Orange bonds: Will orange be the new green? – Finextra Research

Report on Orange Bonds and the Advancement of Socially-Focused Sustainable Finance

Introduction: Addressing the Social Imbalance in ESG Investing

Sustainable finance has historically prioritized environmental metrics, leaving social considerations under-addressed. The dominance of the ‘E’ in ESG (Environmental, Social, and Governance) has resulted in less investment and rigour applied to social factors such as inequality, exclusion, and community resilience. Orange bonds are emerging as a critical financial instrument designed to correct this imbalance. By channelling capital specifically towards social empowerment and gender equality, these bonds directly support the achievement of the United Nations Sustainable Development Goals (SDGs).

The Role of Orange Bonds in Advancing Sustainable Development Goals (SDGs)

Core Focus on SDG 5: Gender Equality

Orange bonds are fundamentally aligned with SDG 5 (Gender Equality) by treating gender-focused investment as a driver of economic and social value. The premise is that empowering women is essential for building resilient economies and stable communities. Key objectives include:

• Providing capital on fair terms to women-led enterprises.
• Reducing systemic financial barriers faced by women.
• Investing in projects that promote women’s livelihoods and leadership.

Contribution to Broader Social and Economic Goals

The impact of orange bonds extends beyond gender equality, contributing to a range of interconnected SDGs:

• SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth): By financing women-led enterprises, orange bonds create jobs and foster inclusive economic growth, which are critical pathways to poverty reduction.
• SDG 10 (Reduced Inequalities): The instrument is explicitly designed to combat social and economic exclusion by directing investment toward underserved women and girls.
• SDG 17 (Partnerships for the Goals): The structure of these bonds often relies on blended finance models, where philanthropic and development capital de-risk investments for the private sector, demonstrating effective public-private partnerships.

Global Momentum and Key Initiatives

The Orange Bond Initiative and Market Growth

A coordinated global movement is driving the adoption of orange bonds. The Orange Bond Initiative has set a target to issue US $10 billion by 2030, aiming to positively impact 100 million women and girls. An early success, the Women’s Livelihood Bond 6, demonstrated significant investor interest by raising US $100 million for women-focused enterprises.

International Adoption and Regional Success

Major development finance institutions are integrating gender-focused social bonds into their strategies, indicating systemic demand:

• The International Finance Corporation (IFC) has raised over US $8 billion through its Social Bond Program for inclusive projects.
• The African Development Bank has issued gender bonds to support women entrepreneurs across the continent.
• The Inter-American Development Bank is developing gender and community-focused financial instruments in Latin America.
• The Women’s Livelihood Bond series has successfully channelled capital to women in Southeast Asian markets, including Cambodia, Vietnam, and the Philippines, proving the model’s viability in developing economies.

Challenges and the Path to Maturation

Overcoming Measurement and Credibility Hurdles

Despite progress, social bonds constitute a small fraction of the US $6 trillion sustainable debt market, which remains dominated by green bonds. This disparity is partly due to challenges in measurement. While environmental outcomes like emissions reductions are quantifiable, social impacts such as gender inclusion and community resilience are often more qualitative and complex to verify. This lack of consistent metrics can hinder investor confidence.

Building a Robust Ecosystem for Social Finance

For orange bonds to achieve scale and credibility comparable to green bonds, a supportive ecosystem must be developed. This requires a disciplined and systematic approach focused on the following key areas:

1. Standardized Metrics and Assurance: Establishing consistent social Key Performance Indicators (KPIs) and leveraging independent assurance are essential to validate outcomes and ensure capital is linked to tangible social progress.
2. Transparent Reporting Frameworks: Developing clear rating systems and disclosure rules will enhance credibility and allow investors to make informed decisions.
3. Credible Impact Data: Investing in methodologies for collecting and verifying social impact data is crucial for proving the effectiveness of these financial instruments.
4. Investor Awareness: Building greater understanding within the financial community of the investment case for social outcomes is necessary to drive demand.

Conclusion: Integrating Social Impact into Mainstream Finance

Orange bonds signify a necessary evolution in the sustainable finance landscape, shifting focus toward the critical social dimension of the SDGs. To fully realize their potential, the market must move beyond good intentions and embrace the same rigour, transparency, and accountability that define the green bond market. By building a robust framework for measuring and verifying social outcomes, the financial system can effectively value human well-being alongside environmental health, making orange bonds a core pillar of sustainable development.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

The article on orange bonds and social finance directly addresses and connects to several Sustainable Development Goals (SDGs). The primary focus is on social outcomes, gender equality, and economic empowerment, which aligns with the core principles of the 2030 Agenda for Sustainable Development.

• SDG 5: Gender Equality: This is the most prominent SDG in the article. The entire concept of “orange bonds” is built around gender empowerment, aiming to “channel capital into social impact” with a focus on women and girls. The article explicitly states that the initiative’s goal is to promote gender equality and that “when women thrive, economies do too.”
• SDG 8: Decent Work and Economic Growth: The article connects gender equality to economic performance. It highlights that financing women-led enterprises is not “charity, but smart economics” that leads to faster economic growth. By providing capital to women entrepreneurs, these financial instruments support the creation of productive activities and the growth of small and medium-sized enterprises.
• SDG 10: Reduced Inequalities: The article frames the discussion around correcting the imbalance in sustainable finance, where the ‘S’ (Social) in ESG is sidelined. It addresses issues of inequality and exclusion by promoting financial instruments designed for “social inclusion” and supporting “underserved communities” and “low-income communities in emerging markets.”
• SDG 17: Partnerships for the Goals: The article emphasizes the collaborative effort required to grow the social finance market. It mentions various partnerships, including the Orange Bond Initiative, and collaborations between public and private capital, philanthropic and development investors (like the International Finance Corporation, African Development Bank, and Inter-American Development Bank), to mobilize financial resources for social impact.

2. What specific targets under those SDGs can be identified based on the article’s content?

Based on the article’s discussion of orange bonds and their objectives, several specific SDG targets can be identified:

1. Under SDG 5 (Gender Equality):
   • Target 5.5: Ensure women’s full and effective participation and equal opportunities for leadership in economic life. The article supports this by advocating for investment in “women-led enterprises” and noting that “businesses with more women leaders perform better.”
   • Target 5.a: Undertake reforms to give women equal rights to economic resources, as well as access to financial services. The article directly addresses this by stating that “access to finance remains one of the biggest barriers” for women and that orange bonds are designed to solve this by helping women-led enterprises “secure capital on fair terms.”
2. Under SDG 8 (Decent Work and Economic Growth):
   • Target 8.3: Promote development-oriented policies that support productive activities, entrepreneurship, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services. The article’s focus on raising capital for “women-focused enterprises” through instruments like the Women’s Livelihood Bond series is a direct application of this target.
3. Under SDG 10 (Reduced Inequalities):
   • Target 10.2: By 2030, empower and promote the social and economic inclusion of all. The article explicitly states that orange bonds are focused on “gender empowerment and social inclusion” and mentions the International Finance Corporation’s Social Bond Program, which supports “low-income communities in emerging markets.”
4. Under SDG 17 (Partnerships for the Goals):
   • Target 17.3: Mobilize additional financial resources for developing countries from multiple sources. The article describes how the Women’s Livelihood Bond series “directed public and private capital to women-led enterprises across Cambodia, Vietnam and the Philippines,” demonstrating the mobilization of funds for developing markets.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the article mentions several quantitative and qualitative indicators that can be used to measure progress towards the identified targets.

• Financial Mobilization Indicators: The article provides specific monetary values that serve as direct indicators of capital being channeled towards social and gender-focused goals.
  • The Orange Bond Initiative’s target to issue US $10 billion by 2030.
  • The successful raising of US $100 million by the Women’s Livelihood Bond 6.
  • The International Finance Corporation’s Social Bond Program raising over US $8 billion.
  • The proportion of social bonds within the US $6 trillion sustainable debt market, which indicates the scale of social finance relative to environmental finance.
• Impact and Outreach Indicators: These indicators measure the direct impact on the target population.
  • The Orange Bond Initiative’s goal of reaching 100 million women and girls.
  • The number of women-led or women-focused enterprises supported by the bonds.
• Market and Systemic Indicators: These indicators reflect the maturity and credibility of the social finance ecosystem.
  • The development of consistent metrics and standards for measuring social outcomes like gender inclusion and community resilience.
  • The use of independent assurance and social Key Performance Indicators (KPIs) to build investor confidence and ensure capital is linked to real outcomes.
  • The establishment of clear rating systems, transparent disclosure rules, and credible impact data for orange bonds.

4. Summary Table of SDGs, Targets, and Indicators

Source: finextra.com