Sustainable & Impact Investing

Humanitarian Crises-Related Investing Is Still a Tough Sell

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When disaster strikes, many people’s first inclination is to give.

Warfare, extreme weather events, or other man-made and natural calamities create urgent demands for money, food, clothes, and other resources. Nonprofits and other organizations usually step in rapidly to solicit and process donations. However, these donations tend to decline as the event’s immediacy passes.

Humanitarian crises are not limited to a few news cycles, though. Even some time after an emergency, the needs of those affected don’t go away—often, they simply change as the recovery and rebuilding processes begin.

As responses to crises extend into the longer term and relief efforts become more complex, funders may turn to humanitarian investing, an approach to impact investing that specifically targets reeling communities.

Need Abounds in Vulnerable Regions

As images of destruction emerged from Russia’s invasion of Ukraine in February 2022, humanitarian challenges followed, including one of the biggest refugee crises in Europe since World War II.

Elsewhere, millions of people already existed on the verge of famine even before grain exports from Ukraine and Russia were curtailed. The repercussions of the pandemic also reversed previously positive poverty trends in Latin America.

The Organization for Economic Co-operation and Development estimates that 1.8 billion people live in fragile contexts, or conditions where “individuals are displaced, livelihoods have been devastated, and opportunities for broader growth, development and prosperity are destroyed.”

Targeting that specific 23% of the world’s population, the World Economic Forum (WEF) collaborated with other global leaders to form the Humanitarian and Resilience Investing Initiative in 2019, seeking to complement traditional relief efforts via:

  • Supporting proof-of-concept projects
  • Preparing recovering communities for public and private initiatives
  • Developing standards, frameworks, and data to reassure the investment community

Ultimately, the WEF concluded that humanitarian funding efforts fell 53% short of what was needed in 2020. In addition, much of the money that was raised was short-term in nature and offered little for recovery and future resiliency needs.

As the chasm between humanitarian crisis needs and relief funding grows, a rising number of communities rely on new options for raising cash.

Pioneers Address Humanitarian Relief Investing

Tapping return-oriented cash could help narrow the humanitarian funding gap, but challenges remain. As UK-based think tank ODI concluded, humanitarian investments must overcome broad perceptions that investors are profiting from monetary aid. Additionally, costs for developing and marketing unique investible assets aren’t easily dismissed.

To date, humanitarian investment options have been limited beyond the initial “humanitarian impact bond” issued by the International Committee of the Red Cross in 2017. The $25 million offering funded the construction of three new physical rehabilitation centers in Africa, and the funders were scheduled to be repaid by a handful of governments and a foundation after five years.

Other investment programs of note include:

  • A 2021 $14 million bond targeted Syrian refugee communities in Jordan and Lebanon
  • Solar finance company SunFunder raised a $135 million fund for solar projects across sub-Saharan Africa and other regions. The group is currently working toward the 2022 launch of a $500 million Gigaton Empowerment Fund
  • Private equity firm InFrontier focuses on “frontier markets” and has a $30 million fund for investments in Afghanistan and South and Central Asia.

The WEF Humanitarian Investing Opportunity Platform is useful for identifying opportunities and tracking the size and nature of the market. Yet as the chasm between humanitarian crises and relief funding grows, a rising number of communities rely on new options for raising cash across the stages of recovery. Given the prominent response to the Ukraine-Russia conflict, it sets the stage for humanitarian investing to become even more viable going forward.

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