based discrimination at national and local levels.
Why has the market been slow to adopt Gender Bonds?
While appetite for Gender Bonds is clearly growing, uptake has been slower than that seen in respect of green bonds and social and sustainability-linked bonds. According to the Guide, there are three key reasons for this, as follows:
- The traditional use-of-proceeds structure of ESG bonds requires issuers to allocate the funds raised to a predetermined set of eligible project categories, which are in line with the voluntary guiding principles established by the ICMA. This has limited the capacity of some issuers to participate in the sustainable debt markets because their corporate structure or the nature of their business makes earmarking funds in this way impossible.
- According to IISD’s review of over 300 social sustainability bond frameworks available on the ICMA database, which screened for components indicating gender considerations, bond frameworks explicitly targeting gender inequality are relatively rare, even in the case of ESG bonds. The low level of gender integration in social and sustainability bonds is likely due to issuers prioritising other sustainability objectives as opposed to any lack of technical know-how.
- Integrating gender targets is less straightforward in the case of green bonds. As green bond frameworks by definition do not have social project categories (and accordingly it is not possible to provide for a dedicated gender-specific project category), issuers cannot simply follow the example of social and sustainability bonds when integrating gender targets but must instead include any gender-related eligibility or exclusionary criteria directly in the green bond framework itself.
Gender Bond activity in H1 2022
The first half of 2022 has seen Gender Bond issuances across various jurisdictions, including in Asia, Africa and Latin America. In particular:
- In January 2022, Mibanco issued its US$28.4 million 9.0 percent social bonds due January 2025. This was the first publicly issued, gender-focused bond in Colombia. The proceeds are expected to be used to finance the growth of the portfolio of micro-enterprises that are led and/or owned by women in Colombia.
- On 7 February 2022, in Tanzania, NMB Bank Plc issued its Sh25 billion 8.5 percent notes due February 2025 (approximately US$10 million), the proceeds of which are expected to be used to extend affordable loans for women-owned or women-controlled enterprises and businesses whose products or services directly impact women. It was the first bond to be offered in the East African region, which specifically targets gender empowerment.
- On 23 February 2022, the Asian Development Bank issued its KZT14 billion 11 percent notes due December 2030 (approximately US$32 million), the second Gender Bond issued in Kazakhstan. The proceeds are expected to be used to expand the lending operations of Housing and Construction Savings Bank of Kazakhstan to provide affordable residential mortgage loans to women borrowers in primarily rural areas of Kazakhstan.
- On 22 March 2022, Banco Pichincha issued its US$100 million Gender Bond due 2027, which is listed on the Ecuadorian stock market and was the first Gender Bond to be issued in Ecuador. The International Finance Corporation (IFC), a member of the World Bank Group, and Inter-American Development Bank (IDB Invest) each participated as investors. The proceeds are expected to be used to expand financing to more than 10,000 women-owned small and medium-sized enterprises in Ecuador, with the aim of increasing their productive investments and economic development.
- On 8 March 2022, Impact Investment Exchange (“IIX”), a Singapore-based company focused on social and impact financing, launched its “Orange Bond Initiative” (the “Initiative”). Named after the colour of the UN Sustainable Development Goal 5, Gender Equality (“SDG5”), the Initiative is a global coalition to create the world’s first gender-lens investing asset class and aims to empower approximately 100 million women and girls worldwide through unlocking US$10 billion in investment to support its goals by 2030. The Initiative is expecting to issue its debut orange bond by the end of 2022, which will aim to mobilise capital in Asia and Africa. IIX, in partnership with other members of the Initiative, has announced that it is also working on a sovereign orange bond for Africa.
Gender Bonds: the future
The Gender Bond issuances in the first half of 2022 demonstrate a growing trend of using sustainable bond issuances to advance gender equality and promote the narrative that women’s leadership and empowerment play an important role in driving solutions to many of the sustainable development challenges the world currently faces.
In order for the Gender Bond market to reach its full potential, certain challenges need to be addressed. In particular:
- Convincing issuers that despite adding a level of complexity to the issuance process, it is in their interests to integrate gender considerations;
- The lack of technical know-how of issuers on gender and climate;
- The additional costs associated with gender integration;
- Developing the right incentives; and
- Ensuring the relevant guidance for issuers is specific and actionable.
The Guide suggests that one method of scaling up financing that integrates gender-based factors is through looking for opportunities to promote gender equality in sustainable bond issuances (on the basis that all new sustainable bonds, irrespective of their thematic focus, could quite easily include gender equality considerations in their frameworks). Integrating gender considerations into the framework of green bonds is likely to be particularly key to successfully mainstreaming gender considerations given that green bonds are the largest type of sustainable bonds.
While Gender Bond issuances are currently more prominent in the private sector, there is significant untapped potential for public sector issuers to fund advances in gender equality. UN Women considers sovereign Gender Bonds to be integral to realising the SDG5. Potential issuers must ensure, however, that they have concrete gender action plans in place to reassure investors that their investments would truly have a beneficial impact on women and girls, so as to avoid accusations of “pinkwashing”.