Social sustainability bonds that aim to improve the livelihoods of women, or “orange bonds”, are an “easier sell” than their climate-related counterparts, says Taimur Baig, managing director and chief economist at DBS Bank.
“[Bonds with a] climate-related lens suffer from the tragedy of the commons,” says Baig on a panel at the Orange Forum 2024 on Dec 10. “If I as a country reduce my emissions by 20% and my neighbouring country doesn’t do anything; system-wide, you could argue emissions are going down and that country is benefitting from my hard work.”
Social sustainability bonds that aim to improve the livelihoods of women are an “easier sell” than their climate-related counterparts, says Taimur Baig, managing director and chief economist at DBS Bank (second from right)
But Baig says there is “no such problem” with instruments like the Women’s Livelihood Bond (WLB), which Singapore-based Impact Investment Exchange (IIX) first launched with DBS in July 2017. “It is about improving your absolute standards, and there is no question of the tragedy of the commons as far as gender-lens investment is concerned.”
The first WLB, which had a tenor of four years, successfully paid out its coupon of 5.65% per annum between 2017 and 2021. Baig says this was no mean feat, especially as the WLB1 matured during the height of the pandemic, in July 2021.
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IIX, founded in 2009 as “the world’s first social stock exchange”, noted then that WLB1’s “stable” yield “compares favourably” to the 2020 average of 4.0% returns for Asian high-yield corporate bonds and 1%-3% returns on social bonds.
“In a time when rates were zero, the return on the WLB1 was fantastic,” says Baig. “So, the question is of scale, and of spreading the wisdom of gender-lens investment, which I think, personally, is an easier sell than a climate-related lens.”
Introduction to orange
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Orange bonds get their name from the colour assigned to the United Nations’ fifth Sustainable Development Goal (SDG): gender equality. It aims to mobilise the trillion-dollar global bond market to build a gender-empowered financial system that embraces inclusion by valuing the full and meaningful participation of women, girls and the LGBTQI+ community.
The Orange Bond Initiative’s Steering Committee met for the first time in May 2022. Its members — IIX, ANZ, Nuveen, Shearman & Sterling, Water.org, US International Development Finance Corporation (DFC), Australian Department of Foreign Affairs and Trade (DFAT) and United Nations Capital Development Fund (UNCDF) — published the Orange Bond Principles in October 2022. The guidelines support issuers, investors, arrangers and approved verifiers involved in facilitating orange bond transactions.
To qualify as an orange bond, issuers 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.
IIX and DBS priced the US$8.5 million WLB1 in July 2017. Over 60% of its investment capital came from Asian investors, with the majority being high-net-worth customers of DBS.
The success of WLB1 has led to many more issuances under the Women’s Livelihood Bond Programme. In December 2023, IIX issued the sixth bond in the WLB Series, the US$100 million WLB6. With a 7.25% coupon rate, the WLB6 is expected to uplift over 880,000 women and girls in the Global South, making it the largest issuance in the series so far.
Capital raised in WLB6 is being deployed across six sectors: agriculture, water and sanitation, clean energy, affordable housing, SME lending and microfinance. The impact of this capital raise extends to India, Cambodia, Indonesia, Kenya and Vietnam, with 100% of the US$100 million proceeds designed to advance SDG 5: Gender Equality and 25% to 30% designed to advance SDG 13: Climate Action, says IIX.
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IIX is expected to issue WLB7 within December, and the firm is targeting an issuance of some US$134 million.
The case for orange
To Baig and his team at DBS, the “macroeconomic case” for orange bonds is “easy” to understand. “You have more women in the workforce, by definition, tautologically, your potential GDP growth rate goes up.”
But what about the microeconomic evidence, asks Baig. “Can we show listed companies that if they have more women in their boards, they tend to outperform?”
Baig points to a Bloomberg Intelligence (BI) report from October, which claims companies with gender-diverse boards deliver 2% to 5% higher annual returns than companies with fewer women.
According to the BI Women Capital study, the return differential between the highest and the lowest quintile of women on the board was 11% in the US, 13% in Europe and a sizeable 35% in the Asia Pacific.
“So, why should a bank like DBS be involved in not just making money, but making money with a gender lens in mind? It’s because making money becomes easier if you have a gender lens in mind,” says Baig.
But challenges still remain in practice. The average share of women on boards on the S&P 500 hovers at around 35%, according to data compiled by Bloomberg. In some European countries, where companies face diversity quotas, this figure exceeds 40%.
Still, women make up less than 10% of CEOs in the S&P 500. Globally, women are most well-represented in CFO roles, though men still outnumber them by five times, according to BI.
Baig warns of a growing divergence between the US and Europe on such issues. “When I meet with European insurance companies and a broader range of asset managers, there is a massive top-down mandate on increasing allocation on green [and] on orange. By and large, ESG has become a dirty word in the US, but it’s definitely not a dirty word in Europe. There’s no coyness on the investors’ part when they talk about ESG; that is very clear and welcome discussion.”
Backlash against diversity, equity and inclusion (DEI) initiatives in the US could intensify when US President-elect Donald Trump begins his second term on Jan 20, 2025. Baig calls the incoming administration a “headwind coming towards DEI-type investment in the US”.
Already, Walmart, the largest private employer in the US, rolled back some of its DEI initiatives in November. But corporate actions like these could put Asia on the radar for European investors seeking sustainability initiatives, says Baig.
“When we look at investors in Europe, when we look at investment opportunities in Asia, there is a meeting of minds that doesn’t have to be clouded by what’s about to happen in the United States,” he adds.
