Gender Bonds: A Tool To Narrow The Gender Gap

Females now hold 12 per cent of board seats around the world, states a Deloitte’s report on women in the boardroom. It’s an unimpressive figure, and whatever merit it holds is undermined by the fact that only four per cent of these boards are chaired by women.

This is problematic because, if we are not making headway in this area, our overall progress in governance – as defined in terms of environmental, social and governance (ESG) – is compromised. This has significant implications for responsible business conduct and sustainability.

While female advancement at the upper echelons of corporate life appears to remain stagnant, at the other end of the spectrum, basic financial access is a challenge, too.

This is why news of gender bonds has been received with significant interest. Potentially, these financial instruments stand to provide an answer to both issues – to the extent that in November last year, the International Capital Markets Association joined forces with the International Finance Corporation and UN Women to publish a report on gender bonds. The Bonds to Bridge the Gender Gap: A practitioner’s guide to using sustainable debt for gender equity report explores how these bonds can be used most effectively as a tool for narrowing the gender gap.

It’s a crucial discussion, given that as much as US$28-trillion, or 26 per cent, could be added to the global gross domestic product in 2025 if gender representation in the economy becomes more equitable.

How do gender bonds boost equality?

Simply put, gender bonds are like any other bond in that they can be purchased by public, private, domestic or international investors. However, they include considerations around gender issues as part of their objectives: the idea being to stimulate investor interest around these issues and thus create awareness around gender inequality and the need for female advancement.

One of the ways they do this is by supporting projects, which, for example, promote equal pay for women or aim to help women move out of poverty, or offer a boost for female entrepreneurs. For example, the US$28.4-billion social bond issued by private bank MiBanco – the first publicly issued gender-focused bond in Colombia – will generate proceeds that are invested in a portfolio of local women-owned or -led micro enterprises, while proceeds from Banco Pinchincha’s US$100-million bond – the first to be released on the Ecuadorian stock market – have been earmarked for the finance of more than 10 000 women-owned small and medium enterprises, representing an effort to increase economic development and productive investment for women.

And in Singapore, the Impact Investment Exchange has launched the Orange Bond Initiative. The Impact Investment Exchange is already known for its work in social and impact financing, and this bond is set to continue its work: a global coalition aiming to create the world’s first gender-lens investing asset class, it will empower around 100 million girls and women globally by mobilising US$10-billion in investments in Asia and Africa to support its goals – an objective it expects to reach by 2030.

Around the world, investors are taking note. According to data compiled by Bloomberg, the global sum of new debt linked to sustainability and social targets issued this year has almost equalled the total reached during 2020. And it’s unlikely to stop there. Global ESG bond issuances are expected to exceed US$1.5-trillion this year. What’s more, in May, the Luxembourg Stock Exchange signed a memorandum of understanding with UN Women, committing to strengthening co-operation and working to promote joint initiatives that advance gender finance.

Are gender bonds delivering returns?

Against this backdrop, global law firm Dechert LLP has indicated that sustainable investing is on the up, having achieved significant growth in recent years. The firm attributes this trajectory to continued increasing focus on ESG factors by investors.

Locally, the concept is gaining traction, too. When Barloworld announced the sale of debt linked to gender diversity targets on 13 August (fittingly, mere days after Woman’s Day), the company added that it had set a target of R1-billion to be raised in three- and five-year bonds, with rates linked to goals for women in leadership structures and participation of black women-owned businesses in the supply chain.

While this may have been a first in South Africa, in Tanzania, NMB Bank Plc’s sale of shilling-denominated bonds aims to raise money to extend affordable loans for enterprises owned or controlled by females. The bond boasts the distinction of being the first offered in the East African region.

However, there is a but: although demand for sustainable and green financing is increasing, the availability of investment products dedicated to addressing gender issues and promoting gender equality isn’t keeping pace. Just US$17-billion in global assets – a small fraction of the total global sustainable investment market – relate to gender-labelled financial products.

It’s also worth pointing out that, as yet, there has not been a sovereign issue of a gender bond – until now, all issuances have primarily been through multilateral development banks and corporations. This looks set to change, though, with UN Women embarking on a series of partnerships with governments across Asia, Latin America, and Africa to develop frameworks allowing for sovereign issue. Moreover, some sovereign issuers have already gained approval to conduct an issuance.

Another criticism involves the target audience of gender bonds. Although it’s certainly encouraging to see more investors paying attention to the issue of female advancement, does it translate into real gains if governments don’t sit up and take note?

Will the bonds drive greater gender parity?

It could be argued that the introduction of bonds is a step in the right direction – with sufficient interest, the topic will inevitably find its way onto national agendas. And, indeed, this does seem to be the case. S&P Global has observed that governments – and regulators too – are clamping down on companies that uphold outdated gender norms. Key stakeholders are keeping an ever closer eye on gender empowerment practices, and those that fail to comply face severe penalties. In the UK, for example, a new law requires that organisations employing more than 250 staff members report on their gender pay gaps. The information elicited as a result has upped the outcry around discrimination, feeding the debate around the best methods to measure, and define, the gender pay gap.

It’s only a matter of time until more countries enforce similar legislation, which means that, in time, gender parity at board level and beyond may become a regulatory issue.

This development can’t come too soon. If female representation at board level continues to grow at its current rate, we can expect to reach board parity only in 2045. In the meantime, life for women outside of corporates continues to become more difficult in the wake of the COVID-19 pandemic. Estimates state that the global event has pushed 47 million women and girls into poverty, adding to an already concerning number. At the same time, data collected from 16 different countries shows that women performed, on average, 29 per cent more child care than men during the pandemic.

Clearly, then, gender equality, already limping along before the pandemic, has just stumbled – and a solution is required to get it back on track. But are gender bonds that solution? Only time will tell.