Gender bond

What are Gender Bonds?

Gender bonds, also known as sustainable bonds or social bonds, are a subset of use-of-proceeds bonds within the global debt capital market. These innovative financial instruments play a crucial role in advancing gender equality objectives and promoting sustainable development. The concept behind gender bonds involves channeling financial resources through debt instruments to finance projects that empower women and contribute to closing the gender gap.

Unlike traditional bonds, gender bonds specifically target initiatives that support women’s empowerment, gender equality, lift women out of poverty and improved access to finance. The proceeds from these bonds are directed toward projects that benefit women across various sectors, including leadership, entrepreneurship, and community development. In essence, gender bonds integrate gender considerations into the financial landscape, offering a unique avenue for investors to contribute to positive social impact.

Moreover, gender bonds help channel new resources to organizations that prioritize gender equality as a strategic priority. This financial support allows these organizations to expand their reach and impact, fostering collaboration between issuers, investors, and beneficiaries. It contributes to the development of a global sustainable investment universe that recognizes and addresses gender-related challenges.

Who can benefit from Gender Bonds?

The following are key beneficiaries who can leverage the funding provided by gender bonds:

1. Companies Headed or Owned by Women. Gender bonds provide a crucial source of funding for companies led or owned by women. This includes businesses across various sectors where women entrepreneurs play a significant role. By directing funds toward these enterprises, gender bonds contribute to the empowerment and economic independence of women in business.

2. Companies Promoting Gender Equality at the Workplace. Another group that can benefit from gender bonds is companies actively working to promote gender equality within their organizational structures. This may involve initiatives to address pay disparities, ensure equal opportunities for career advancement, and foster a work environment that is inclusive and supportive of all genders. Gender bonds enable these companies to access dedicated financial resources to further their initiatives.

3. Companies Developing Products and Services for Women. Gender bonds also support companies that focus on developing products and services that specifically enhance the quality of life for women. Whether it’s healthcare, education, technology, or other sectors, funds from gender bonds can be directed towards projects that improve the well-being and empowerment of women through innovative products and services.

Principles of Gender Bonds

Issuers of gender bonds adhere to the standards set forth in the Social Bonds Principles by the International Capital Markets Association (ICMA). These principles, designed to ensure transparency and accountability, consist of four core components that issuers must follow:

1. Use of Proceeds. The first component requires clarity on how the proceeds from gender bonds will be utilized. Issuers must articulate a specific plan outlining how the raised funds will be directed toward projects that advance gender equality, women’s empowerment, and related initiatives.

2. Process for Project Evaluation and Selection. Issuers are obligated to have a robust process for evaluating and selecting projects that align with the objectives of gender bonds. This involves a comprehensive assessment to ensure that the chosen projects contribute meaningfully to advancing gender equality and addressing relevant social issues.

3. Management of Proceeds. Effective management of proceeds is crucial to the integrity of gender bonds. Issuers must implement measures to track and manage the funds in a way that aligns with the predefined objectives. This ensures that the financial resources are utilized as intended, contributing to positive social impact.

4. Reporting. Transparency is a key aspect of gender bonds. Issuers are required to provide regular and comprehensive reports on the use of proceeds. This includes detailing how the funds were allocated, the progress of funded projects, and the overall impact achieved. These reports are crucial for maintaining accountability and building trust among investors and the wider market.

Additionally, to further validate their commitment to the ICMA Principles, bond issuers must obtain a second-party opinion confirming their compliance. This external validation adds an extra layer of assurance to investors and the market regarding the issuer’s adherence to the established standards.

Issuers of gender bonds span a diverse range, including international organizations such as the Asian Development Bank (ADB) and financial and non-financial companies like the QBE Insurance Group.

Why invest in Gender Bonds?

1. Addressing Specific Gender Equality Issues. Gender bonds provide a direct avenue to finance interventions that address pressing gender equality issues. Investors can play a crucial role in supporting initiatives such as financing loans for women-owned small businesses or increasing procurement spending from businesses owned by black women. These targeted interventions contribute to creating a more inclusive and equitable economic landscape.

2. Global Examples of Impactful Projects. Examples from around the world highlight the diverse and impactful projects funded by gender bonds. For instance, a subnational government in Spain raised capital through sustainability-linked bonds to enhance services for victims of gender-based violence. In Tanzania, a commercial bank issued a gender bond to finance small businesses, demonstrating the versatility of gender bonds in addressing varied challenges.

3. Contributing to Sustainable Development Goals (SDG5). Investing in gender bonds aligns with progress towards Sustainable Development Goal 5 (SDG5), which focuses on achieving gender equality and empowering women and girls. Themes crucial for SDG5 progress, such as increased investment in the care economy, eliminating the gender pay gap, supporting social protection measures for workers in the informal economy, and providing assistance services to victims of violence against women, can be leveraged by bond issuers.

4. Socially Responsible Investing. Gender bonds offer investors an avenue for socially responsible investing. By choosing to invest in instruments that specifically address gender equality, investors contribute to positive social impact and promote responsible business practices. This aligns with the growing trend of investors seeking sustainable and socially conscious investment opportunities.