The case for gender equality investment
Investment products such as gender equality bonds are helping bridge the immense gender gap
10 Feb 2020 | Hilton Yip
AS sustainable investing becomes increasingly popular given the urgent need to address environmental and social problems, it is important to realize sustainability encompasses many different areas. Gender equality aims to improve the role of women in society by providing them with equal access to resources and opportunities including jobs, funds, and entrepreneurial support.
One of the ways of doing this is through gender equality bonds, which provide funding to companies to improve gender equality in their workforce or to female entrepreneurs who own micro, small or medium-sized businesses. These bonds are a recent type of product in Asia, yet they have a major role to play in sustainability.
At The Asset’s 14th Asia Bond Markets Summit in Singapore, panelists from major institutions discussed key developments within sustainability and gender equality bonds, and in general expressed increasing optimism about these bonds.
“Green financing is receiving growing interest, as are other sustainability issues. This year we have seen a total of five deals [of gender equality bonds] in the market,” says Augusto King, managing director and head of capital markets group, Asia, MUFG Securities.
One of these Asian issuers is Thailand’s Krungsi Bank, which recently issued Southeast Asia’s first women entrepreneurs’ bond that was also Asia-Pacific’s first private-sector gender bond. The bank, which is also known as Bank of Ayudhya, issued the bond in two tranches of US$150 million and US$70 million.
Poonsit Wongthawatchai, executive vice president, head of environmental, social, and governance division, Bank of Ayudhya, explains that: “There is a significant financing gap for SMEs, especially micro-SMEs. Their biggest challenge is the access to capital. Most of them are often overlooked by the commercial banking sector due to the unavailability of required information especially on credit assessment and risk appetite. Bond issuance to finance this segment helps us fulfil our financial inclusion mandate.”
The bank has 25,000 micro-SME clients, of which 40 percent are owned by women. According to Wongthawatchai, the proceeds from the bank’s gender bond went directly to these micro-SMEs.
Investing in gender equality does not mean compromising on returns, stressed Mehmet Mumcuoglu, regional FIG portfolio manager, financial institutions group – East Asia-Pacific region, International Finance Corporation (IFC).
“If you look at IFC counterparts in the financial institution space who have targeted products for gender, particularly for women-owned SMEs, they have witnessed better loan market growth, deposit market growth, higher cross-sell rates, and their portfolio quality has shown superior results,” says Mumcuoglu. “These types of institutions which have targeted products in the segment have roughly 3 percent NPL rates whereas their total SME portfolio shows a 4.9 percent NPL rate. This is not one-year data, not just based on a few institutions.”
Wongthawatchai believes that there might not yet be a significant cost benefit associating with social bonds issuance in Thailand because the demand is not significant at the moment.
“[But] In terms of overall benefit, in addition to financial, there is the social impact that it creates, as well as the effect on us as an organization in terms of learning and embracing ESG best practices and IFC exclusion criteria from the bond issuance,” he says. “For example, the technical advisory assistance programme from DEG helped our relationship managers to learn about ESG and assess customers on a case-by-case basis.”
However, he is optimistic that Krungsi will issue another social bond in the future.
IFC also worked with Krungsi on issuing their women entrepreneurs gender bond.
“From the technical perspective, this women entrepreneurs bond had to comply with ICMA social bond principles, which are mostly centred on use of proceeds and reporting. At the issuer level, we look at the general ESG criteria and apply the World Bank Group IFC exclusion criteria. With Krungsi, we were confident these standards could be upheld,” says Mumcuoglu. “Then there is the market component – this is a bond. We had to make sure this cannot be overpriced or underpriced so that it’s a replicable instrument.”
To direct capital towards women’s development, development finance institution Deutsche Investitions- und Entwicklungsgesellschaft (DEG) helped cofound the 2X challenge with other development institutions. The challenge calls for the G7 to commit US$3 billion to support women in developing countries by providing access to leadership, employment, finance and other types of support. This challenge uses five criteria, which have been adopted by the Global Impact Investing Network as a global standard and mainstreamed into its Impact Reporting and Investment Standards (IRIS+) system for measuring, managing, and optimizing impact.
“We wanted to have a more holistic approach to allow companies from different sectors and financial institutions to do gender-lens investing,” says Jessica Espinoza, senior manager, corporate strategy development policy and global gender finance lead, DEG.
The first criteria is female entrepreneurship, the second is leadership such as the share of women in senior management and on boards, and the third is employment in terms of the amount of women in the workforce and in highly qualified jobs. The fourth is consumption in terms of products that could benefit women, and the final criteria is the use of funds.
“In the Asia-Pacific region, the credit gap for women-owned micro, small and medium enterprises is US$1.4 trillion so that’s a huge market gap,” says Espinoza.
“There’s a strong case for social impact, but there’s also a strong business case. It makes business sense to invest in gender equality.”
According to McKinsey, says Espinoza, the global GDP per annum would be US$28 trillion bigger in 2025 if the economic gender gap was closed.
“In the Asia-Pacific region, there’s a best-in-class scenario where closing the economic gender gap would add US$4.5 trillion to collective annual GDP in 2025. Best-in-class means taking the rate of the country that’s performing the best in gender equality and applying it to the other countries in the region,” explains Espinoza.
However, the newness of gender bonds means not all institutions have implemented them yet as there are still unknown factors and a lack of experience.
MUFG Bank has issued six green bonds to date, but as yet, has not issued a gender bond.
“MUFG has recently launched a green and social and sustainability bond framework, and is ready to issue a social bond,” says Yoko Yanagida, head of sustainable business office, MUFG Bank.
“[However]At this moment, gender is not included in the framework, but there is a possibility it can be added to the framework to mitigate the gender gap.”
Institutions are moving beyond gender bonds to explore other ways of financing gender equality such as increasing the scope of investment and financing.
“This year, at the WTO meetings, we announced the first gender-targeted trade finance facility – that’s one channel where we saw a lot of shortage or unmet demands in the gender space. There are more donors, public and private, showing interest in the space with interesting structures like first loss,” says Mumcuoglu. “There is a lot of creative ideas but I think by far the biggest impact comes through the capital market and bond issuances.”