Growing evidence demonstrates that women play a critical role in achieving climate goals; both as leaders in advancing climate solutions, as well as beneficiaries. There is therefore an urgent need for more investments into transactions that incorporate both gender and climate considerations.
Yet, mainstreaming gender within climate vehicles often encounters a myriad of barriers. This is apparent in the blended finance market, where out of the 550 or so climate blended finance deals in Convergence’s Historical Deals Database (HDD), only 22% were gender-responsive, a considerably lower proportion than the overall trend in the blended finance market where 31% of the deals were gender-responsive. Recognizing this, the Catalytic Climate Finance Facility (CC Facility) Learning Hub recently released its inaugural report on gender-responsive blended climate finance transactions in the energy sector. The report provides an analysis of the data behind these transactions and highlights case study examples. It also explores the challenges to successfully launching gender-energy blended transactions and suggests recommendations for investors and practitioners to help increase their effectiveness in implementing these deals.
A commonly discussed challenge was simultaneously addressing climate and gender objectives within the same transaction. Often, investors approach each in a silo, understanding one of the objectives but failing to be proficient in the other type of impact strategy. This is especially the case for smaller funds that do not possess large technical assistance (TA) facilities, or for institutions with limited resources that must prioritize impact measurement and monitoring for a single or small set of objectives.
A lack of standardized frameworks and metrics for these dual objectives further complicates efforts. While climate metrics, especially those for mitigation, are more established, investors and practitioners repeatedly signaled the lack of standardization in gender-related metrics as a significant challenge for structuring and investing in gender-responsive climate transactions. Moreover, limited or non-disaggregated data can also make globally recognized metrics and criteria neither useful nor relevant.
The report suggests several ways of overcoming these challenges to integrate both gender and climate within a transaction. One is through monetizing the gender co-benefits of climate vehicles through gender credits. Co-benefits are advantages that climate solutions provide above and beyond helping to fight climate change. Articulating the gender co-benefits of a climate transaction can be strategic since it capitalizes on investor demand for climate while adding a premium for gender equality. The second method is by using TA and financial incentives simultaneously to hit gender key performance indicators (KPIs) within climate transactions.
Monetizing gender co-benefits
Two cases demonstrate how gender co-benefits can be monetized through the sale of gender credits.
The first is the Clean Impact Bond (CIB), launched by Sistema.bio in 2022. The CIB is a type of development impact bond that contributes to the broader use of clean cooking technologies by increasing access to clean appliances for low-income customers across Africa. It does this by drawing on upfront funding for small- and medium-sized enterprises (SMEs) that manufacture and distribute these appliances. The outcome buyer will purchase the health and gender co-benefits generated from the use of these appliances, as a type of credit. Considering women are largely the demographic positively affected by clean cooking, co-gender benefits can play an important role in such a vehicle.
The CIB demonstrates that there is a viable way to monetize gender co-benefits in the climate finance market by accomplishing two crucial outcomes: i) it provides data-driven metrics for quantifying the impact and monetary value of gender and health, and ii) it demonstrates the existence of willing buyers for gender and health co-benefits, indicating the potential market demand for gender. In this way, the CIB offers a starting point for determining a revenue stream for gender credits, as well as identifying the presence of outcome funders.
The second case that exemplifies the use of gender credits is the W+ Standard issued by WOCAN. The W+ Standard allows projects to certify quantifiable contributions to women’s empowerment and emissions reduction. For example, carbon emissions reduction projects that deliver benefits to women can add the W+ Standard to their existing projects, which can then be sold for a premium price to carbon buyers seeking co-benefits for gender equality/women’s empowerment, or to address SDG 5 (Gender Equality). One credit is equivalent to a 10% improvement in the lives of women in the project community (for more information on how these credits are measured, visit the W+ website). The W+ Standard requires that at least 20% of the price of the sold credit is provided to women of the project community, to support their self-determined goals. In general, incorporating gender credits into a transaction can encourage more rigorous tracking and reporting on gender-related outcomes, leading to greater transparency and accountability in how investments impact women and gender equality.
Using TA and financial incentives to incorporate a gender-lens
A further recommendation within the report for incorporating a gender-lens in climate transactions is to deploy TA and financial incentives together to achieve complementary goals. One barrier to incorporating a gender-lens is the lack of knowledge of how to do so; targeted TA can provide the necessary training to help a deal sponsor develop and measure gender outcomes. Financial incentives can then be an important tool to encourage companies to follow-through and meet these established goals.
An example of a transaction that has done this is the Beyond Finance Asia-Pacific Facility, a blended finance initiative that aims to enhance women’s access to funding and essential services in the Asia-Pacific and sub-Saharan Africa regions. Beyond Finance uses TA to help incorporate a gender-lens in the development of climate adaptation products. When KPIs are achieved, it triggers the provision of interest rate reductions for investees.
Meanwhile, Deetken Impact, a fund manager, uses TA to improve the gender scores of its portfolio companies. As part of its due diligence process, Deetken devised a gender scorecard that covers five main principles: women in leadership and governance; workplace equity; professional development programs for women; value chain and advocacy; and community engagement. Through their TA training programs, they have been able to improve outcomes across each of these focus areas, deepening impacts and moving beyond simple headcounts. Deetken uses TA to improve gender outcomes within large-scale solar projects while partnering with Inter-American Development Bank (IDB) Invest, which provides financial incentives in the form of lower interest rates to encourage a transaction to hit its climate and gender milestones.
These cases demonstrates that while financial incentives can be a powerful motivator for prioritizing gender outcomes, TA-enabled advisory support is a necessary precursor to creating and reaching reasonable and customized targets based on the specifics of the transaction.
Conclusion
Whether a transaction uses gender credits to monetize the co-benefits of gender in climate transactions or incentivizes gender-lens investing through deploying financial instruments and TA simultaneously, there are opportunities for blended finance deal sponsors to break down silos to achieve dual social goals. Gender credits can help create a scalable, standardized framework for investors to understand the impacts of gender-lens investing. Meanwhile, gender advisory support can help transactions meet KPIs, and even unlock financial incentives such as reduced interest rates, that create momentum for reaching gender goals. By adopting these strategies, investors can more effectively align their financial goals with broader social and environmental impacts, driving progress towards a just and resilient transition.