The pandemic has had an alarming impact on gender inequalities around the world. In its most recent Gender Gap report, which was released one year after the onset of Covid-19, the World Economic Forum noted that the pandemic had significantly widened the gender equality gap.
On its current trajectory, it will now take 135.6 years to close the gap worldwide, up from 99.5 years the previous year. Moreover, McKinsey in The Power of Parity calculated that if women participated in the global economy identically to men, annual global GDP could increase by $28 trillion.
However, all is not lost. As the situation has worsened, groups have mobilised to stem the impact of pandemic. Recently, the International Capital Markets Association; The International Finance Corporation and UN Women have come together to produce a Guide entitled “Bonds to Bridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality”, which encourages the use of sustainable bonds in order to empower women and end gender discrimination through opening new finance routes.
What is the purpose of the Guide?
The Guide aims to demonstrate how gender equality goals can be included in sustainable debt products (in particular through the issuance of sustainability or social bonds), through either a use-of-proceeds or a performance-based approach.
The Guide builds on existing global principles set out in documentation such as the Social Bond Principles (SBP), Sustainability Bond Guidelines (SBG) and Sustainability-linked Bond Principles (SBLP), and should be considered alongside them.
What is the value of Social and Sustainability bonds?
Social and Sustainability bonds are “use-of-proceeds” bonds. This means that bond issuers must use all the proceeds to implement the projects that were recognised prior to the bond’s issuance. Whilst gender equality can be the sole objective of a Social bond (a Gender bond), they can also be combined with other social objectives (a Social Bond) or combined with green objectives (a Sustainability Bond)
There are a number of examples of the use-of-proceeds approach. Milicom uses their social bonds to empower and connect women by introducing various training programmes to enhance their self-esteem, business skills and digital literacy while Danone uses their social bonds to progress towards gender equality in developing countries.
The Guide contains a long list of examples of potential projects for both private and public sector use-of-proceeds. Examples of private sector use-of-proceeds includes provision of coaching and leadership; provision of access to financial services for women-owned or led businesses; offering safety, health and wellness programmes for women and girls. Public use-of-proceeds projects include development of information tools for women on labour market laws and regulations; improvement of access to information; improvement of awareness of, and accessibility to, services that prevent and respond to violence against women and girls, including sexual harassment in public spaces.
How do Sustainability-linked bonds differ?
A sustainability-linked bond is a performance-based bond directed at inspiring an issuer to reach pre-determined outcomes. A gender equality focused performance bond combines quantifiable key performance indicators to assess improvements in its targets, by a given date. The cost or terms of the bond may be negatively impacted if the KPIs are not met.
This method may be preferable to an issuer that does not have a pipeline of suitable projects, as the issuer can look across their processes to recognise where gender-related commitments could be made and announce one or more relevant KPIs.
Public sector issuers are encouraged to select KPIs reflecting international and national targets, frameworks and action plans. For private sector issuers, relevant considerations for selecting KPIs include information on leadership; employees; supply chain and products.
All KPIs must follow the SBLP and be core, relevant and material to the issuer’s overall business and of high strategic significance, measurable, externally verifiable and benchmarked. At the same time, the sustainability performance targets (SPT) should reflect a level of ambition that the issuer is going to commit to and should be able to show improvement in their respective KPIs.
The Guide includes several examples of KPI and sustainability performance targets for the private and public sector. Examples include retention of women leaders; reducing the gender pay gap; the percentage of women participating in community support programmes; the number of women in the labour force in high growth sectors and the number of policies adopted addressing gender-based violence, to name a few.
Private sector SPT include obtaining global certification related to gender equity in the workplace or achieving a gender balance among participants in community support programmes. Public sector SPT include building quotas for facilities that provide services primarily for women and achieving a gender balance among customers.
The impact of Gender Equality Focused Bonds
The sustainable finance market has developed considerably in recent years and investor enthusiasm for products that address social issues is constantly growing. Data shows that sustainable bond issuances equalled $777.6 billion between January and September 2021, a 57 percent increase compared to the same period in 2020. Yet, in 2021 only 12% of the bonds were aimed at addressing gender inequalities. There are currently only a limited number of investors in gender bonds, which have so far been offered only to large institutional investors.
By increasing utilisation of Gender Equality Focused Bonds, issuers may be able to expand their investor base, attract new investors, and influence these new sources of financing, as well as having the potential to be included in sustainability directories. Moreover, issuers can improve their reputation by demonstrating their leadership in advancing gender equality, an increasingly topical issue. For public sector issuers, Gender Equality Focused Bonds could be used to address structural causes and consequences of gender-based discrimination, which has the potential for a huge impact on global economies, as noted above.
We are less than a decade away from reaching the 2030 Agenda for Sustainable Development. Although there is appetite among investors to address social issues, sustainable finance markets have been struggling to keep up with the demand and there remains significant room for further growth. Social, gender, sustainability, and sustainability-linked bonds and loans deliver opportunities to lead capital towards reducing gender inequality. It is hoped that the Guide will inspire stakeholders across capital markets to go beyond business as usual in addressing gender inequalities and find the funding opportunities that sustainable instruments present.
This article was first published in Thomson Reuters Regulatory Intelligence and can be read online here.
Jonathan Porteous