Turning ordeal into opportunity

A new form of impact investing would see investment capital deployed to address the needs of fragile populations

By Katherine Brown 17 January 2019

Turning-ordeal-banner

Responsible investing strategies such as sustainable and impact investing have recently experienced tremendous growth. This won’t be news to LBS alumni, who have been working in this area for decades. Through the rise of impact investing, where investors target financial return as well as a measurable positive environmental or social outcome, we have seen capital addressing an ever more varied landscape of global and local challenges.

My team at the World Economic Forum focuses on the macro issues in the deployment of capital in both sustainable and impact-investing strategies, but sometimes we need to zoom in to develop a global narrative for a theme that truly addresses an under-served population.

Humanitarian investing is one such theme. Its distinguishing feature is its focus on return-seeking models and mechanisms that aim to provide capital along the journey of displaced people in fragile contexts. It has been described as “turning ordeal into opportunity”, or ethically investing in the stability and opportunity for displaced people.

Herein lies an opportunity for impact investing or blended finance: both were originally intended to serve those most in need, but have veered towards markets and opportunities that carry less risk.

Interest in private investment opportunities in the humanitarian space is just starting to blossom. But, before you book an appointment with your financial advisor, there is a caveat: as a formal investment category it does not yet exist.

My colleague Andrej Kirn and I chose the name “humanitarian investing” for our project because it pushes the boundaries and implies a collaborative, integrated, market-based approach. It’s new and pioneering work, alongside a number of investors, companies, governments and humanitarian actors who have realised the gravity of the challenge and are motivated to explore this new theme with us.

We also recognise that there are many social enterprises aiming to provide remedies for certain pain points along the humanitarian journey. It’s our goal to assess the need across the whole humanitarian arena and help establish the rules of engagement for investors and corporate stakeholders. This would not be a priority for the Forum if it were not a dauntingly complex and intractable problem.

We are exploring the potential to better understand and deploy capital, yet we are aware that the global investment community might say it’s not the right time. We hope that will not be the case, because they are capable of more than they know.

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The urgent need for humanitarian investment

The United Nations High Commissioner for Refugees (UNHCR) estimates that 70 million people are forcibly displaced globally. According to the World Bank, “95% of refugees and internally-displaced live in developing countries, originating from the same 10 conflicts since 1991, consistently hosted by about 15 countries – also overwhelmingly in the developing world.”

This is just the beginning of long-term flows of displaced peoples due to climate, economic and political factors. With the number of people affected by fragility and conflict also expected to increase, this affects progress towards the UN Sustainable Development Goals. If the private sector thinks this will simply all go away without its help, here’s a news flash: it won’t.

Traditionally, the humanitarian sector is mainly served by governments through official development assistance (ODA). Widely used by the OECD as an indicator of international aid flow, ODA funding is at an all-time high at around US$160-180 billion (£120-137 billion) annually. But the need is outpacing supply, hence the increased interest in humanitarian investing.

A number of organisations, such as the Tent Partnership, have pointed out the under-explored economic opportunity that migrants and refugees bring to businesses in their new homes. There are also opportunities to invest in stability before the migrant journey even begins.

While interest is emerging from mainstream investors and corporates in effective humanitarian solutions, they currently don’t see a clear role for themselves. This reality hit me recently in discussions with my investor network. We talked about the issues they personally care about, and worldwide migration is high on everyone’s list. However, as investors, they feel their key contribution is through philanthropy, which unfortunately hardly scratches the surface of the long-term financial need. They do not see the role of their core business or the wider opportunities to get involved.

This is what I’m working to change.

"Trillions of dollars are already at play in the combined sustainable and impact-investing area"

How do we get there?

At the moment, there is no systemic entry point for private capital to play a meaningful role in humanitarian affairs. It’s my job to get sustainable and impact investing, which focuses on investors but includes policymakers, on everyone’s radar.

In collaboration with the UK Government, the Forum just released a policy paper, Behind the Scenes of Impact Investment Policy-Making; one of the first discussion papers to examine what governments around the world are doing in the impact-investing space.

Governments have a key role to play in facilitating solutions. For a socially or environmentally managed approach to be brought into the mainstream within almost any theme, business leaders and investors must see a bridge from government. An example is the Humanitarian Impact Bond launched by the International Committee of the Red Cross (ICRC), which required outcome funding by government to achieve scale and attract additional investors.

This was and is a large-scale, complex and highly debated project.

Much is happening in impact investing and many such products are being tested, but the ecosystem is fragmented and, at times, region or industry specific. This makes it difficult to articulate and implement a focused strategy. That’s why we have created a practice – not only to discuss solutions but also to focus on building the bridges and pathways to implementation.

Navigating roadblocks

A key challenge is that humanitarian investing is where blended finance and impact investing were respectively five and 10 years ago: articulating what it means. And before it can evolve to benefit the many worldwide humanitarian projects, we have to establish the landscape for it to exist as an ethical option for investors.

This is typically a no-go zone for investors. One reason private capital does not see an entry point into humanitarian investment is that the narrative is mostly framed around ‘urgent response’ projects – something that would trigger ‘high-risk’ and ‘no-go’ for many investors.

Key to overcoming this barrier is shedding light on where risk is potentially mispriced; where the knee-jerk no-go reaction is not substantiated. Investors hesitate when they see financial as well as reputational risk because the price of failure in a human or planet-centred approach is far greater than purely financial.

The unwillingness of the humanitarian sector to allow new sources of capital in, and the inability to provide formal channels to receive that capital, are additional barriers. For private capital to support humanitarian actors in delivering more effectively, the process should complement humanitarian actors, rather than take over from them completely.

Building on the policy work, the Forum is laying out the investment landscape in close collaboration with the World Bank and the ICRC by writing a primer on the current and potential state of play for humanitarian investing.

I see it as a spectrum of capital for investors and investor types – from ‘urgent need’ to ‘mainstream investable’. Of the main investment themes that create tangible impact and on which many traditional investors focus (such as solar energy, fintech and micro-finance, healthcare, mobile education solutions, infrastructure, insurance, debt-relief, refinancing, IT and digital infrastructure and so on), none are alien to investors – it’s just that their application to the humanitarian journey is not articulated in their thesis.

Are we there yet?

Our work is focused on the long view. We have the opportunity to connect the most senior decision-makers in the world and help them evolve from their short-term mindset to more long-term and sustainable success stories.

Looking ahead, when sustainable and impact strategies ultimately and clearly contribute to a company’s financial value, shareholders will sit up and listen, too. We know that people – particularly women and the millennial generation – are increasingly interested in investing with their values as a driver. In fact, trillions of dollars are already at play in the combined sustainable and impact-investing area.

My priority is to try to build a coherent and empowered network to accelerate the pace of impact. While the concept of humanitarian investing may not yet be well understood by the global community, I have set my sights on bringing people together to start tackling the problem statement. It’s a humbling opportunity, not to mention a terrifying one at times. But no one ever said that mission-driven work should be easy – we just need to be ready to go there, no matter what.


Katherine BrownKatherine Brown

Head of Sustainable and Impact Investing at the World Economic Forum; alumna, London Business School

Comments 1

AGE 5 months and 6 days ago

Excellent Katherin. Look, by about two years I have been working in a project to potentialize impact, environmental investment. I am sure you receive hundreds of this idea but believe me, this is really a game-changing concept. I just need to send you a couple of pages. The project email: 2clicksexperiment@gmail.com BR.