Innovative Finance for Sustainability at Scale

Authors

• Dorje Mundle

  Former Director, Healthcare, BSR

• Jessica Davis Pluess

  Former Manager, BSR

The 72nd Session of the UN General Assembly will commence next week, marking the second anniversary of the launch of the Sustainable Development Goals (SDGs). Financing is one of the pivotal challenges for the SDGs: The annual SDG financing gap in developing countries is estimated at approximately US$2.5 trillion.

Innovative finance is now recognized by international agencies and national governments as a central solution to this challenge, a view that is increasingly shared by civil society and the private sector. Using blended finance and impact investing, governments, companies, investors, and philanthropists are mobilizing larger amounts of capital than any of them would be able to manage alone. Responding to these signals, the size of the private impact investing market has continued to grow dramatically, from US$10.6 billion in 2013 to US$22.1 billion in 2016. Similar increases have been observed in public-sector innovative finance flows.

At a time when corporations are both integrating impact ever more deeply into commercial operations and raising their strategic philanthropy ambitions, innovative financing represents a significant opportunity. Leading companies across many sectors are deploying strategies and partnerships to tackle critical social and environmental challenges at various stages of their value chains. For example, Apple and Starbucks have issued green bonds and sustainability bonds worth US$3 billion combined; Syngenta has innovated agricultural insurance products for BOP farmers; and many companies, including Barclays, Centrica, Danone, Mars, and Pearson have increased impact investment funds.

Despite these exciting developments, senior decision-makers in many large corporations lack an awareness of innovative finance and the practical opportunities it presents. That is why BSR has pioneered the first sectoral guide to the these activities and opportunities at each stage of the healthcare value chain.

In healthcare, innovative finance mechanisms such as Gavi, the Global Fund, and the Affordable Medicines Facility for Malaria have played a longstanding role in leveraging diverse funding sources to overcome barriers to healthcare access. However, the current scale and diversity of mechanisms and partnerships do not meet healthcare financing needs, and many philanthropic and commercial financing opportunities remain untapped. This is largely because healthcare companies are unaware of the opportunities or uncertain as to how to engage in an increasingly complex investor landscape. They may also lack the tools, knowledge, and expertise to be able to capitalize on the opportunities presented by innovative finance. At the same time, the investor and donor communities are not always aware of specific health investment needs or how to engage companies.  

In 2013, a group of private and government funders, led by the Bill & Melinda Gates Foundation, offered Merck & Co., Inc. and Bayer a sales volume guarantee to dramatically improve the availability and affordability of contraceptive implants, which provide long-lasting, effective contraception particularly suited for low-resource settings. This volume guarantee was secured by US$340 million in legally binding agreements aimed at de-risking expanded manufacturing and supply of contraceptives in 69 developing countries. If the demand for contraceptives did not reach a pre-agreed threshold level, the donors and investors would bear the responsibility of paying for the increased production.

Four years later, the results of the volume guarantee have surpassed expectations. Demand for the contraceptive products greatly exceeded the threshold amount specified in the guarantee, transforming these countries into viable markets. As of July 2015, 24.4 million more women and girls were using modern contraceptives than in 2012. The guarantee has also saved US$240 million for global public health donors; the savings could reach US$500 million by 2018. Because the threshold demand level was exceeded, the guarantee never had to be paid out.

This is one of a growing number of powerful examples of how innovative finance is transforming the healthcare sector by unlocking new sources of funding to scale business solutions to our most pressing global health challenges. To realize the potential of opportunities like these, increased corporate engagement is needed, combined with greater collaboration across sectors to address the mismatch between available capital and the unmet needs of consumers and communities.

Our new paper offers practical recommendations to achieve this in healthcare, and we believe similar analyses in other sectors would help to unlock more funding for sustainable, scalable business solutions to some the world’s greatest societal challenges.

Join me at the BSR Conference in Huntington Beach, California, this October for a panel on Financing Change, where we will discuss the exciting new ways companies are increasing social impact and business value to meet the SDGs.