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Sustainable investing has experienced significant growth in recent years due to a continued and increasing focus on environmental, social and governance (“ESG”) factors by investors. This trend is expected to continue, with global ESG bond issuances projected to exceed US$1.5 trillion during 2022. However, against this backdrop of increased demand for sustainable and green financing, the availability of investment products dedicated to addressing gender issues and promoting gender equality remains limited. Only US$17 billion in global assets relate to gender-labelled financial products. This is a tiny fraction of the global sustainable investment universe of over US$40 trillion.
On 16 November 2021, the International Capital Markets Association (“ICMA”), together with the International Finance Corporation and UN Women, published Bonds to Bridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality (discussed in more detail in our previous OnPoint released in November 2021), outlining how gender equality-focused bonds (“Gender Bonds”) are an important tool, which can be used to help narrow the gender gap. Since November 2021, the markets have seen an increase in Gender Bond activity.
On 3 March 2022, the ASEAN Low Carbon Energy Programme (funded by the UK’s Foreign, Commonwealth and Development Office) published its guide on Integrating Gender Considerations into Sustainable Bonds (the “Guide”), in collaboration with Gender Smart, the International Institute for Sustainable Development (“IISD”) and Kite Insights, which builds upon the ICMA and UN Women’s publication. The Guide notes that there is increasing investor demand for financial products which integrate gender-based factors such as women’s leadership, employment or consumption into investment strategy and analysis, and suggests that in a crowded sustainable bond marketplace, prioritising gender equality represents an opportunity for issuers to differentiate themselves and satisfy growing investor expectations in this area. With estimations that up to US$28 trillion, or 26 percent, could be added to global GDP in 2025 by closing the representation gap between men and women in the economy, the Guide makes it clear that gender equality will continue to be a key theme in debt capital markets in 2022 and over the years to come. In line with this view, in May 2022, the Luxembourg Stock Exchange and UN Women signed a memorandum of understanding to strengthen their cooperation and promote joint initiatives to advance gender finance.
To date, issuances of Gender Bonds have primarily been undertaken by multilateral development banks and corporations, and a sovereign issuance of a Gender Bond is yet to be seen. However, UN Women is working alongside governments across Asia, Latin America and Africa to develop frameworks for sovereign Gender Bond issuances, and certain sovereign issuers have already obtained the approvals necessary to conduct a Gender Bond issuance.
Gender Bonds are bonds which integrate gender considerations into their objectives with the purpose of raising awareness of gender inequality and empowering women. The aim of Gender Bonds is to tap into investor interest in pushing for gender equality through bond issuances.
Like other bonds, Gender Bonds can be purchased by public, private, domestic or international investors. They can be used for a variety of projects, including those, for example, which support better pay for women, are aimed at getting women out of poverty or target the creation of a digital platform for women entrepreneurs.
There are two approaches to issuing Gender Bonds:
Demand for Gender Bonds remains high among investors and is appealing to issuers as such bonds offer an opportunity to:
While appetite for Gender Bonds is clearly growing, uptake has been slower than that seen in respect of green bonds and social and sustainability-linked bonds. According to the Guide, there are three key reasons for this, as follows:
The first half of 2022 has seen Gender Bond issuances across various jurisdictions, including in Asia, Africa and Latin America. In particular:
The Gender Bond issuances in the first half of 2022 demonstrate a growing trend of using sustainable bond issuances to advance gender equality and promote the narrative that women’s leadership and empowerment play an important role in driving solutions to many of the sustainable development challenges the world currently faces.
In order for the Gender Bond market to reach its full potential, certain challenges need to be addressed. In particular:
The Guide suggests that one method of scaling up financing that integrates gender-based factors is through looking for opportunities to promote gender equality in sustainable bond issuances (on the basis that all new sustainable bonds, irrespective of their thematic focus, could quite easily include gender equality considerations in their frameworks). Integrating gender considerations into the framework of green bonds is likely to be particularly key to successfully mainstreaming gender considerations given that green bonds are the largest type of sustainable bonds.
While Gender Bond issuances are currently more prominent in the private sector, there is significant untapped potential for public sector issuers to fund advances in gender equality. UN Women considers sovereign Gender Bonds to be integral to realising the SDG5. Potential issuers must ensure, however, that they have concrete gender action plans in place to reassure investors that their investments would truly have a beneficial impact on women and girls, so as to avoid accusations of “pinkwashing”.
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.