Can Gender Bonds Support the Gender Equality Agenda?

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    Stockholm (NordSIP) – As we celebrate International Women’s Day, NordSIP took the opportunity to consider the landscape of the gender-related sustainable bond market and the role it can play in advancing the gender equality agenda.

    Although there is still much to be done there is hope for the future. The market for gender bonds represents a small fraction of the sustainable fixed-income market. Many projects remain funded by bonds that are not exclusively dedicated to gender issues. However, the market is growing and these securities have built a successful track record across Latin America and Asia. Thanks to a broad range of guidance documentation, including a recent toolkit for gender bonds in Africa, investors and borrowers are standing at the cusp of a potential inflexion point in the growth of this market.

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    What are Gender Equality Bonds?

    The market for gender equality-related sustainable fixed-income products is relatively complex to frame. On the one hand, most microfinance investments, are famously targeted at women-led micro and small enterprises, which would suggest that gender equality-related sustainable fixed-income products have been around for a long time.

    One way to narrow the discussion is to focus on recent developments in social bonds and the sustainability-linked bond markets as framed by the UN Sustainable Development Goals (SDGs). Gender equality initiatives fall under the remit of SDG 5Achieve gender equality and empower all women and girls. While the bundling of gender initiatives with other SDGs is a useful approach to channelling funds to these initiatives, it is also a sign of the limited scale of this market. Had there been similar interest in this topic as there is on environmental sustainability, these securities would have their own, dedicated, framework.

    Whatever the approach, gender bonds are generally defined as bonds that channel funds to projects seek to fight gender inequality, by improving access to education, healthcare, financing and safety to women across the world. In developed countries, where these issues are often perceived to have been addressed, the focus can be on demanding equal pay and equality of career progression opportunities.

    The Market for Gender Equality Bonds

    As a relatively niche market, not many estimates are available for the volume of gender equality-focused transactions conducted every year. According to an October 2021 estimate by the International Institute for Sustainable Development (IISD) the total market for assets related to “gender-labelled products” was worth US$17 billion. Meanwhile, Parallelle Finance estimated private and public gender lens fixed income (GLFI) funds had US$14.6 billion in assets under management at the end of the third quarter of 2023.

    The vast majority of this volume is targeted at gender equality efforts in country-specific and Asian emerging markets. According to NordSIP’s latest market review, sustainable fixed-income issuance in 2023 exceeded €4 trillion, putting the GLI-bond market somewhere between 0.3% and 0.45% of the total sustainable bond market. This is slightly below the 2021 estimate by Moody’s which put the figure at 1%.

    Milestone Transactions & Market Participants

    By necessity of its association with SDG 5, the market for gender equality or gender diversity is cannot be older than the SDGs themselves, which were agreed upon in August 2015. In March 2017, via the IBRD, the WB first issued a bond “expanding funding for the SDGs”. It was a two-tranche US$163 million equity-linked bond that “for the first time directly link returns to the performance of companies advancing global development priorities set out in the Sustainable Development Goals, including gender equality, health and sustainable infrastructure.” In February 2018, the IBRD issued a US$350 million sustainable development bond (SDB) while “highlighting” projects providing healthcare for women in Argentina, China and Swaziland, as well as rehabilitating a coral reef in Indonesia and upgrading water and sanitation facilities in India. Sweden’s Folksam was the sole investor in this transaction. In November 2019, the WB and TreeHouse Investments partnered to issue a US$5 million bond to raise awareness on Gender Equality, specifically using the term SDG5.

    Although the IBRD clearly is an important financier of gender-equality projects via its SDBs programme, these cannot be considered to be dedicated Gender Bonds, in the way that the Inter-American Development Bank (IDB) or the Asian Development Bank (ADB) distinguish them from more general SDG bonds.

    For its part, the IDB has a dedicated Gender Bonds label. To this end, in July 2019, IDB helped Banistmo, a subsidiary of the Bancolombia Group in Panama, issue the first gender bond in Latin America. In August 2020, the IDB announced it had structured and purchased what it described as the world’s first gender-linked bond based on achieving outcomes, issued by Banco Davivienda. Proceeds from the bond were to be exclusively used by the issuer to finance the growth of its women-led SMEs portfolio (WSMEs), as well as the purchase of social interest houses by women in Colombia. In October 2020, it also participated in Agricultural Trust Funds‘ (FIRA) launch of the first Social Gender Bond to be listed in the Mexican national stock market, worth MXN3 billion. In April 2022 the IFC partnered with the Goldman Sachs Foundation to help Ecuador’s Banco Pichincha issue gender bonds. Beyond Latin America, the ADB has also stepped up to the gender bonds market with issuances targeting Georgia, Pakistan, the Philippines and Mongolia.

    A 2020 bond by Schneider Electric also provided a template for gender equality criteria to be included in a sustainability-linked bond (SLB). Among 2 environmentally targeted goals, Schneider Electric committed to increasing gender diversity: 50% of hires to be women, 40% women among front-line managers, and 30% women in leadership teams by 2025. Should it fail to meet these targets it would have to pay a premium when the bond matures.

    The WB’s International Finance Corporation (IFC), is another important participant in gender-focused bonds transactions.  In its 2023 Green and Social Bond Impact Report, the IFC noted that from its total commitments and disbursals worth US$2.625 billion and US$3.194 billion, respectively, during 2023, it funded 641,365 loans to women through bond commitments to support “gender finance” worth US$940 million (36% of total annual commitments), of which US$745 million were disbursed during the full year of 2023 (23% of total annual disbursals).

    Supporting Initiatives

    Investors and issuers seeking to support gender equality efforts can access a range of resources to learn about best practices in this sector. UN Women together with the IFC and ICMA published a Practioner’s Guide to Using Sustainable Debt for Gender Equality in 2021.

    In 2023, the ADB also published a brief discussing the ability of gender bonds to “channel much-needed capital to women-owned small business”. The WB Gender Strategy for 2016-23 can also provide a template for issuers and investors interested in a detailed approach to addressing gender inequality.

    Recent Developments

    But the field is still evolving. At the end of February, several Africa- and gender-focused organisations, including FSD Africa, UK International Development, Luxembourg Aid & Development and UN Women launched a report providing a gender bonds toolkit. The report was commissioned to and authored by Parallelle Finance, a consulting, research, analysis, and advocacy firm focusing on gender lens investing (GLI). The toolkit seeks to improve the understanding of gender bonds and their potential to mobilise capital to help advance gender equality and climate action in African capital markets. It is hoped that the toolkit will play a crucial role in building a pipeline of gender lens investing opportunities within African capital markets, promoting sustainable growth while providing clear guidance on how to incorporate gender metrics into businesses that address the slow progress of gender lens investing.

    The launch of this toolkit follows the publication of a report by UN Women considering various models and challenges of gender lens investing (GLI), along with the challenges they pose to gender equality agendas. The report was prepared in collaboration with Phenix Capital Group, Politecnico di Milano at Tiresia, and the AXA-Bocconi Research Lab on Gender Equality. The publication highlights the urgency to transform the global financial architecture in advancing SDG 5 on gender equality and women’s empowerment and urges collective action from all stakeholders to advance financing for gender equality and achieve SDG 5 inclusively and sustainably. “Gender equality is one of the great challenges of our time,” says Paola Profeta, director of AXA Research on Gender Equality and Vice-Rector for Diversity, Inclusion and Sustainability at Bocconi University, on this occasion.

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.
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