Gender Equality Focused Bonds – Using Global Debt Capital Markets to Bridge the Gender Gap

In line with its focus on transitioning to a sustainable global economy through scaling up the financing of investments that provide environmental and social benefits, on 16 November 2021 the International Capital Markets Association (“ICMA”), together with the International Finance Corporation (the “IFC”) and UN Women, published “Bonds to Bridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality” (the “Guide”).

The Guide aims to illustrate how gender equality objectives can be integrated into sustainable debt products (in particular through the issuance of sustainability or social bonds) to help achieve gender equality, at a time when the gender gap is continuing to widen as a result of the COVID-19 pandemic and in the context of the important role that the international capital markets play in development in both the public and private sectors.

While financing options currently exist that can be focused towards reducing the inequalities that persist between women and men (the first gender-linked bond based on achieving outcomes was issued by Banco Davivienda SA in August 2020), there remains significant room for further growth, and the Guide hopes to bridge this gap.

How to issue a Gender Equality Focused Bond

The Guide sets out two approaches to issuing a gender equality focused bond (a “Gender Equality Focused Bond”): (i) a use-of-proceeds approach; or (ii) a performance approach.

(i) Use-of-Proceeds approach: Social and Sustainability bonds

Social and Sustainability bonds are “use-of-proceeds” bonds (i.e., bond issuers must use all the proceeds to implement the projects that were identified prior to the bond’s issuance).

Issuers can incorporate gender equality objectives either:

1. as the sole objective of a Social bond, (a “Gender Bond”);
2. alongside other social objectives (in a broader Social bond); or
3. alongside green objectives (in a broader Sustainability bond).
   

Issuers should, therefore, base their decision on the type of use-of-proceeds bonds to issue on not only the amount of funding required for gender-related projects, but also if there are any other projects that issuers would like to identify as eligible for the application of any proceeds of the bond.

Public sector issuers should consider their national development priorities, as well as any international frameworks for gender equality, any national action plan for gender equality and any laws and policies that have potential gender equality impacts.

Gender-related projects that are best suited for the use-of-proceeds approach are well-defined and require designated financial resources which can be tracked, including through improving infrastructure to better accommodate women (such as by providing childcare facilities or breastfeeding rooms) and improving awareness and access to services that prevent and respond to violence against women and girls.

(ii) Performance-based approach: Sustainability-linked bonds

A Sustainability-linked bond is a performance-based bond aimed at encouraging an issuer to achieve pre-determined outcomes. A Gender Equality Focused Bond that uses this approach incorporates quantifiable key performance indicators (“KPIs”) (examples of which are included in the Guide) to assess and benchmark impacts and assess improvements in its targets, by a given date.

This approach may be preferable to an Issuer that does not have a pipeline of eligible projects, as the Issuer can look across their operations to identify opportunities to make gender-related commitments and introduce 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:

• Leadership: Are there opportunities to commit to increasing gender equality on the issuer’s board, or in management or other leadership roles?
• Employees: Are there opportunities to commit to increasing gender equality with regard to their retention, pay and promotion? What family-friendly policies, services and benefits could be put in place?
• Supply chain: Could procurement from women-owned or women-led businesses be increased or more women-owned distributors integrated into the issuer’s distribution network?
• Products/services: Are there opportunities to increase the number of products and services that are designed to bring a positive social impact to female consumers or users? Could the share of female customers be increased for beneficial products?

Any KPIs must follow the Sustainability-linked Bond Principles and be core, relevant and material to the issuer’s overall business and of high strategic significance, measurable or quantifiable, externally verifiable and benchmarked.

Why issue Gender Equality Focused Bonds?

The sustainable finance market has grown significantly in recent years and investor appetite is high for products that address social issues. Refinitiv data showed that sustainable bond issuances totalled US$777.6 billion between January and September 2021, a 57 percent increase compared to the same period in 2020. Investors increasingly operate with a mandate or preference for such assets, at least with respect to a portion of their portfolio.

By issuing Gender Equality Focused Bonds, issuers may be able to diversify their investor base, add new investors to the mix, and leverage these new sources of financing, as well as having the potential to be included in sustainability indices. In addition, Issuers can enhance their reputation by demonstrating their leadership in advancing gender equality, an increasingly topical issue. For public sector issuers, in particular, Gender Equality Focused Bonds could be used to address structural causes and consequences of gender-based discrimination at the national or sub-national level.

The authors would like to thank Jaspreet Sagoo-Bamrah for her contributions to this OnPoint. 

For any questions in relation to Gender Bonds, as well as sustainability and social bonds more generally, please contact Dechert’s International Capital Markets team.