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Saving lives and making money: The need for humanitarian financing

  • By KCV
  • February 2, 2021

There is a critical role investors play in alleviating human suffering, improving the resilience of communities worldwide and by doing so help in achieving the Sustainable Development Goals (SDGs). The need to do so has become more pressing due to the complex challenges of climate change and the Covid-19 pandemic.

Natural disasters linked to climate change have increased. Over the past thirty years, extreme weather events associated with climate change such as storms, floods and droughts have increased dramatically. In 2019 alone, extreme weather events around the world caused more than USD 100 billion worth damage.

The impact of climate change disasters extends beyond the environment. Climate change also has humanitarian and social consequences with thirteen out of 20 countries worldwide that are considered most vulnerable to climate change witnessing an inter-agency humanitarian appeal in 2019. Such consequences are often overlooked.

While climate change may not be the only driver behind the emergence and worsening of these humanitarian and social issues, its effect is significant and will increase over time.

Humanitarian crises are complex, protracted, rising and are difficult to manage. This has rendered humanitarian aid and development assistance alone insufficient. Recent research shows that the funding gap for humanitarian needs has increased approximately 3.5 fold between 2009 and 2019 to reach a gap of approximately USD 14 billion. This equates to 46% of all funding needs uncovered.

The current COVID-19 pandemic is expected to further worsen the situation by adding 20% to the world’s humanitarian bill. For instance, the World Bank Group has launched emergency support and are expecting to deploy up to USD 160 billion over the coming 15 months to support countries, including protecting the poor and vulnerable.

Rightly, the acute and complex nature of humanitarian crises has resulted in the majority of funding being directed towards responding to immediate life-saving requirements. Thus, insufficient resources are being directed to prevention, resilience and recovery that could provide long-term support for communities in need, strengthen local markets and build self-reliance.

The gap in humanitarian aid calls for alternative sources of capital, specifically in moving from funding to financing and hence involvement from investors. Investor involvement in financing areas affected by fragility and crises is important in achieving the SDGs.

Despite the fact that demand for impact investment is growing, there is a mismatch between investor demand and the availability of investable opportunities. The difficulty in expanding investment opportunities in humanitarian settings is that these often have the least attractive investments, are highest in risk and have high transaction costs. Further, humanitarian and development organisations have little understanding of what investors requirements are.

Such constraints have exacerbated the low prospects that call for better levels of partnerships between impact investors, humanitarian and development organisations. One possible form of partnership revolves around job and services creation to help increase income levels for vulnerable communities and help them meet their needs.

These partnerships will also contribute to creating trust and stability by building better functioning markets and trading relationships that are sustainable, inclusive and operate with integrity.

Another form of partnership revolves around the activation of stakeholders such as donors, development institutions and humanitarian organisations to act as a catalyst to develop an investable opportunities pipeline to enable the de-risking of capital.