NEW YORK, Aug 6 (IPS) – Iceland’s gender bond caused a stir in the capital markets community last month. While gender bonds are becoming increasingly popular in the private sector, Iceland is the first country to issue a sovereign gender bond. However, many in the development community question whether gender bonds are the solution to financing gender equality.
So, what are gender bonds? Gender bonds are bonds that integrate gender equality goals 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, also known as second-party opinions.
In 2021, ICMA, IFC and UN Women published the first gender bond guideThe guide provides practical guidance on how gender bonds can be used to finance gender projects and strategies and includes examples of gender-based objectives for issuers and the types of projects that can be financed by private and public sector issuers.
The emphasis on gender bonds, or debt instruments to finance gender equality, is driven by many factors, one of which is that the Share of development funding for gender equality declined after a decade of progress—from 45% in 2019-20 to 43% in 2021-22.
As ODA declines and moves towards gender inequality, the ability to mobilize resources from multiple sources, both public and private, to advance gender equality goals becomes increasingly important. But important questions remain about how we can mobilize and hold capital markets accountable to address structural gender inequality.
Potential of capital markets
Global capital markets are large and diverse, encompassing a variety of instruments including stocks, bonds and other financial assets, and institutions that facilitate the flow of capital. In 2023, the global bond market was valued at around $100 trillion, comparable 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 at gender equality remains relatively modest. Gender bonds are still in their early stages, but their growth is promising.
By the end of 2023, global capital invested in gender bonds amounted to approximately $14.5 billionWhile this is a small share of the total bond market, it reflects a growing recognition of the importance of gender-focused investing.
Gender bonds are increasingly recognized as an innovative tool that can be used to tap capital markets to finance gender equality. For example, Latin America and the Caribbean saw last year 26 gender bands the size of to $2.25 billion, led by issuance in Mexico, Chile and Colombia. In Africa, gender bonds were issued in Morocco, Tanzania, Rwanda and South Africa.
Despite this, the potential of gender bonds has yet to be fully realised and challenges remain in how to ensure that they have an impact on gender equality and address structural gender inequality. There is a risk of ‘pink washing’ where bonds are labelled as gender but do not have gender equality objectives or impact on gender equality.
To ensure that gender relations really have an impact, we believe three key things are needed.
First, we must expand revenues to address structural causes of gender inequality.Most gender-related issues to date have focused on the financing of women-owned businesses.
Launched in 2023, the National Microfinance Bank Tanzania’s Jasiri Gender Bond provides capital and resources to 3,000 women-led small and medium-sized enterprises.
The most recent issuance, by Bolivia’s BancoSol $30mn bondannounced on June 20, aims to provide financing to up to 4,500 micro and small enterprises led by women in the country. It aims to help close the gender gap in financing in the country. In Bolivia, half of all businesses are led by women, but only 24 percent of economically active women have access to credit.
But bonds can do more than just close financing gaps. Eligible projects for the Genderbond in Iceland, in line with their Bond framework developed with technical support from UN Women and aligned with the Genderbond principles, include the provision of decent living standards for women and gender minorities, increasing the supply of affordable housing for low-income women, as well as efforts to increase maximum payments during parental leave, creating an incentive for both parents to take advantage of their equal right to paid parental leave.
Second, broad accountability mechanisms must be established to ensure that gender ties lead to sustainable and transformative impacts on gender equality. Investors need assurance that their funds are making a real difference. And these instruments can only make a difference in the lives of women and girls if we know that gender-specific outcomes are being achieved.
Therefore, bond issuers are encouraged to adhere to the voluntary guidelines developed by ICMA, IFC and UN Women. These guidelines include recommendations on clear bond frameworks, second-party opinions and verifications, and annual reporting on the use of funds.
Impact reports with quantitative data and qualitative insights broken down by gender can build investor confidence, increase the credibility of gender equality and ultimately encourage more investment in projects that have a direct and positive impact on gender equality.
In Argentina, the first gender bonds in the country were created new jobs for female entrepreneurs and their employees. In South Africa, purchasing from black women-owned suppliers of a corporate bond issuer rose from 13.8% to 16.26% in the first year.
Third, more government bonds can have a significant impact on gender equality due to their size and reach, if supported by sound policies, action plans and debt management strategies.
Unlike other financial instruments, government bonds can mobilise large sums of capital that can be deployed for national programmes and policies aimed at reducing gender gaps.
Moreover, the credibility and stability that come with sovereign-issued bonds make them attractive to a wide range of investors. But a prerequisite for issuing more sovereign gender bonds is political will, sound debt management strategies, and robust investments and action plans for gender equality.
Governments must demonstrate their strong commitment to gender equality by integrating gender analysis into their financial and policy frameworks.
They must also ensure that government spending is aligned with gender equality goals. In the case of Iceland, the country’s action plans to close persistent gender gaps, its long-standing practice of gender-responsive budgeting, its strong financial position and fiscal discipline created a favourable environment for successful gender bond issuance.
More countries could follow Iceland’s lead in the context of the 2025 International Financing Agenda, marking the 30th anniversary of the Beijing Declaration and Platform for Action (considered the most progressive plan ever to advance women’s rights) and the Fourth International Conference on Financing for Development, to be held in Spain from 30 June to 3 July 2025.
And while gender bonds have great potential, they are not a panacea to address the glaring gaps in gender equality funding. Public funding is needed to achieve meaningful and transformative gender equality, and gender bonds are a tiny part of a larger effort to close the $360 billion annual gender equality funding gap.
Vanina Vincensini is a global expert in sustainable and inclusive finance. She advised Iceland on its groundbreaking sovereign gender bond proposition, setting a precedent for innovative gender-focused financial solutions worldwide.
Jemimah Njuki is Chief, Economic Empowerment at UN Women and a New Voices Fellow. She writes extensively on issues of gender equality and the empowerment of women and girls.
© Inter Press Service (2024) — All rights reservedOriginal source: Inter Press Service
