Gender Bonds: Understanding the Fundamentals and Regulatory Landscape in Ghana
Publication | Update:
Jul 2024
INTRODUCTION
In 2023, the Ghana Stock Exchange (GSE) made a significant move by calling for the issuance of gender bonds on Ghana’s fixed-income market to promote the inclusion of women-owned businesses on the Ghana Alternative Market.[i] Since this announcement, the GSE has begun developing guidelines for gender bond issuance to facilitate capital raising for female-led businesses on the exchange.[ii]
This article explores the fundamentals of gender bonds and the regulatory landscape governing their issuance. It sheds light on the core principles underpinning gender bonds, outlines the specific regulatory criteria and offers a detailed perspective on how business entities can leverage this emerging sustainable finance mechanism in Ghana to advance their social objectives under the Environmental, Social and Governance (ESG) framework.
GENDER BONDS: FUNDAMENTALS AND MECHANISMS
Gender bonds, also known as “gender equality bonds” or “women’s bonds”, are debt securities issued by governments, corporations, or multilateral organisations to finance projects and activities that directly contribute to gender equality, advancement and empowerment of women.[iii]
They serve as a means to channel funds into projects aimed at reducing gender inequalities and promoting women’s empowerment, making them similar to other sustainable bonds designed to achieve development impact such as green or social bonds.
The stakeholders of gender bonds are capital seekers, investors, and financial intermediaries or underwriters.[iv]
Capital seekers are the issuers of gender bonds, which investors purchase with the expectation of financial return. These issuers must clearly describe their projects’ social impact, aligning with relevant sustainability standards, and focusing on gender equality and women’s empowerment. Investors can be institutional, such as asset owners and insurance companies, or retail, who are individuals trading for their accounts. Financial intermediaries connect capital seekers and investors, offering advice and support, while underwriters buy gender bonds from capital seekers and distribute them to investors.
There are two types of gender bonds under the International Capital Market Association (ICMA) principles.[v]]These are Use-of-Proceeds (UOP) gender bonds and Performance-based gender bonds. The UOP gender bonds direct bond proceeds toward the economic activities of identified investors. Performance-based gender bonds, on the other hand, have terms linked to the issuer-performance or targets. The Toolkit for the Design and Issuance of Gender Bonds in Africa (the “Toolkit”) adequately outlines the processes for issuing both UOP and Performance-based gender bonds in Africa.[vi]
The Toolkit for the Design and Issuance of Gender Bonds in Africa
The Toolkit, a collaborative effort by Parallelle Finance, collaborating with Financial Sector Deepening (FSD) Africa, FSD Network Gender Collaborative Programme, British International Investment, and UN Women, offers a comprehensive resource for navigating the issuance process of gender bonds in Africa.[[vii]]
Developed in partnership with FSD and FSD Network Gender Collaborative Programme, this toolkit aligns with the ICMA sustainable bond principles and other emerging guidelines.[[viii]]
The issuance process is structured in three key stages: pre-issuance, issuance and post issuance.[[ix]]
Pre-Issuance
In the pre-issuance stage of gender bond issuance, issuers are required to implement ICMA principles by prioritising the integration of gender equality into their organisational strategy. This involves establishing a Gender Bond Working Group (GBG) and ensuring access to robust, gender-disaggregated data. Additionally, issuers must define eligibility criteria, establish categories for project selection, and create an issuer framework that aligns with ICMA standards, providing clarity to investors on project eligibility, selection criteria, proceeds management, and monitoring and reporting commitments. Independent pre-issuance reviews are encouraged to enhance transparency.
Issuance
During issuance, issuers may utilise various means, including private placements or public offerings, to issue UOP gender bonds, while performance-based gender bonds require disclosure of the financial and/or structural impact of trigger events to meet sustainable performance targets (SPTs).
Post-Issuance
In the post-issuance phase, issuers must focus on early preparation, project qualification, and framework development to manage allocations to eligible investors, track net allocations, and monitor repayment in alignment with ICMA objectives. They are also obliged to provide an annual post-issuance report listing project allocations, amounts and expected impact to stakeholders.
THE REGULATORY FRAMEWORK OF GENDER BONDS IN GHANA
Although Ghana currently lacks specific guidelines on gender bonds issuance, gender bonds are recognised as a fixed-income instrument under the Ghana Fixed-Income Market Rules, 2022 (the “GFIM Rules”).
The GFIM Rules allows for the structuring of gender bonds as UOP bonds.[x] In the absence of dedicated guidelines for gender bonds, the GFIM Rules reference the Social Bond Principles and Sustainability-Linked Bond Principles by ICMA, as well as any relevant guidelines accepted by GSE and the Securities and Exchange Commission (SEC).[xi] The incorporation of these principles in the Toolkit indicates that issuers one can confidently issue gender bonds under this framework in Ghana.
The Process for Issuing a Gender Bond in Ghana
The issuer (government, corporations, organisations, etc.) of sustainable bonds, including gender bonds can use the proceeds from the issuance of sustainable bonds to finance eligible projects which promote gender equality and women’s empowerment.[xii]
The process for issuing a gender bond is as follows:
1) An issuer of a gender bond, other than the Government of Ghana or the Bank of Ghana (BoG), must submit an application for admission to the GFIM along with supporting documents, including a copy of the prospectus or placement document, where applicable.[xii
2) The exact format of the documents required for an application for admission must be agreed upon with the GFIM.[xiv]
These documents include:[xv]
- A letter of application;
- An admission undertaking;
- A prospectus that includes the gender bond framework; and
- Supporting authorisations and/or company resolutions.
3) An issuer of a gender bond seeking admission through a public offer must submit a copy of its offer prospectus to the SEC for approval unless legally exempted.[xvi]
4) The GFIM assesses the application for admission with the supporting documents submitted to it by an issuer. It does not guarantee automatic admission for a security whose public offer document has been approved by the SEC.[xvii]
5) An issuer seeking to have security admitted on the GFIM by introduction must file a prospectus or a statement in place of a prospectus for SEC approval and publish it after receiving SEC approval unless the issuer is exempted from this requirement by the SEC.[xviii]
CHALLENGES AND OPPORTUNITIES AHEAD
Gender bonds play a crucial role in supporting the economic resilience and social advancement of women. However, challenges in establishing definitions and certification standards in Ghana pose hurdles to their effectiveness. Ghana currently lacks dedicated guidelines for gender bonds, impacting investor confidence and market growth. Therefore, flexibility within the regulatory framework for gender bonds is essential to adapt to market needs and encourage broader participation, ultimately driving social and economic change.
CONCLUSION
The Ghana Stock Exchange’s initiative to promote gender bonds signifies a proactive step towards integrating women-led businesses into the capital market, fostering economic inclusivity. However, the absence of specific guidelines dedicated to gender bonds poses challenges, creating uncertainty that may deter investor confidence. Regulatory clarity and flexibility are essential to address these challenges, to foster innovation while ensuring investor protection. As Ghana navigates these dynamics, establishing clear definitions and certification standards for gender bonds will be crucial for driving sustainable development and gender equity agendas. By embracing these challenges as opportunities for growth and refinement, Ghana can position itself as a leader in leveraging financial markets for gender parity and societal transformation.
ENDNOTES
[i] Emmanuel Bruce, “Issue Gender Bonds – GSE Boss” (Graphic Business, March 14, 2023) https://www.graphic.com.gh/business/business-news/issue-gender-bonds-gse-boss.html accessed June 27, 2024.
[ii] Ebenezer Sabutey, “GSE Births ‘Gender Bond’ to Attract Women-Led Businesses” (My Joyonline, March 12, 2024) https://www.myjoyonline.com/gse-births-gender-bond-to-attract-women-led-business/#google_vignette accessed June 27, 2024.
[iii] FSD, “Gender Bonds; Scoping Study Summary” (July 2020) https://www.fsdafrica.org/wp-content/uploads/2020/09/Scoping-study-Gender-bonds-summary-22.07.20.pdf accessed April 26, 2024.
[iv] Unnimaya Raj, “Role of sustainable finance in accelerating the clean energy transition” (LinkedIn, May 11, 2023) https://www.linkedin.com/pulse/role-sustainable-finance-accelerating-clean-energy-transition/ accessed July 11, 2024.
[v] Parallelle Finance, “Gender Bonds: A Toolkit for the Design and Issuance of Gender Bonds in Africa” https://www.unwomen.org/sites/default/files/2024-02/a-toolkit-for-the-design-and-issuance-of-gender-bonds-in-africa-en.pdf accessed June 28, 2024.
[vi] ibid, page 14 – 15.
[vii] ibid, page 1.
[viii] ibid, page 7.
[ix] supra (no. 6).
[x] Ghana Fixed Income Market Rules, 2022, page 10.
[xi] ibid.
[xii] The Ghana Fixed Income Market Goes Green Document, page 6.
[xiii] ibid, page 6.
[xiv] ibid.
[xv] ibid.
[xvi] ibid, page 7.
[xvii] ibid.
[xviii] ibid.
Find more information on ESG laws and regulations in Ghana with B&P Associates’ contribution to ICLG – Environmental, Social & Governance Laws 2024.
For further insights into ESG laws and regulations in Ghana, check out B&P Associates' article: Green Bond Regulation In Ghana; An Overview Of The Securities Industry (Green Bond) Guidelines 2024.
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