From the Organisation for Economic Co-operation and Development to BNP Paribas, many have pointed to blended finance as a crucial mechanism for bridging the funding gap to achieve the United Nations’ Sustainable Development Goals (SDGs). Given the intersection of targets like quality education (SDG 4), decent work and economic growth (SDG 8), and even climate action (SDG 13) with gender equality (SDG 5), others have extended the argument to suggest that blended finance and gender-lens investing are a natural fit.
Investing in Gender Equality and Human Rights
Of course, gender-lens investors can achieve impact through a range of financial products, including public equity vehicles seeking competitive returns. However, when it comes to achieving the SDGs, one of the largest barriers is the funding gap for gender equality. The shortfall is so massive that many investors feel it cannot be addressed by development assistance alone. Instead, we need additional sources of private capital—a mix that blended finance structures can help achieve by boosting the scale and impact of gender-focused programs.
Already, gender-lens investors are turning to blended finance to help effect change. Consider the area of education: to achieve the SDGs and break the cycle of poverty, particularly for women, the majority of countries must improve their education systems—an effort estimated to face an annual funding gap of $22 billion.
With that in mind, organizations are using an increasing number of innovative blended structures to attract private-sector investors, who otherwise would not be able to participate because of their risk-return considerations. For example, the Educate Girls’ Development Impact Bond aims to increase enrollment and improve learning outcomes for thousands of students in Rajasthan, India. How does it work? The UBS Optimus Foundation (UBSOF) provides working capital to Educate Girls, the service provider. The outcome payer, the Children’s Investment Fund Foundation, will pay back UBSOF the original amount plus extra returns if the program meets certain objectives. In 2018, a pilot exceeded its targets, triggering a payout for investors.
In a more recent example, the 2020 Davos conference saw a coalition of public- and private-sector partners launch SDG500. The $500 million investment platform offers six blended finance funds, each working in partnership with a UN agency, development finance institution, or international NGO and using debt and equity to support seed, Series A, and Series B stage companies. With a focus on enterprises in agriculture, energy, finance, and healthcare across developing markets, some of its funds will specifically target companies aimed at boosting gender equality.
One such enterprise is the CARE SheTrades impact fund. A partnership with CARE Enterprises, a for-profit subsidiary of CARE USA, and the International Trade Centre, the gender-lens fund will invest in businesses in Asia promoting women’s entrepreneurship as well as gender equality in the workplace and in supply chains.
Mainstreaming Gender in Finance Structures
Despite these innovations, the proportion of blended finance structured investments with a gender-related goal is relatively small. According to global blended finance network Convergence, 25% of blended finance transactions are aligned with SDG 5, gender equality. Of those transactions, 20% have gender as the principal focus and 80% have gender as a partial focus.
This dearth of initiatives can exacerbate gender inequality and human rights concerns. A blended finance deal that provides access to capital for small businesses but does not also address gender inequalities is likely to widen the funding gap for women, for example.
To mainstream gender in blended finance structures, experts like Convergence argue that investors need to integrate gender equality and human rights in a more standardized, comprehensive way. That includes taking into account the full gamut of legal, political, and societal barriers women face, as well as mandating gender-disaggregated reporting to reveal patterns that could otherwise be masked.
Another step is to use design funding, an approach that provides grants for establishing proof-of-concept for early-stage blended finance investments that are focused primarily on gender equality. Such a system can ensure that a gender lens is embedded in deals from the beginning and help to build a strong pipeline of investees, covering the costs of developing a comprehensive gender methodology and supporting transactions in regions where alignment with gender equality has been low.