The word’s first “Humanitarian Impact Bond” could set the stage for pension funds investing to help tackle humanitarian crises in conflict-hit countries, says Yves Daccord, Director General of the International Committee of the Red Cross.
It has raised CHF26m (€22.7m) from investors including re-insurer New Re, part of the Munich Re Group and Fondation Lombard Odier; the deal has been co-sponsored by Swiss private bank and asset manager Lombard Odier. Lombard Odier was advised by Brussels-based impact investing specialist Kois Invest.
Patrick Odier, Senior Managing Partner of Lombard Odier, said: “As responsible bankers, it is our role to advise our clients on allocating capital for impact without compromising returns.”
Lombard Odier, like the Red Cross, is based in Geneva.
“Our sense is that in the next 10 years you will have as many unstable environments and conflicts as we do now. So Syria will remain with us over the next 10 years, the Middle East crisis, migration, North East Nigeria. And we have to be able to invest in health and sanitation in these areas so these systems do not collapse,” says Daccord in an interview with RI.
“Today, there is no mechanism to do that. It’s all through philanthropy or development through governments.”
For the Red Cross, the initiative [formally known as the Program for Humanitarian Impact Investment, PHII] provides a new investment model to bridge the gap between increasing complexities of humanitarian crises and conflicts and the pressure on existing funds. It is being referred to as a “learning exercise for all” concerned.
The capital raised will be used by the humanitarian organisation to build and run three new physical rehabilitation centres in Nigeria, Mali and the Democratic Republic of Congo over a five-year period. The centres will support people with wheelchairs, artificial limbs and braces.
Daccord says New Re, used to re-insuring in natural disasters, has taken half of the investment. He thinks it is part of a desire to “invest in stable environments”. For Lombard Odier, Daccord says its clients are looking for investments with a social slant.
Investors stand to get a maximum return of 7% over five years. If measured outcomes are not met they will lose a maximum of 40% of the investment.It has been priced on the risk reward spectrum in line with alternative investments.
The Red Cross itself also has “skin in the game”, says Daccord, and faces a penalty of up to 10% of the impact bond’s value.
“Over time we will see pension funds as social investors”
The Humanitarian Impact Bond, which is fact a private placement, has a similar model to social impact bonds where private investors are paid a return on measured outcomes by an “outcome payer” – which means that, strictly speaking, SIBs are not bonds.
In this case the outcome payers are four European governments: Belgium, Switzerland, Italy, the UK as well as Spain’s La Caixa Foundation.
Daccord says it won’t be just impact (such as number of people helped) that will be measured, but also efficiency.
“It’s not just about building more centres. There is an efficiency element: looking at the mobility of allocation. If it is a success we should be able to use that in 130 other centres running or scaling up.”
Independent auditors will verify the Red Cross’s reported efficiency in the three new centres, looking at the ratio of how many people receive mobility devices per physical rehabilitation professional compared to existing centres.
It estimates of the 90m people who need a mobility device worldwide, only 10% have access to adequate physical rehabilitation services. This situation, of course, is worsened in areas of war and conflict.
While impact investing “will never replace development finance or philanthropy” Daccord points to its potential for institutional investors.
“Maybe we are not right, but I am deeply convinced that this type of investment will prevail over time and I think over time we will see pension funds as social investors who need a return on investment but also want the social element.”
While this deal has now closed, the Red Cross says the investors have expressed interest in exploring future possibilities. The Red Cross itself is 85% government funded and the PHII is being seen as complementary to its regular fund-raising efforts.
As the Red Cross says: “All in all, the PHII has been carefully constructed to get the potential uplift of private industry capital without compromising the integrity of the ICRC’s independence and the risk to its ability to operate in a conflict affected state.”