What’s in it for me?
Five reasons why impact investing is promising for health sector?
Dr. Nabeel Akram
Recently, I was viewing a panel discussion on impact investing at Stanford Graduate School of Business on YouTube https://www.youtube.com/watch?v=EcXMzkRLB3M
It was quite interesting to listen to Sir Ronald Cohen, Chairman of the Global Steering Group for Impact Investment and The Portland Trust, and other panelists on the efforts for market-based solutions.
Sir Ronald Cohen, Chairman Global Steering Group on Impact Investing, at Stanford Graduate School of Business; YouTube
The discussion just reminded me once again that how, over the years, the development world has transitioned to this new and exciting domain of impact investing and private sector engagement, looking for more sustainable and market-based solutions to address the needs of the lower socioeconomic groups.
The idea itself is quite fascinating for me that how markets, not just governments and donors, can actually help those who do not have enough to feed and educate their children, or take care of their own health, and to have a decent shelter above their heads.
The combination of donors and markets can be more humane and altruistic, more than one can imagine.
In early years of my career in public health, private sector was hardly talked about in the development sector. Profit making did not go well with development.
In those early days I had the unique opportunity to work in two social marketing companies in a span of 8 years with different social marketing models. One following a more ‘product’ model and largely depending on the donor investment to subsidize family planning products for lower socioeconomic segments and another following a ‘commercial market’ model, investing in developing the market for full-priced contraceptives in the country. This included capacity building of a local pharmaceutical company to manufacture and market contraceptives locally. Even though both models claimed to have reached their respective goals, and with a controversial debate on managed competition, I was quite astounded with the latter model. It made me think more about the potential of private sector in the development sector.
In later years, while engaging with USAID’s SHOPS project (now SHOPS Plus) www.shopsplusproject.org, I came across a much more methodical approach to private sector engagement and for the first time got an in-depth look at the concept of business solutions to reach bottom-of the-pyramid for their basic health needs.
Again, quite fascinating!
“We have come far, both in our understanding of the private sector potential in the development sector, as well as in the ways to engage with it, in win-win partnerships. ”
Since those times things have changed quite rapidly. It’s a different conversation now in the development sector. Health financing and health outcomes have taken a different turn and the discussions around private sector is inevitable and it is agreed now, quite universally, that we will not achieve SDG goals without active participation of the private sector, both in terms of private sector financing, as well as development of private sector for reaching universal health coverage targets.
The times have changed since ‘commercial market’ model of social marketing was criticized for promoting profit making companies and making rich CEOs even richer with taxpayers’ money. We have come far, both in our understanding of the private sector potential in development sector, as well as in the ways to engage with it, in win-win partnerships.
Under such circumstances,
impact investing has emerged as a viable financing model with a potential to address needs across many sectors with the goal to generate social and environmental impact, in a positive and measurable way, along with a financial return on investment.
Impact investing has received a lot of attention in sectors such as renewable energy, sustainable agriculture and microfinance and has been gaining momentum in basic services such as healthcare, education and housing.
So why is impact investing promising for health sector?
Here is my take and 5 reasons why impact investing has the future prospects in healthcare:
1. Current health sector funding: mind the gap!
Even though global health has made considerable progress in the past couple of decades, it is well known that the path to Sustainable Development Goals or SDGs in not simple. According to a just published USAID report, recent estimates show that there is an annual investment gap of $134 billion for the health SDGs in low-and-middle-income countries (LMICs) and this gap will potentially increase to $371 billion by 2030. Currently there are $200 trillion in capital markets and mobilizing just 1% of it would fill the entire SDG gap and less than 0.5% would fill the SDG gap for health-only SDGs. According to a report, Global Impact Investing Network or GIIN estimates that over 1,340 organizations currently manage $502 billion in impact investing assets worldwide. Even though the investment in health sector by impact investors remain lower than other sectors, the impact investing in health is gaining interest if the impact measurement is more robust and much clearer https://thegiin.org/assets/GIIN%20Network%20Insights_ImpactMeasurementHealthcare_webfile.pdf
https://www.usaid.gov/sites/default/files/documents/1864/USAID_Private_Captial_508.pdf
2. Measuring impact in health sector: a common challenge!
“They say in the impact investment world that the impact lies in the eyes of the beholder. The impact defined by an investor may not be the same as the impact is seen by the beneficiaries or the innovator.”
They say in the impact investment world that the impact lies in the eyes of the beholder. The impact defined by an investor may not be the same as the impact is seen by the beneficiaries or the innovator. Impact measurement is at the heart of the success of the impact investing. On the global health side, this is not an alien concept. Since many years there has been serious and significant efforts to measure impact in HIV, maternal health, TB, malaria and other programs. There are several impact assessment tools which are already providing the much-needed information and analysts are coming up with better and better tools for impact assessments. The hunger for measuring impact is on both sides – global health community, as well as investors looking for social impact. Y Analytics www.yanalytics.org on impact investing front and the Lives Saved Tool www.livessavedtool.org on global health side are just two of the several examples. The meeting of these unlike minds has a great potential to achieve outcomes through the much-needed synergy between the two.
3. Private sector engagement: considerable attention gained on the global health map!
Things have changed over the years as far as openness in engaging with private sector is concerned. After years of work in relative silos, both global health community and private sector players are increasingly respecting the importance of each other and accepting the idea of working together, creating synergies and achieving more. This interesting forthrightness has nurtured another important and relevant phenomenon – innovation. Center for Innovation and Impact in USAID’s Global Health Office has just released its publication, ‘Unleashing Private Capital for Global Health Innovation: Innovator and Investor Support Opportunities https://www.usaid.gov/sites/default/files/documents/1864/USAID_Private_Captial_508.pdf, that speaks to this development in a compelling way. Impact investors and venture capitalists have brought a new way of thinking, along with private and commercial sector, for innovators and incubators of ideas that have the potential to disrupt the same old solutions of intractable public health problems. Impact investing in particular brings alternate ways of achieving the social impact with financial returns, thus compelling the thinkers in the field to come up with market-based solutions for greater sustainability. Impact investing is bridging that gap between donor funded programs on one side and high capital returns on investment of venture capitalists, on the other end of the spectrum.
4. Changing trends in business: profit with purpose!
In September of 2017, I had the opportunity to be invited at the Forum on Scaling Impact Investing, on the sidelines of UN General Assembly in New York. The event was hosted by the Abraaj Group (sadly not functional in this space anymore), GIIN and Merrill Lynch https://www.youtube.com/playlist?list=PLxInfWUSw4CtBUvvBLbK8KVXftTRnjxTC It was simply an amazing experience for me coming from an academic and global public health world. The event was by invitation only and the room was packed with bankers, investors, private businesses, international financial institutions and the like, with handful of NGOs. And they were all talking about ‘development’ in a business way! It was interesting to see that there is actually a viable ‘market’ in the development sector including health, and has been there for some time, but it’s just getting more and more attention lately. As long as businesses are creating models and ideas to achieve social impact and development goals, while they can get their fair share of returns, it’s a win-win scenario. There is an increasing trend of businesses to think that way and give back to society, and health and education sectors have a lot to offer to these investors.
5. Millennials and Generation -X – it’s a different way forward!
The values of entrepreneurship are changing and the younger entrants in the field are connecting with clients and partners in a more empathetic and closer way. There is an urge among them to be more inquisitive and to find newer, better ways of doing business. This generation, which is growing with more sophisticated technology and having a tech-savvy lifestyle, is prepared to tackle more challenging problems of the world around us. Health access poses some daunting challenges for all of us in a global perspective, but it’s a promising proposition to encourage more and more younger people to be the innovators and entrepreneurs to take on these challenges boldly.
““We are moving towards a better and fairer world, where markets drive doing good while making profit, and people want to do good and do well at the same time.” ”
While impact investing is attractive for development sector overall, it is fairly nascent in the global health arena. The investors have the challenges to invest in companies in the early and growth stages – the phenomenon known more commonly as the ‘missing middle’. However, there are ways to improve the confidence of the impact investors in health area with more rigorous risk-adjusted return profiles and also connecting innovators and investors in an effective way. Here, the role of blended financing with donors and philanthropists cannot be understated, especially in the early and growth stages, before the impact investors can step in to take the innovations to scale.
Impact investing, overall, has tremendous prospects in health. As Sir Ronald Cohen’s philosophy states, “We are moving towards a better and fairer world, where markets drive doing good while making profit, and people want to do good and do well at the same time.”