Gender bonds are increasingly recognized as an innovative instrument that can be used to tap into capital markets to finance gender equality. Credit: Stella Paul/IPS
By Vanina Vincensini and Jemimah Njuki
NEW YORK, Aug 6 2024 – Iceland’s gender bond last month caused great excitement in the capital markets community. While gender bonds have been increasing in popularity within the private sector, Iceland is the first country to issue a sovereign gender bond. Many in the development community are however asking, are gender bonds the solution to financing for gender equality?
So, what are gender bonds? Gender bonds are bonds that integrate gender equality objectives or the empowerment of women. Gender bonds follow the Social Bond Principles established by the International Capital Market Association and contribute to the United Nations Sustainable Development Goal 5 (SDG 5), and are verified by independent entities, known as second-party opinions.
In 2021, ICMA, IFC, and UN Women published the first gender bond guide. The guide offers practical guidance on how to use gender bonds to finance gender projects and strategies and includes examples of gender-based targets for issuers and the types of projects that can be financed by private and public sector issuers.
With declining ODA going to gender inequality, the ability to mobilize resources from multiple sources including both public and private to advance gender equality objectives is increasingly becoming critical
The focus on gender bonds, or debt securities to finance gender equality is driven my many factors, one being that the share of development finance for gender equality decreased after a decade of progress—from 45% in 2019-20 to 43% in 2021-22.
With declining ODA going to gender inequality, the ability to mobilize resources from multiple sources including both public and private to advance gender equality objectives is increasingly becoming critical. But important questions remain on how we can mobilize and hold capital markets accountable to address structural gender inequalities.
Potential of capital markets
Global capital markets are vast and diverse, encompassing various instruments including stocks, bonds, and other financial assets. and institutions that facilitate the flow of capital. As of 2023, the global bond market was valued at approximately $100 trillion, similar in size to global GDP according to the OECD.
This market includes government bonds, corporate bonds, municipal bonds, and other debt instruments issued by various entities. Despite the significant size of the bond market, the allocation of funds specifically targeted towards gender equality remains relatively modest. Gender bonds are still in their nascent stages, but their growth is promising.
At the end of 2023, the global capital invested in gender bonds had reached approximately $14.5 billion. While this is a small fraction of the overall bond market, it reflects a growing recognition of the importance of gender-focused investments.
Gender bonds are increasingly recognized as an innovative instrument that can be used to tap into capital markets to finance gender equality. For example, last year Latin America and the Caribbean saw 26 gender bonds amounting to $2.25bn, led by issuances in Mexico, Chile and Colombia. In Africa gender bonds have been issued in Morocco, Tanzania, Rwanda and South Africa.
Despite this, the potential of gender bonds is yet to fully be realized, and challenges remain on how to ensure they lead to impact on gender equality, and that they address structural gender inequalities. There is risk of “pink washing” with bonds being labelled as gender but not having gender equality objectives or not having impact on gender equality.
For gender bonds to be truly impactful, we believe three key things are needed.
First is to expand the use of proceeds to address structural causes of gender inequality. Most of the gender bonds issues so far have gone to financing women owned businesses.
The National Microfinance Bank Tanzania’s Jasiri Gender Bond launched in 2023 provides capital and resources to 3000 women-led small and medium enterprises.
The most recent issuance, by Bolivia’s BancoSol $30mn bond, announced on June 20, is intended to provide finance for up to 4,500 micro and small enterprises led by women in the country and aims to contribute to closing the country’s gender financing gap, where half of all businesses in Bolivia are women-led, yet only 24 per cent of economically active women have access to credit.
But bonds can go beyond closing financing gaps. Eligible projects for the Iceland gender bond, as per their bond framework developed with technical support from UN Women and aligned with the gender bond principles, include the provision of decent living standards for women and gender minorities, increasing the supply of affordable housing that benefits low-income women, as well as efforts to increase maximum payments during parental leave which create incentives for both parents to make use of their equal right to paid parental leave.
Second, set up broad-based accountability mechanisms to ensure gender bonds lead to sustainable and transformative impact on gender equality. Investors need assurance that their funds are making a real difference. And these instruments can only make a difference in women’s and girls’ lives if we know that gender-specific outcomes are achieved.
This is why bond issuers are encouraged to align with the voluntary guidelines developed by the ICMA, IFC and UN Women, which include recommendations on clear bond frameworks, second party opinions and verifications, and annual reporting on the use of funds.
Impact reports that include sex-disaggregated quantitative data and qualitative insights can then build investor confidence, gender bonds credibility, ultimately encouraging more investments in projects that have direct and positive impact on gender equality.
In Argentina, the first gender bonds issued in the country created new jobs for women-entrepreneurs and their employees. In South Africa, procurement from black women–owned suppliers of a corporate bond issuer increased from 13.8% to 16.26% in the first year.
Third, more sovereign bonds could significantly impact gender equality due to their scale and reach, if they are backed up by sound policies, action plans, and debt management strategies.
Unlike other financial instruments, sovereign bonds can mobilize large sums of capital, which can be directed towards national programmes and policies aimed at reducing gender gaps.
Additionally, the credibility and stability associated with government-issued bonds make them attractive to a broad range of investors. But a precondition to issuing more sovereign gender bonds is political will, sound debt management strategies, and robust gender equality investment and action plans.
Governments must demonstrate a strong commitment to gender equality by integrating gender analysis into their financial and policy frameworks.
They also need to ensure that public expenditures are aligned with gender equality goals. In the case of Iceland, the country’s action plans to close persisting gender gaps, its long-standing practice of gender-responsive budgeting, strong financial standing and fiscal discipline provided a conducive environment for successful gender bond issuance.
More countries could follow Iceland’s example in the context of the 2025 international financing agenda which will mark the 30th anniversary of the Beijing Declaration and Platform for Action (considered the most progressive blueprint ever for advancing women’s rights) and the fourth International Conference on Financing for Development, to be held in 2025 from 30 June to 3 July in Spain.
And while gender bonds have great potential, they are not a panacea for addressing the glaring gaps in financing for gender equality. Public financing is needed to bring about meaningful and transformative gender equality and gender bonds are just but a miniscule of a larger effort to plug the $360B annual funding gap for gender equality.
Vanina Vincensini is a global expert in sustainable and inclusive finance. She advised Iceland on its pioneering sovereign gender bonds proposition, setting a precedent for innovative gender-focused financial solutions worldwide.
Jemimah Njuki is the Chief, Economic Empowerment at UN Women and a New Voices Fellow. She writes widely on issues of gender equality and the empowerment of women and girls.