Every year, Convergence uses International Women's Day as an opportunity to highlight how blended finance can help advance gender equality.
Convergence's database indicates that around 25% of historical blended finance transactions target the Sustainable Development Goal (SDG) 5 (Gender Equality), representing about 9% (US$17 billion) of the blended finance capital flow captured. Most of these transactions have targeted the financial services (36%) and agricultural sectors (27%). In the State of Blended Finance 2022 report, Convergence observed some progress toward the more systematic incorporation of gender considerations in climate blended finance transactions, but noted that the increase has been marginal – from 10% of deals targeting women in 2016-2018 to 13% in 2019-2021.
Identifying approaches to integrate a gender lens into transactions is becoming increasingly important. GenderSmart asserts that companies and deal sponsors that fail to incorporate a gender lens into transaction design risk limiting the quality and quantity of their hiring pools and miss out on a large consumer group. They also risk falling behind peers as fiduciary duties evolve to reflect new investing priorities that include gender-sensitive impact.
This article highlights three recent developments at the nexus of gender-lens investing and blended finance, as well as three gender-positive transactions that were successfully launched over the past year.
Local banks take charge of creating new asset classes for investors
In April 2022, NMB Bank Plc, a Tanzanian commercial bank, listed its first gender bond on the Dar es Salaam Stock Exchange. The bond became the first gender-based financial instrument to be listed on a Sub-Saharan African stock exchange. Prior to the placement, NMB Bank received technical assistance from Financial Sector Development (FSD) Africa to develop its social bond framework and ensure its alignment with international standards. International Finance Corporation (IFC) purchased $10 million equivalent in local currency, an investment supported by the International Development Association's (IDA) Private Sector Window Local Currency Facility. The participation of IFC served as a vote of confidence on the issuance, allowing NMB Bank to secure institutional investor subscription. The issuance raised $32 million, representing a significant oversubscription.
With this bond, NMB Bank created a new asset class for both retail and institutional investors in Tanzania and the wider East Africa region. This is an example of how local banks can play a key role in mobilizing finance for sustainable development. In this case, by taking the lead in the bond issuance.
Risk insurance schemes are key to mitigate the gendered impacts of climate change
In September 2022, KfW and BlueOrchard, a Convergence member, launched the InsuResilience Investment Fund Private Equity II. Like its predecessor, Fund II is backed by the German development bank KfW on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). The fund also benefits from technical assistance grant funding from BMZ. The fund has a strong focus on technology to drive affordability of, and accessibility to, climate insurance. For example, the fund invested in Igloo, a firm that leverages big data, real-time risk assessment, and end-to-end automated claims management to develop insurance solutions for platform companies and insurance companies. In the Philippines, Igloo offers an insurance program for natural disasters in partnership with Rafi Micro-Finance Inc., a local microfinance institution with 90% female end clients.
Disaster risk insurance can provide financial protection and build the climate resilience of those most vulnerable to climate change and disasters. The InsuResilience Investment Funds are just one example of vehicles integrating gender considerations into climate and disaster risk financing and insurance (CDRFI). The Step by step guidance published last year by the InsuResilience Global Partnership introduces many more case studies on this crucial topic.
Private and public investors join forces to define standards for gender-positive transactions
In December 2022, the Impact Investment Exchange (IIX), a Singapore-based impact investment firm, announced the issuance of the IIX Women’s Livelihood Bond™ 5 – the world’s first “orange bond”. Named after the color of SDG 5: Gender Equality, Orange Bonds are a new asset class focused on gender-inclusive financing. The $50 million bond is the first sustainable debt security in the market issued in compliance with the newly created Orange Bond Principles. It is the fifth bond in IIX’s WLB™ Series of listed innovative financial instruments that use a blended capital structure to pool together a multi-country, multi-sector portfolio of gender-positive impact enterprises. The bond is expected to empower around 300,000 women and girls across Asia and Africa.
The Orange Bond Principles™ were developed by the Orange Bond Initiative Steering Committee. Members include both public and private sector organizations, such as IIX, Nuveen, Shearman & Sterling LLP, ANZ, as well as several Convergence members: water.org, the United Nations Capital Development Fund, the Australian Department of Foreign Affairs and Trade, and the United States International Development Finance Corporation (U.S. DFC). The Orange Bond Principles™ aim to support issuers, investors, arrangers, and approved certifiers in facilitating gender-positive transactions. In order to qualify as an Orange Bond, transactions are expected to align with three overarching principles: (1) Gender-Positive Capital Allocation; (2) Gender-Lens Capacity and Diversity in Leadership; and (3) Transparency in the Investment Process and Reporting.
Standardization will be key to scaling investments in gender equality. Partnerships like the Orange Bond Initiative demonstrate that it is possible for public and private actors to develop these standards jointly.
Convergence supports its members and Design Funding grantees in strengthening the gender lens in their blended finance transactions. We hope the aforementioned examples inspire more bold, innovative developments and increased intentionality around embedding gender considerations in transactions.
Have a blended finance solution at the intersection of climate change and gender equality? You can apply for funding from our Gender-Responsive Climate Finance Design Funding Window, which awards early-stage grant funding for the design and launch of innovative blended finance vehicles focused on climate change and gender equality in emerging markets globally.
Written in collaboration with Claire Njoki, Senior Associate, Africa, Convergence (former)