III. Non-compliance, Events of Default, and Consequences

Most Respondents showed an aversion to tying gender impact-driven provisions to events of default in the loan agreements. Instead, they prioritized flexibility over exiting an investment or penalizing the portfolio company. This is driven by concern over pushback from their borrowers, willingness to consider on-the-ground realities their borrowers face, and unwillingness to jeopardize relationships with a committed borrower.

According to many Respondents, borrowers are often open to adjusting their GLI goals to align with evolving interests and requirements in the impact market, such as meeting 2X Challenge requirements or adhering to goals related to the SDGs. Several noted that many of their borrowers are already mission-aligned and that, if they were to impose restrictive obligations or onerous compliance requirements, the borrowers might be reluctant to work with them in the future. Others expressed concern that they would lose out on deals to competitors that do not focus on gender considerations in their legal documentation or impact more broadly if they implemented gender-related events of default or harsh consequences for non-compliance.

However, it is useful to note that Respondents did not express concern that borrowers would themselves walk away from potential funding if gender considerations were brought up. In general, Respondents reported that borrowers were willing to engage in conversations about gender and it was helpful to have more flexible strategies surrounding GLI.

As long as borrowers demonstrate good faith intent to achieve gender-specific goals, coming back to the table is greatly preferred over terminating the relationship. One Respondent highlighted that borrowers’ management also want to make progress on gender goals but are working in very challenging markets where strict gender requirements may not always be appropriate. It is critical to be cognizant of the borrower’s market environment and circumstances.