FS Sustainability
Sustainable bond issuance globally has surpassed US$3 trillion, yet less than 1 percent of that amount is dedicated to bonds that empower women and girls as a priority objective.
With gender lens investing gaining traction as part of overall sustainable bond issuance, the Orange Bond Principles are seeking to catalyse investment in gender-led bond issuance in a similar pathway to initiatives that have driven green and sustainability-linked bond demand.
The Orange Bond Principles are a set of standards that draws their name from the orange colour of SDG5: Gender Equality. The Orange Bond Principles are driven by the Orange Bond Initiative’s (OBI) steering committee, which includes the Impact Investment Exchange (IIX), the United Nations Capital Development Fund (UN CDF), Australian Aid, the US DFC, Nuveen, ANZ and others.
The sustainable bond sector is growing quickly – according to data from Bloomberg, total cumulative ESG issuance passed the $3 trillion mark as of 30 September 2022.
IIX cited analysis from Moody’s Investor Services suggesting that global sustainable bond issuance (including green bonds, social bonds, sustainability bonds, and sustainability-linked bonds) is projected to reach around US$950 billion in 2023. In 2022, sustainable bond issuance reached US$862 billion, IIX said.
“The OBI plans to tap into the US$100 trillion bond market to place women at the forefront of capital markets and as solutions, to achieve the UN’s 17 SDGs and build a more inclusive, climate-resilient future for all,” said IIX founder and CEO Durreen Shahnaz.
Last year, ANZ led the issuance of a $50 million four-year Women’s Livelihood Bond 5 (WLB5), a gender-lens sustainable bond that aligns with the Orange Bond Principles.
IIX issued the bond, whose proceeds will support between 280,000 to 300,000 women across Asia and Africa to transition to more sustainable, climate-resilient livelihoods.
The US$50 million bond comprises of US$45 million senior and US$5 million first-loss subordinated tranche with a 50% credit guarantee on the underlying loan portfolio by United States International Development Finance Corporation and the Swedish International Development Cooperation Agency (Sida).
Nuveen was the anchor investor in the bond, along with Laerdal Finans, Pathfinder New Zealand, and Ceniarth, among others.
“The whole aim of going out with the orange bond last year in conjunction with IIX was to encourage further issuance,” said ANZ director, debt capital markets Sarah Ng. “There are a number of issuers for which this would be an easy fit, not least amongst financial institutions with a previous history of issuing gender bonds, but perhaps not with the orange label on it.”
Having issued the WLB series and engaging with issuers and investors, ANZ has found that there is appetite for Orange Bonds and for expanding the principles to encompass other financial vehicles.
“There are a number of things we are discussing, one of which is to expand outside of bonds into debt financing products – loans – as well,” Ng said. “The IIX team are in discussions to try and make this a broader application, in the way that the Green Bond Principles are related to the Green Loan Principles.
This year, IIX is planning to double the size of the bond to US$100 million through WLB6. Similar to WLB5, the WLB6 will qualify as an Orange Bond and contributes to the OBI, Shahnaz said.
The Orange Bond Principles are designed to provide transparency, verification and standardization on gender-related bond issuance, serving as a means of combatting greenwashing, Shahnaz said.
“To qualify as an Orange Bond, transactions are expected to align with three overarching Principles: gender-positive capital allocation; gender-lens capacity and diversity in leadership; and transparency in the investment process and reporting,” she said.
“In essence, Orange Bond capital must go to projects within companies that substantially benefit women or gender minorities, while ensuring in parallel a climate action plan. In addition, OBI requires a gender-equitable workforce and/or inclusive value chains, or are majority women-owned or led. Issuers of the bonds must maintain substantial gender diversity in their leadership team or the team working on the bond. The principles also require continued transparency and verification in the investment process and impact reporting.”
The OBP ensure issuers not only evaluate their portfolio with a gender lens but also look at their own capacity and internal diversity to be able to make capital allocation decisions, Shahnaz added.
The Orange Bond Principles are being adopted more widely. Impact fund manager Brightlight builds portfolios and products across the responsible, ethical and impact investment spectrum and advises superfunds, foundations and other asset owners globally with Australian Ethical as one of their key clients, said Brightlight head of investment management Simba Marekera.
Brightlight is in the process of developing a gender bond that uses the Orange Bond Principles, and Marekera said the bond is set to be issued at the earliest later this year. The bond is being developed with the US and Australian governments and will target lending to managers who lend to women-owned, women-led businesses with a focus on emerging markets, with lending criteria built around the 2X Challenge lending criteria.
“We will empower fund managers that are on the ground to identify and provide loans to entities that are supporting women’s empowerment and aggregate that portfolio into a bond and create a securitized bond off the back of that,” Marekera said. “We can be really granular – we can push the envelope, so, for example, when we find a borrower that is already lending 30% of portfolio to women-owned businesses, as part of this, we want to push them to lending to 35 to 40% of the portfolio’.”
Brightlight has been working on this project for more than two years, Marekera said.
“The Orange Bond Principles are useful for the investor,” Marekera said. “We’re not expecting that every investor who would invest in this bond is an expert in gender equality. Some are, and that’s fine, but if they’re not, we don’t want that to be a barrier.
“It gives a level of comfort and removes that barrier by having this market-accepted, third-party verified way of investing. It gives investors a way to quickly assess if this is good or not without being a subject matter expert in the particular social or environmental issue.”
Brightlight has invested with an eye to gender empowerment since its establishment, and Marekera noted that the firm considers empowerment through six lenses – women as entrepreneurs, women as leaders with business, women as employees, which covers finding businesses where policies empower women’s participation in the workforce. Further considerations include women in supply chains, such as women that work in the agricultural sector and textile sectors, and women as investors – whether businesses are creating products that support women to invest, and product and services- investing in companies that provide products and services that disproportionally serve women and support their wellbeing and participation in the economy.
ANZ is seeing demand for gender-focused investments in categories beyond bonds, Ng said.
“The other question that has come up with cutting edge financial instruments is whether to expand this into sustainability linked bonds, to use gender-focused KPIs,” she said. “There are a lot of avenues to broadening this out that’s not just limited to use of proceeds.”
Ng says there is strong interest in the broad category of sustainability themed bonds, even in the face of economic headwinds and market volatility.
“What is interesting to see in the Asia ex-Japan G3 markets is that 48% of all issuance this year is thematic issuance,” she said. “Despite the reduction in supply, the fact that thematic bonds retain this prominence really speaks to their importance for both investors and issuers.
“We have spoken to a number of investors as we bring issuers on update meetings where there is a pivot towards rebalancing the portfolio towards more ESG rigor – for example, alignment to the [Science-Based Targets Initiative) SBTi. … This theme is not going to disappear even if we encounter temporary headwinds in market.”
Shahnaz notes that empowering women is inextricably tied up with other impacts, such as climate change.
“Climate change is a feminist issue,” Shahnaz said. “Why? Because as the climate crisis worsens and escalates existing socio-political and economic tensions, women face increased vulnerabilities that range from loss of livelihood, to heightened risk to health and safety and access to resources and relief.
“Boxed up as passive recipients of aid, women’s potential as solution holders to the raging climate crisis has largely remained untapped, their empowerment a mere afterthought in the global climate finance movement.
“Understanding and addressing the differentiated impacts of climate change is crucial. The livelihoods of women and girls, particularly in the Pacific, are often dependent on sectors such as agriculture and water resources, where climate change impacts are acute.”