Gender incentives in climate finance work. More specifically, if private companies receive even small reductions in the interest rates on their loans to build and operate industrial-scale solar or wind farms, they will hire many more women during the construction phase of their projects. And when they do, multiple outcomes are achieved: The energy transition is advanced, the quantity of affordable electricity is increased, better wages for women strengthen local households, and women workers gain greater economic autonomy.
If there ever was a time to double down on this approach — to scale up gender incentives in climate finance, rapidly and with purpose — this is it. The endpoint of the Sustainable Development Goals, the year 2030, is only five years away. Yet instead of ramping up this sort of proven approach, multiple factors have combined to undercut gender and climate-focused funding in several key global economies. Aggressive pushback from the oil lobby and excessive spending on weapons for multiple wars have undermined government allocations to climate finance. Moreover, the recent political success of pro-carbon, anti-diversity conservative movements in the Global North threatens important gains in both renewable energy and gender equality.
Latin America: Leading Gender Incentive Innovation
How do we know that lower interest rates on company loans can result in increased women’s employment in clean energy? We know because a significant body of evidence in Latin America has demonstrated the effectiveness of this strategy — and shown that it is ready to be scaled up across the world.
The catalyst of this effort has been IDB Invest, the investment arm of the Inter-American Development Bank. Finance and gender specialists at IDB Invest work together to design, negotiate and monitor financing agreements with the energy firms in which the Bank, alongside its lending partners, invests. These agreements tie women’s employment and other goals to lower interest rates on loans for the companies’ clean energy projects. To make this happen, IDB Invest has cooperated with partners that provide concessional funding for gender incentives projects, notably the Canadian Climate Fund for the Private Sector in the Americas (C2F) financed by Global Affairs Canada, and the World Bank affiliated Clean Technology Fund (CTF).
For example, in 2020, IDB Invest provided financing for Atlas Renewable Energy’s New Juazeiro Bifacial Solar Power Project in Brazil, which received a US $67 million loan package for the design, construction and operation of four solar plants and a transmission line. As part of this financing package, the C2F and CTF combined to provide concessional capital to the project worth $15 million. In addition, IDB Invest provided technical assistance to the project through its in-house gender experts, helping it to design, implement, monitor, verify and report on the performance-based incentives (or PBIs, in IDB Invest’s terminology) that were integrated into the project.
The results were impressive: A 1.5% interest rate reduction on the New Juazeiro loan was tied to the achievement of all gender targets, which was, in turn, mirrored in the company’s agreements with its engineering, procurement and construction (EPC) contractors. By hitting these targets, Atlas received 100% of the interest-rate reduction. The company hired 162 female employees for the New Juazeiro project, representing 10% of the overall project workforce, which is between three and four times higher than the average number of women hired in solar projects in Brazil.
By 2023, the project had trained 250 women. IDB Invest confirms that: “Atlas will continue to implement training initiatives that enable women to explore diverse job opportunities, either within the company or outside, even after the project’s completion.” To that end, the project has trained more than 200 high school girls on STEM careers and entrepreneurship. IDB Invest reports that these PBIs “played a pivotal role in elevating Atlas’s aspirations beyond their original objectives,” encompassing “the implementation of childcare facilities for female employees, the facilitation of DEI workshops for EPC contractors as well as the initiation of outreach campaigns aimed at inspiring girls and women to embark on careers in STEM fields.”
Emerging Lessons and Limits in Implementing Gender Incentives
In a recent review of nearly two-dozen PBI projects, IDB together with consulting firm Dalberg identified several lessons and best practices that can apply to other programs that utilize gender incentives. For instance, the report found that these initiatives are most effective when they are aligned with companies’ strategic objectives, technical assistance is provided alongside financing, implementation is managed flexibly, standardized indicators are measured, and reporting is simplified.
Yet there are limits to this approach. For instance, in the context of energy projects, construction jobs are not permanent, and women workers hired during the construction of clean energy facilities must intentionally plan for their post-construction futures. In fact, some incentive agreements address this by encouraging firms to play an active role in creating “landing spots” for women workers in ongoing operations or in other sectors, after the project they were initially working on has concluded.
Additionally, it must be mentioned that PBIs are not for everyone. Not all chief executives or boards of borrowing companies will support the linking of the terms of their loans to performance on gender targets.
Potential Applications in Africa and Asia
However, it’s a big world, and many energy companies in multiple regions are seeking ways to increase their gender impact. There is great potential for applying gender incentives in renewable energy in the dynamic economies of Africa and Asia, for instance — especially by adding the interest rate technique discussed above to the gender-equality toolkits of national energy utilities and development finance institutions (DFIs).
Consider the case of South Africa. A decade-long women’s leadership training program at South Africa’s national energy company, Eskom, has resulted in women constituting one third of its workforce and occupying 20% of executive positions and more than 40% of senior management posts. To achieve even greater women’s employment gains, Eskom could tie its financing of the private firms that are building large-scale solar facilities to replace coal operations directly to gender performance targets through interest rate reductions.
The combination of women’s training initiatives, just-transition projects and targeted incentives could be powerful drivers of clean energy and gender justice across Africa and Asia. Among DFIs, for example, the Asian Development Bank has committed to increasing women’s participation in private-sector governance, management and technical roles in its renewable energy projects. Deploying gender-based interest rate reductions in its private sector lending in the clean energy space would amplify the Bank’s results.
Other Incentive Strategies to Advance Equitable Development
Of course, there are other ways, beyond the interest rate technique, of structuring financial incentives to advance equitable, sustainable development. One strategy involves linking the compensation of investment fund managers, particularly their carried interest (profit), with the achievement of gender and climate outcomes. In response to growing interest in this approach among investment professionals, foundations and DFIs, the Impact-Linked Compensation Project is conducting in-depth research on best practices and case studies.
Another strategy entails investors sharing their carried interest with the founders of their portfolio companies, an approach pioneered by Beyond Capital Ventures, a private fund active in East Africa and India. The firm’s Fund II provides a gender bonus on its carried interest payments to founders whose companies have full-time workforces that are at least 25% women, have at least one woman on their senior management teams and capitalization tables, and are guided by comprehensive gender policies.
Whatever the approach they use, we know that gender incentives in climate finance work. Through interest rate reductions and other strategies, private companies can be motivated to significantly increase the number of women they hire in well-paying jobs in the construction of clean energy facilities and in post-construction roles. As the SDG clock ticks down to 2030, and the COP climate action negotiation process falters, gender incentives are ready for prime time. They should be rapidly scaled up, now. Investors, development banks, private companies and gender experts must work together: There is much to be done and much to be achieved.
Edward T. Jackson is Senior Research Fellow at Carleton University, Honorary Associate with the Institute of Development Studies, and President of E.T. Jackson and Associates Ltd., Yiagadeesen (Teddy) Samy is a Professor of International Affairs and currently the Director of the Norman Paterson School of International Affairs (NPSIA) at Carleton University. Katie Turner is an independent consultant.
Photo courtesy of IMF Photo/Raphael Alves.
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