Turning ordeal into opportunity

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.

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.