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Transcript of Bringing Innovation Back to Innovative Finance
Bellagio 2015 | Final Report
A report authored by the Wharton Social Impact Initiative with support from The Rockefeller Foundation
Bringing Innovation Back to Innovative Finance
Contents |
Overview 4
Guiding the Conversation 9
Creating a Framework: Spurring the Innovation Agenda 10
Creating a Framework: Designing & Enabling Success 12
Opportunities for Action 15
Conclusion 18
This report was authored by the Wharton Social Impact Initiative (WSII) of the University of Pennsylvania as part of a grant by The Rockefeller Foundation to advance the agenda for innovative finance. WSII and The Rockefeller Foundation are working together to explore how we might foster more innovative financial mechanisms for tackling some of the world’s most complex and enduring social problems.
The discussions held at the “Bringing Innovation Back to Innovative Finance” convening and the information provided in this report are solely for informational purposes. Nothing discussed or contained in this report constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Nothing discussed or contained in this report shall be viewed as a current or past recommendation or a solicitation of an offer to buy or sell securities or to adopt any investment strategy.
Bellagio Report: Bringing Innovation Back to Innovative Finance
In April 2015, The Rockefeller Foundation and The Wharton Social Impact Initiative hosted “Bringing Innovation Back to Innovative Finance,” a convening to explore financial mechanisms for social and environmental impact.
The meeting brought together leaders from the worlds of finance,
international development, philanthropy, and academia to take a fresh
look at the potential of innovative finance – or new ways of harnessing
private sector capital for addressing the world’s key social, economic,
and environmental problems.
This report outlines key findings and outcomes from the convening,
held from April 21-23, 2015 at The Rockefeller Foundation’s Bellagio
Center on Lake Como, Italy.
3
Overview
The MDGs galvanized efforts to increase
funding levels for international development
projects. Leaders called for a renewed
commitment to increase official development
assistance (ODA) to 0.7% of GDP and to
develop new approaches and mechanisms for
financing development. Reflecting a growing
interest in these new approaches and
mechanisms, delegates to the United Nations
International Conference on Financing for
Development first declared “innovative
finance” a policy priority under the Monterrey
Consensus in 2002.
Innovative finance refers to new mechanisms
and approaches to harness private sector
capital for addressing the world’s key social,
economic, and environmental problems.
These financing mechanisms and approaches
have taken a variety of forms across fields and
geographies, from blended finance and pay
for success structures, to advanced market
commitments and new insurance products.
Notable examples include the International
Finance Facility for Immunization (IFFIm)
which has raised more than US $5 billion to
date to support the Gavi Alliance, the world’s
leading health organization committed to
increasing access to immunization in poor
countries.
Green Bonds are another example of
innovative finance success. First launched in
2007 with US $800 million in issuances for
climate-related investments, the green bond
markets has grown to US $42 billion in 2015.
Yet another mechanism is UNITAID, a public
sector-driven levy on airline tickets that has
successfully raised US $2.5 billion for public
health since 2006. (For more examples in
innovative finance, see Box 1.)
While these examples point to significant
In 2000, the international community committed to the Millennium Development Goals (MDGs), a set of time-bound targets for cutting extreme poverty worldwide in half by 2015. Now in 2016, we look toward achieving the new Sustainable Development Goals.
Bellagio Report: Bringing Innovation Back to Innovative Finance
progress, the amount of money mobilized
through innovative finance mechanisms remains
modest, relative to the need.
According to a recent industry study, innovative
finance mechanisms mobilized between US $90-
$100 billion of public and private capital from
2001 to 2013. By comparison during the same
period, roughly US $1.6 trillion flowed through
official development assistance (ODA), and more
than $150 trillion is currently invested in the global
capital markets.
Looking toward the post-2015 development
agenda, there is widespread recognition that
prevailing levels of financial resources from
governments and the donor/philanthropic
community are inadequate to address the social
challenges we face in the 21st century.
Estimates currently set the investment need for
the emerging “Sustainable Development Goals”
5
“ Innovative finance: new mechanisms and approaches to harness private sector capital for addressing the world’s key social, economic, and environmental problems.”
BOX 1: Examples of innovative finance in action.
INTERNATIONAL FINANCE FACILITY FOR IMMUNIZATION (IFFIM):
IFFIm’s aim is to front-load aid funding by transforming long-term donor government pledges into immediately-available cash resources. In order to do this, IFFIm attracted legally-binding, financial commitments of nearly $4 billion over 20 years from five governments, enabling it to issue AAA-rated bonds to institutional investors.
The bonds raised nearly $1 billion in the first year, providing $995 million in additional capital to the Gavi Alliance to purchase and deliver vaccines throughout the world’s poorest countries. To date IFFIm has increased the number of donor governments to nine and raised more than $5 billion in total to advance Gavi’s immunization work. 1
continued, page 6
(SDGs) between US $3.5-$4.5 trillion per
year. Accounting for the approximate US $1.4
trillion in existing sources of funding, there
still remains a US $2.5 trillion shortfall. In this
case, innovation is not just for innovation’s
sake. The call for more innovative financial
solutions for the world’s most pressing social,
economic, and environmental problems goes
well beyond a contemporary buzzword.
There are no easy solutions, however. For
perspective, scaling current innovative
finance flows 100x would only result in
approximately US $1 trillion – well below the
$2.5 trillion target. There is no silver bullet
solution that will get us to the investment
levels we need. Rather, we need a broad
set of scalable investment solutions that
together advance the agenda. This will take
commitment, resources and the elusive
combination of ingredients that make
innovation happen: creativity, risk-taking,
patience, and collaboration.
GREEN BONDS:
Green bonds raise money from fixed income investors to support lending for eligible projects designed to mitigate climate change or help those affected by it. The World Bank first launched green bonds in 2008, which gave investors concerned with climate change the opportunity to invest in sustainable infrastructure projects. Estimates placed the total volume of green bonds around US $40 billion at the end of 2014, with issuances not only from development finance institutions but also institutions like Bank of America.
UNITAID:
UNITAID is a public sector-driven micro-levy on airline tickets that has been implemented across nine countries to create a new, large, and stable funding source for supporting public health initiatives. Since 2006, UNITAID has successfully raised US $2 billion to address HIV/AIDS, tuberculosis, and malaria via the World Health Organization (WHO) by implementing a small tax on select airline tickets. 2
CATASTROPHE (CAT) BONDS:
A catastrophe bond is an insurance linked security in the form of a bond that allows issuers (which are mostly governments) to insure against catastrophic events such as hurricanes or earthquakes in a quicker,
References: 1. IFFIm, http://www.iffim.org; 2. UNITAID, http://www.unitaid.eu; 3. World Bank, http://blogs.worldbank.org/developmenttalk/catastrophe-bonds-international-community-can-facilitate-de-velopment-innovative-risk-management; Center for Global Development, http://www.cgdev.org/blog/can-and-cant-cat-bonds; 4. Harvard Kennedy School, “Advance Market Commitments for Vaccines Against Neglected Diseases: Estimating Costs and Effectiveness”; Gavi, http://www.gavi.org; 5. CGAP Microfinance Gateway, World Food Programme R4, Swiss Re R4 Initiative; 6. CGAP Microfinance Gateway, http://www.microfinancegateway.org/;
“ We need a broad set of scalable investment solutions that together advance the agenda.”
Bellagio Report: Bringing Innovation Back to Innovative Finance
more cost effective way than through traditional insurance. These bonds rely on parametric triggers, specifying predefined values (e.g., magnitude of an earthquake or wind speed during a hurricane) that generate a payout from the insurance policy. If the disaster occurs, investors in the bond forgo the principle to the borrower (e.g., the government), who can use the cash immediately to address the crisis and begin recovery.
Traditionally, insurance and reinsurance companies from advanced economies issue CAT bonds, but developing countries are more vulnerable to the effects of catastrophes and have fewer resources to prepare and respond to disasters. Since 2009, groups like the World Bank and African Risk Capacity have developed similar products for developing countries.3
ADVANCE MARKET COMMITMENTS:
Advance market commitments (AMCs) guarantee a viable market for private sector companies to provide goods in industries and geographies not traditionally served by the private sector. Current AMCs consist of contracts between donors (i.e., governments and foundations) and pharmaceutical companies that set a guaranteed price for drugs or vaccines for undeserved diseases (e.g., HIV/AIDS, malaria, or tuberculosis) and populations. Donors agree to a minimum price per person up to a certain amount of individuals immunized, and in return, companies commit to providing the vaccine at an affordable price to developing markets.
While the market size for these drugs is quite large in developing countries, the ability to pay for vaccines remains out of reach for those who need them most. AMCs lower the cost of vaccines, and experts estimate that the sheer volume of drugs purchased through AMCs creates revenues for pharmaceutical companies comparable to investments they traditionally make in commercial products in established markets.4
MICROINSURANCE:
Low-income households have few, if any options, for protecting themselves against risks such as illness, crop failure or loss of assets like livestock, as traditional insurance products are generally too expensive for them to access. Microinsurance addresses this challenge by offering coverage for poor individuals in areas such as health and agriculture through innovative distribution channels and by pooling and transferring risk to the capital markets.
In 2011, The Rockefeller Foundation together with the World Food Programme, Oxfam America, and SwissRe launched the R4 Rural Resilience Initiative in Senegal and Ethiopia to decrease food and income insecurity associated with climate-related shocks. Poor farmers and rural households in these countries pay for insurance by working on local climate adaptation measures – often in the form of crop irrigation or forestry projects. R4 reaches more than 26,000 smallholder farmers by employing an integrated approach with tools like resource management, insurance, microcredit, and savings. Estimates place the microinsurance market place at more than US $40 billion and growing.5
MICROFINANCE:
Perhaps one of the best known examples of innovative finance, microfinance is generally a source of very small loans for low-income people. Over time, it has evolved to include a range of financial products, including savings and insurance.
Microfinance has become a source of credit for those at the base of the pyramid where they may otherwise be seen as too risky an investment from a traditional bank. Microfinance institutions now span a range of organizational structures from small non-profit organizations to large commercial banks.6
7
SOVEREIGN RISK POOLS:
Sovereign risk pools provide governments with a tool to minimize the impact of natural disasters on their economies. It provides countries with immediate access to capital to begin recovery and reconstruction efforts. An early example of such an insurance tool is the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a multi-country, disaster risk insurance facility established by the World Bank in 2006. The CCRIF provides liquidity coverage for 16 Caribbean states in the case of major natural disasters (e.g., hurricanes and earthquakes). 7
USE-RELATED MARKETING:
The late 2000’s saw an increase in use- or cause-related marketing. This type of marketing generally links a for-profit company with a non-profit for mutual benefit. Often times this results in new streams of revenue for the non-profit or direct goods and services to developing countries. One of the best known examples of this is Product (RED).
(RED) was founded by U2’s Bono in 2006 to raise awareness and money to combat HIV/AIDS in Africa. Companies like Nike, American Express, Apple, Starbucks and many others have created products that are part of (RED). Revenue generated
from the sale of (RED) products go to the Global Fund to Fight AID, Tuberculosis and Malaria. (RED) is the Global Fund’s largest donor, having provided more than US $275 million to date.8
PAY FOR SUCCESS:
Pay for Success contracts engage stakeholders from philanthropy, non-profits, and the private sector to finance outcomes-based social interventions. These contracts are often known as “Social Impact Bonds” and leverage philanthropic and private sector financing to provide up-front funding for a non-profit service provider to achieve a specific social or environmental impact measure for a target population.
The government agrees to pay back the loan providers only if the agreed-upon impact targets are met. Pay for Success projects have been developed all over the world, and in both developed and developing countries. In the US alone, the government has allocated nearly US $200 million for new PFS contracts.9
7. Foreign Affairs, Trade and Development Canada, “Project profile: Catastrophe Risk Insurance Facility for Central America - Honduras ; Global Facility for Disaster Reduction and Recovery, http://www.gf-drr.org/sites/gfdrr.org/files/documents/DRFI_CCRIF_Jan11.pdf; CCRIF, http://www.gfdrr.org/sites/gfdrr.org/files/documents/DRFI_CCRIF_Jan11.pdf; 8. Product (RED), http://www.red.org; 9. White House, OMB, Paying for Success, https://www.whitehouse.gov/omb/factsheet/paying-for-success
Bellagio Report: Bringing Innovation Back to Innovative Finance
Guiding the Conversation
9
SPURRING THE INNOVATION AGENDA
DESIGNING AND ENABLING SUCCESS
OPPORTUNITIES FOR ACTION
What must be done to spur the global innovation agenda?
• What are the barriers to innovation? What can
be done to enhance the quality and scale of
innovative finance solutions?
• How can we better coordinate public and
private-sector efforts?
What are opportunities for action?
• Which sectors and/or financing approaches
are ripe for innovation? Which high-impact
solutions are ready for further testing for
proof-of-concept? What research is needed?
• Are there existing mechanisms prepared to
scale organically and/or across new sectors/
problem areas? What can be done to catalyze
the development of these solutions?
Discussion explored these two overarching questions:
This report follows three main areas discussed at Bellagio:
What are possible barriers to innovation in financing for development?
1. SILOSThere is a need for more ‘connectors’ and partners. Development banks have often played this role – working with civil society, private industry, and government.
To be successful in mobilizing private sector capital at scale, there must be more actors who can translate across industries and sectors.
2. UNCERTAIN REVENUE STREAMS The sector needs to move from uncertainty (e.g., ODA levels varying by country and political appetite) to predictability and stability. How might we identify additional, predictable, and sustainable revenue streams? Micro-levies like UNITAID have overcome this barrier in the past.
3. ORGANIZATIONAL READINESSInnovative finance has been generally driven by asset owners, not organizations needing capital.
There are examples of institutions having developed innovative financial mechanisms for funding public health, but the recipients of capital found themselves with structural and organizational barriers to receiving and deploying new funds.
4. LACK OF POLITICAL WILLThe political context in developing countries can lead to uncertainty, and there are challenges in finding leaders to champion new ideas. Specifically, a lack of political will to drive innovations forward can kill or stall projects, and the policy and regulatory environment may not be favorable for financial innovation. This can be particularly true for innovations in financing disaster preparedness projects versus disaster response efforts.
5. LARGE AND UNCERTAIN RISKSThere have been too few efforts to quantify risk and mitigate risk, particularly in emerging and frontier markets.
An inefficient use of subsidies, unclear governance structures, and the lack of data to determine a track record can lead to uncertainty and difficulties in properly assessing and pricing risk.
Creating a Framework
Spurring the Innovation Agenda
While the topic of innovative finance is not new, the forthcoming Sustainable Development
Goals (SDGs) and the third International Conference on Financing for Development recently
held in Addis Ababa, Ethiopia provide a unique opportunity to reflect on the current state of
affairs. In Bellagio, participants assessed the progress of innovative finance to date, identified
possible constraints, and explored opportunities for action. While stakeholders throughout
the innovative finance ecosystem understand the importance of each of these elements
individually, incorporating them into a cohesive strategy that can spur the global innovation
agenda has proven more difficult in practice.
Bellagio Report: Bringing Innovation Back to Innovative Finance
11
1. DONOR-LED DEVELOPMENTDonors (philanthropy and government) can lead the imperative for developing more innovative finance mechanisms, creating stronger incentives for traditional investment banks and financial advisory firms to address social and environmental issues.
2. LONG TERM APPROACHDonors should be encouraged to adopt a longer-term time horizon for capital allocations beyond yearly ODA cycles.
3. COLLABORATIONNew forums for collaboration with ideas from the private sector should be encouraged.
4. CAPACITY BUILDINGImplementing organizations will need to build their internal capacity to effectively receive and deploy larger amounts of capital.
5. LOOKING AHEADSovereign government should take an ex ante instead of an ex post approach to protecting against natural disasters and public health crises.
6. FOCUS ON DATAExisting data must be analyzed and additional data should be generated through new modeling initiatives in order to create new methods for assessing risk.
Opportunities to overcome potential challenges
Creating a Framework
Designing And Enabling Success
If the international community is to be successful in unlocking private sector capital as an
important means of achieving the SDGs, there must be a better, broader understanding of the
key design elements and enabling success factors for innovative financing mechanisms:
Design Elements
SIMPLICITYSuccessful innovative finance efforts keep the complexity of the mechanism “in the middle,” meaning that complicated deal structures affect neither the investor nor consumer user experience. Many Pay for Success models employ this design principle, where a third-party financial intermediary manages the complexity of the investment, and the investor and service provider focus on their core business activities.
USEFULNESSThe mechanism must be grounded in an actual need. For instance, the R4 Rural Resilience Initiative responds to smallholder farmers’ need to protect against potential droughts or other
major disasters that lead to low crop yields and therefore negatively affecting their livelihoods.
MARKET REALITYThings that go against mainstream finance don’t work. Incentives must be aligned with investor or funder needs and expectations. Green bonds, for example, use an existing financial product that investors are already familiar with to steer capital toward environmentally sustainable projects.
STANDARDIZATION POTENTIALFacilitate replicability by building in processes and procedures that can be standardized, thereby reducing transaction costs as quickly as possible and increasing profit margins over time.
Simplicity Common Organizing Framework
Usefulness Champions
Market Reality Supportive Regulatory Environment
Standardization Potential Collaboration Across Sectors
Evidence Base Opportunism
Fuzzy Mandate
Design Elements Enabling Factors
EVIDENCE BASEWhile the financial tool itself may be innovative, the intervention it is financing should have a strong evidence base. The project should have clearly defined targets and work toward measurable outcomes.
Enabling Factors
COMMON ORGANIZING FRAMEWORKEarly successes in innovative finance built on the Millennium Development Goals, providing a common framework that galvanized support around the globe. The new Sustainable Development Goals can serve as a strong foundation for a new wave of innovative finance mechanisms.
CHAMPIONSIt is unlikely innovative finance will be successful in a vacuum. Finding the right champion(s) can make or break a project. There must be institutional and political will to ensure success.
SUPPORTIVE REGULATORY ENVIRONMENTInnovative finance may operate at the boundaries of the existing regulatory framework. In some cases, a new blueprint for public policy
interventions may be required to make the mechanism work.
COLLABORATION ACROSS TEAMS AND SECTORSThere are diverse stakeholders involved in financing for development. Innovative finance often requires new forms of collaboration between private sector corporations, institutional investors, governments, and the philanthropic and nonprofit sector.
OPPORTUNISMFind where the social or environmental need and market inefficiencies intersect, and stay alert to when new partners and champions arise. It is important to be nimble and open to new opportunities as they emerge.
THE FUZZY MANDATEBeing innovative may require one to operate in an environment where the path forward is unclear. Optimizing success may mean remaining comfortable with ambiguity and staying open to experimentation.
Bellagio Report: Bringing Innovation Back to Innovative Finance
13
“ Innovative finance can’t happen in a vacuum.”
After considering many of the potential opportunities outlined in the previous pages, Bellagio participants identified three major themes to take forward:
• Creating and leveraging micro-levies• Creating risk transfer solutions to allow capital to flow• More effectively leveraging public credit
Bellagio Report: Bringing Innovation Back to Innovative Finance
Taken together, the barriers, opportunities, and key success factors provide a useful framework to
explore ways for approaching innovative finance. At Bellagio, participants used this framework to
examine a variety of themes for mobilizing large-scale capital, specifically focusing on these three
areas: 1. micro-levies and public policy; 2. risk transfer solutions; and 3. more effectively leveraging
public credit.
Opportunities
CREATING AND LEVERAGING MICRO-LEVIES TO COUPLE WITH PRIVATE CAPITAL
As UNITAID has shown, global micro-levies can
provide new, sustainable sources of revenue to
fund international development efforts. While
UNITAID was a small tax on airline tickets that
funded public health projects, the new UnitLife
levy provides income from extractive industries
(e.g., oil, uranium, gold) and will support efforts
to combat malnutrition. Some estimate this new
levy will provide an additional $200 million in
funding per year.
As the international community considers new
types of micro-levies, there may be interesting
ways to leverage these new pools of money to
increase their impact even more. In order to
do this, governing bodies will need to show a
greater appetite for risk, which may also require
innovative governance structures for the launch
of such micro-taxes. For instance, revenue
generated from UNITAID has not been invested
in capital markets, and therefore, the maximum
financial or social impacts of the levy may not
have been fully realized. While the public officials
governing these funds are often risk averse,
they should examine opportunities to grow and
leverage these funds more effectively.
ORIGINATING RISK IN UNDER-SERVED MARKETS
Recognizing that there have been tremendous
technological innovations that allow for
better flows of information, thereby lowering
transaction costs and increasing the ability to
create new products and services, there is a clear
need to better originate risk in under-served
markets and organize demand for existing credit
and insurance products.
Exploring Opportunities for Action
15
16
Improved risk origination can happen at a variety
of levels, including the macro (or sovereign risk)
level, the traditional (or household and corporate)
level, or the micro (base of the pyramid) level. At
the macro level, there is opportunity to create
more regional, sovereign risk pools. For instance,
the African Risk Capacity (ARC) uses satellite data
to quantify the impact of severe droughts, which
then triggers insurance payouts to participating
countries, and R4 Rural Resilience Initiative
provides innovative ways for smallholder farmers
to obtain insurance while also contributing to
climate adaptation measures.
Still, assessing and pricing risk can prove difficult
in practice, and there should be increased efforts
to combine innovations in technology and data
analysis to evaluate risk. For example, many
contemporary insurance products available in
developing countries contain enduring subsidies
from government and philanthropy. On one
hand, subsidies can play a catalytic effect for
new products to be developed and enter the
market. On the other, enduring subsidies have
serious implications for the solution’s commercial
viability and long-term success for the issuer,
as they do not generally allow the buyers the
chance to see the policy’s real premium (i.e., the
appropriately priced risk).
Data and technology can also help governments
and relief organizations take an ex ante approach
to disaster preparedness and response rather
than an ex post one. To create insurance
products that work ex ante, it is imperative to
analyze relevant data (wind speed on the ground
during a hurricane, for example) to operationalize
the parametric trigger. The good news is that the
majority of this type of data already exists and
is not proprietary – but someone has to spend
time and resources to analyze it before assessing
the associated risk. ARC and R4 are benefiting
from this approach, with their leadership having
realized it costs much less to manage risk than it
does to provide relief in a crisis.
There are opportunities to learn from or replicate
these models to create new insurance products
that address new social and environmental
risks – providing a much-needed safety net for
low-income households in developing countries.
Such potential insurance products may also be
uncorrelated to other asset classes and provide
institutional investors a new opportunity to
diversify their portfolios and contribute to global
resilience.
At the traditional and micro-levels, innovative
insurance products can also help support and
protect NGOs that provide critical services to
the poor and most vulnerable. Similarly, insuring
financial intermediaries that serve BOP clients
could unlock and provide more capital to low-
income households by transferring the risk to the
broader capital markets.
Insurance products can benefit BOP financial
intermediaries by allowing them to expand
Bellagio Report: Bringing Innovation Back to Innovative Finance
services and products that build capacity
in local enterprises as well as at the
individual household level. Similarly, with
stronger protections against public health
catastrophes and natural disasters, NGOs
can spend more money on resiliency efforts
instead of response and treatment.
MORE EFFECTIVELY LEVERAGING PUBLIC CREDIT
Development banks generally play the
necessary ‘connector’ role among investors,
development finance institutions (DFIs),
philanthropy, and government. Well-
designed projects utilize a mix of capital and
overcome cultural barriers and translation
issues across sectors. While development
banks have played that important role in
the past, there are opportunities for other
actors to step in as intermediaries and drive
collaborative projects forward in the future.
Still, the role of DFIs in innovative finance is
critically important. For example, DFIs have
the opportunity to leverage existing sources
of public credit more effectively as one
option for attracting more private capital for
public good. Current financing mechanisms,
such as Green Bonds, provide a strong model
for how public credit can eventually influence
more mainstream financial institutions. Since
the World Bank first developed green bonds
in 2008, mainstream financial institutions
have followed suit by issuing their own green
bonds.
In addition to expanding to new areas for
thematic bonds, issuers of public credit
should take more risk with their capital to
innovate and attract private sector actors.
Multilateral development banks (MDBs) often
indirectly compete with private sector capital
instead of convening diverse financing
agents and encouraging participation
in deals. Development banks have the
ability to be anchor investors in more deals,
signaling credibility to institutional investors
– a concept dubbed the “MDB Halo Effect.”
MDBs have a clear opportunity to take the
lead here; however, the process for doing
business with MDBs is sometimes slow
and opaque, especially for private sector
companies accustomed to moving at a
quicker pace.
While MDBs often conduct an “Ease of
Doing Business” report on their partners,
what might it look like to have a better
understanding of what it’s like to do business
with the MDBs themselves? Such a report
could focus on how development finance
institutions operate with their high value
capital, support internal innovation and
to what extent they focus on intentionally
cultivating deals that allow for more effective
private sector participation.
17
These goals come with a hefty price tag. The
UN estimates that it will cost US $3.9 trillion
per year to achieve the SDGs in developing
countries alone, yet current estimates place
both public and private funding at only US
$1.4 trillion—an annual shortfall of $2.5
trillion.
While funding alone will not achieve
the SDGs, filling this gap should be an
international priority and will require
tremendous innovation in financing for
development. As outlined in this report,
the successes over the last 10-15 years show
promise, but there is a still a long way to go.
This report describes the key elements
for success and a potential path forward.
One possibility is to determine additional,
sustainable, and predictable revenue streams
by exploring opportunities for more micro-
levies. However, as discussed, the revenue
stream itself is not necessarily the innovation.
One-to-one leverage is no leverage at all, and
creativity and an increased appetite for risk
will be critical to maximize the impact of this
source of capital.
Private companies, non-profits, and
entrepreneurs should explore ways to
create risk transfer solutions, specifically like
sovereign risk pools such as the Caribbean
Catastrophe Risk Insurance Facility and
African Risk Capacity. Additional areas to
explore include organizing demand at the
base of the pyramid and activating relief
organizations and financial intermediaries to
explore how to transfer the risk they generally
take on to the capital markets.
Conclusion
The international community has a prime opportunity to integrate innovative finance into the core development agenda.
In September 2015, the United Nations agreed on the Sustainable Development Goals (SDGs), setting the primary international development targets for the next fifteen years. A failure to live up to these commitments will have unprecedented costs to human wellbeing and planetary health.
Finally, innovators should explore ways to more
effectively leverage public credit.
Multilateral development banks (MBDs) can
increase their impact by leading more deals to
signal the credibility of projects to institutional
investors. For example, the World Bank’s “City
Creditworthiness Initiative” aims to address
the demand for climate-smart infrastructure
by helping cities improve their financial
performance and secure private investment for
such projects. MDBs can also build their internal
capacity and create more transparent processes
that better engage the private sector.
Participants at Bellagio are moving forward
with many of the recommendations in this
report, including the new UnitLife micro-levy
on extractive industries, more risk origination
in under-served markets with life insurance
products for base of the pyramid consumers in
India, exploring risk transfer solutions for public
health outbreaks and epidemics, and even a
green bond coupon that better allows investors
to discern the environmental impact of the asset.
These efforts require collaboration with
private and public sector partners, embraces
experimentation, risk-taking, and a long-term
time horizon.
Through these efforts, the goal is to develop
solutions that can help ensure that the
development commitments made in 2015 are
successful.
Bellagio Report: Bringing Innovation Back to Innovative Finance
19
“ Filling this gap should be an international priority, and will require tremendous innovation.”
Attendees
Nick Ashburn, Wharton Social Impact
Initiative
Kenneth G. Lay, (formerly) World Bank
Adam Connaker, The Rockefeller Foundation
Brinda Ganguly, The Rockefeller
Foundation
Lorenzo Bernasconi,The Rockefeller
Foundation
John W. McArthur, Brookings Institution
Christopher Egerton-Warburton, Lions Head
Global Partners
Georgia Levenson Keohane,
New America
Shari Berenbach,United States African
Development Foundation
Saadia Madsbjerg,The Rockefeller
Foundation
Philippe Douste-Blazy, United Nations
Abyd Karrnali, Bank of America Merrill
Lynch
David Bresch,Swiss Re
Sucharita Mukherjee IFMR Holdings
Robert Filipp, Innovative Finance
Foundation
Katherine Klein, Wharton Social Impact
Initiative
Organizers
Bellagio Report: Bringing Innovation Back to Innovative Finance
Jeremy RogersBig Society Capital
David Wood, Initiative for Responsible
Investment,Harvard Kennedy
School
Lakshmi Venkatachalam,
Asia Development Bank
Glenn YagoMilken Institute,
Financial Innovation Lab
For more than 100 years, The Rockefeller Foundation’s mission has been to promote the well-being of humanity throughout the world. Today, The Rockefeller Foundation pursues this mission through dual goals: advancing inclusive economies that expand opportunities for more broadly shared prosperity, and building resilience by helping people, communities and institutions prepare for, withstand, and emerge stronger from acute shocks and chronic stresses. To achieve these goals, The Rockefeller Foundation works at the intersection of four focus areas—advance health, revalue ecosystems, secure livelihoods, and transform cities—to address the root causes of emerging challenges and create systemic change. Together with partners and grantees, The Rockefeller Foundation strives to catalyze and scale transformative innovations, create unlikely partnerships that span sectors, and take risks others cannot—or will not. To learn more, please visit www.rockefellerfoundation.org.
Wharton Social Impact Initiative leverages Wharton’s strengths to develop and promote business strategies for a better world. We use core business competencies to spur strategic and systems-level positive social impact in Philadelphia and around the globe. Through research, consulting, hands-on training, and outreach, we are advancing the science and practice of business social impact. Established in 2010, our interdisciplinary work explores the tools and strategies of impact investing and finance, impact entrepreneurship, and strategic corporate social impact. To learn more, visit socialimpact.wharton.upenn.edu to learn more.