Bringing Innovation Back to Innovative Finance

Bellagio 2015 | Final Report

Bringing Innovation Back to Innovative Finance

A report authored by the Wharton Social Impact Initiative with support from The Rockefeller Foundation

Contents |

Overview 4 Guiding the Conversation 9 Creating a Framework: Spurring the Innovation Agenda 10 Creating a Framework: Designing & Enabling Success 12 Opportunities for Action 15 Conclusion 18

This report was authored by the Wharton Social Impact Initiative (WSII) of the University of Pennsylvania as part of a grant by The Rockefeller Foundation to advance the agenda for innovative finance. WSII and The Rockefeller Foundation are working together to explore how we might foster more innovative financial mechanisms for tackling some of the world’s most complex and enduring social problems.

The discussions held at the “Bringing Innovation Back to Innovative Finance� convening and the information provided in this report are solely for informational purposes. Nothing discussed or contained in this report constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. Nothing discussed or contained in this report shall be viewed as a current or past recommendation or a solicitation of an offer to buy or sell securities or to adopt any investment strategy.

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In April 2015, The Rockefeller Foundation and The Wharton Social Impact Initiative hosted “Bringing Innovation Back to Innovative Finance,” a convening to explore financial mechanisms for social and environmental impact.

The meeting brought together leaders from the worlds of finance, international development, philanthropy, and academia to take a fresh look at the potential of innovative finance – or new ways of harnessing private sector capital for addressing the world’s key social, economic, and environmental problems.

This report outlines key findings and outcomes from the convening, held from April 21-23, 2015 at The Rockefeller Foundation’s Bellagio Center on Lake Como, Italy.

Overview

In 2000, the international community committed to the Millennium Development Goals (MDGs), a set of time-bound targets for cutting extreme poverty worldwide in half by 2015. Now in 2016, we look toward achieving the new Sustainable Development Goals.

The MDGs galvanized efforts to increase

for success structures, to advanced market

funding levels for international development

commitments and new insurance products.

projects. Leaders called for a renewed

Notable examples include the International

commitment to increase official development

Finance Facility for Immunization (IFFIm)

assistance (ODA) to 0.7% of GDP and to

which has raised more than US $5 billion to

develop new approaches and mechanisms for

date to support the Gavi Alliance, the world’s

financing development. Reflecting a growing

leading health organization committed to

interest in these new approaches and

increasing access to immunization in poor

mechanisms, delegates to the United Nations

countries.

International Conference on Financing for Development first declared “innovative

Green Bonds are another example of

finance” a policy priority under the Monterrey

innovative finance success. First launched in

Consensus in 2002.

2007 with US $800 million in issuances for climate-related investments, the green bond

Innovative finance refers to new mechanisms

markets has grown to US $42 billion in 2015.

and approaches to harness private sector

Yet another mechanism is UNITAID, a public

capital for addressing the world’s key social,

sector-driven levy on airline tickets that has

economic, and environmental problems.

successfully raised US $2.5 billion for public health since 2006. (For more examples in

These financing mechanisms and approaches

innovative finance, see Box 1.)

have taken a variety of forms across fields and geographies, from blended finance and pay

While these examples point to significant

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“

Innovative finance: new mechanisms and approaches to harness private sector capital for addressing the world’s key social, economic, and environmental problems.”

progress, the amount of money mobilized through innovative finance mechanisms remains modest, relative to the need.

According to a recent industry study, innovative finance mechanisms mobilized between US $90$100 billion of public and private capital from 2001 to 2013. By comparison during the same period, roughly US $1.6 trillion flowed through official development assistance (ODA), and more than $150 trillion is currently invested in the global capital markets.

Looking toward the post-2015 development agenda, there is widespread recognition that prevailing levels of financial resources from governments and the donor/philanthropic community are inadequate to address the social

BOX 1: Examples of innovative finance in action.

INTERNATIONAL FINANCE FACILITY FOR

IMMUNIZATION (IFFIM): IFFIm’s aim is to front-load aid funding by transforming long-term donor government pledges into immediately-available cash resources. In order to do this, IFFIm attracted legally-binding, financial commitments of nearly $4 billion over 20 years from five governments, enabling it to issue AAA-rated bonds to institutional investors.

The bonds raised nearly $1 billion in the first year, providing $995 million in additional capital to the Gavi Alliance to purchase and deliver vaccines throughout the world’s poorest countries. To date IFFIm has increased the number of donor governments to nine and raised more than $5 billion in total to advance Gavi’s immunization work. 1

challenges we face in the 21st century.

Estimates currently set the investment need for the emerging “Sustainable Development Goals” continued, page 6

“

We need a broad set of scalable investment solutions that together advance the agenda.”

(SDGs) between US $3.5-$4.5 trillion per year. Accounting for the approximate US $1.4 trillion in existing sources of funding, there still remains a US $2.5 trillion shortfall. In this case, innovation is not just for innovation’s sake. The call for more innovative financial solutions for the world’s most pressing social, economic, and environmental problems goes well beyond a contemporary buzzword.

There are no easy solutions, however. For perspective, scaling current innovative finance flows 100x would only result in approximately US $1 trillion – well below the $2.5 trillion target. There is no silver bullet solution that will get us to the investment levels we need. Rather, we need a broad set of scalable investment solutions that together advance the agenda. This will take commitment, resources and the elusive combination of ingredients that make innovation happen: creativity, risk-taking,

GREEN BONDS: Green bonds raise money from fixed income investors to support lending for eligible projects designed to mitigate climate change or help those affected by it.

The World Bank first launched green bonds in 2008, which gave investors concerned with climate change the opportunity to invest in sustainable infrastructure projects. Estimates placed the total volume of green bonds around US $40 billion at the end of 2014, with issuances not only from development finance institutions but also institutions like Bank of America.

UNITAID: UNITAID is a public sector-driven micro-levy on airline tickets that has been implemented across nine countries to create a new, large, and stable funding source for supporting public health initiatives. Since 2006, UNITAID has successfully raised US $2 billion to address HIV/AIDS, tuberculosis, and malaria via the World Health Organization (WHO) by implementing a small tax on select airline tickets. 2

CATASTROPHE (CAT) BONDS: A catastrophe bond is an insurance linked security in the form of a bond that allows issuers (which are mostly governments) to insure against catastrophic events such as hurricanes or earthquakes in a quicker,

patience, and collaboration.

References: 1. IFFIm, http://www.iffim.org; 2. UNITAID, http://www.unitaid.eu; 3. World Bank, http://blogs.worldbank.org/developmenttalk/catastrophe-bonds-international-community-can-facilitate-development-innovative-risk-management; Center for Global Development, http://www.cgdev.org/blog/can-and-cant-cat-bonds; 4. Harvard Kennedy School, “Advance Market Commitments for Vaccines Against Neglected Diseases: Estimating Costs and Effectiveness”; Gavi, http://www.gavi.org; 5. CGAP Microfinance Gateway, World Food Programme R4, Swiss Re R4 Initiative; 6. CGAP Microfinance Gateway, http://www.microfinancegateway.org/;

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more cost effective way than through traditional insurance. These bonds rely on parametric triggers, specifying predefined values (e.g., magnitude of an earthquake or wind speed during a hurricane) that generate a payout from the insurance policy. If the disaster occurs, investors in the bond forgo the principle to the borrower (e.g., the government), who can use the cash immediately to address the crisis and begin recovery.

Traditionally, insurance and reinsurance companies from advanced economies issue CAT bonds, but developing countries are more vulnerable to the effects of catastrophes and have fewer resources to prepare and respond to disasters. Since 2009, groups like the World Bank and African Risk Capacity have developed similar products for developing countries. 3

ADVANCE MARKET COMMITMENTS: Advance market commitments (AMCs) guarantee a viable market for private sector companies to provide goods in industries and geographies not traditionally served by the private sector.

Current AMCs consist of contracts between donors (i.e., governments and foundations) and pharmaceutical companies that set a guaranteed price for drugs or vaccines for undeserved diseases (e.g., HIV/AIDS, malaria, or tuberculosis) and populations. Donors agree to a minimum price per person up to a certain amount of individuals immunized, and in return, companies commit to providing the vaccine at an affordable price to developing markets.

While the market size for these drugs is quite large in developing countries, the ability to pay for vaccines remains out of reach for those who need them most. AMCs lower the cost of vaccines, and experts estimate that the sheer volume of drugs purchased through AMCs creates revenues for pharmaceutical companies comparable to investments they traditionally make in commercial products in established markets.4

MICROINSURANCE: Low-income households have few, if any options, for protecting themselves against risks such as illness, crop failure or loss of assets like livestock, as traditional insurance products are generally too expensive for them to access. Microinsurance addresses this challenge by offering coverage for poor individuals in areas such as health and agriculture through innovative distribution channels and by pooling and transferring risk to the capital markets.

In 2011, The Rockefeller Foundation together with the World Food Programme, Oxfam America, and SwissRe launched the R4 Rural Resilience Initiative in Senegal and Ethiopia to decrease food and income insecurity associated with climate-related shocks. Poor farmers and rural households in these countries pay for insurance by working on local climate adaptation measures – often in the form of crop irrigation or forestry projects. R4 reaches more than 26,000 smallholder farmers by employing an integrated approach with tools like resource management, insurance, microcredit, and savings. Estimates place the microinsurance market place at more than US $40 billion and growing.5

MICROFINANCE: Perhaps one of the best known examples of innovative finance, microfinance is generally a source of very small loans for low-income people. Over time, it has evolved to include a range of financial products, including savings and insurance.

Microfinance has become a source of credit for those at the base of the pyramid where they may otherwise be seen as too risky an investment from a traditional bank. Microfinance institutions now span a range of organizational structures from small non-profit organizations to large commercial banks.6

SOVEREIGN RISK POOLS: Sovereign risk pools provide governments with a tool to minimize the impact of natural disasters on their economies. It provides countries with immediate access to capital to begin recovery and reconstruction efforts. An early example of such an insurance tool is the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a multi-country, disaster risk insurance facility established by the World Bank in 2006. The CCRIF provides liquidity coverage for 16 Caribbean states in the case of major natural disasters (e.g., hurricanes and earthquakes). 7

from the sale of (RED) products go to the Global Fund to Fight AID, Tuberculosis and Malaria. (RED) is the Global Fund’s largest donor, having provided more than US $275 million to date.8

PAY FOR SUCCESS:

USE-RELATED MARKETING:

Pay for Success contracts engage stakeholders from philanthropy, non-profits, and the private sector to finance outcomes-based social interventions. These contracts are often known as “Social Impact Bonds” and leverage philanthropic and private sector financing to provide up-front funding for a non-profit service provider to achieve a specific social or environmental impact measure for a target population.

The late 2000’s saw an increase in use- or causerelated marketing. This type of marketing generally links a for-profit company with a non-profit for mutual benefit. Often times this results in new streams of revenue for the non-profit or direct goods and services to developing countries. One of the best known examples of this is Product (RED).

The government agrees to pay back the loan providers only if the agreed-upon impact targets are met. Pay for Success projects have been developed all over the world, and in both developed and developing countries. In the US alone, the government has allocated nearly US $200 million for new PFS contracts.9

(RED) was founded by U2’s Bono in 2006 to raise awareness and money to combat HIV/AIDS in Africa. Companies like Nike, American Express, Apple, Starbucks and many others have created products that are part of (RED). Revenue generated

7. Foreign Affairs, Trade and Development Canada, “Project profile: Catastrophe Risk Insurance Facility for Central America - Honduras ; Global Facility for Disaster Reduction and Recovery, http://www.gfdrr.org/sites/gfdrr.org/files/documents/DRFI_CCRIF_Jan11.pdf; CCRIF, http://www.gfdrr.org/sites/gfdrr.org/files/documents/DRFI_CCRIF_Jan11.pdf; 8. Product (RED), http://www.red.org; 9. White House, OMB, Paying for Success, https://www.whitehouse.gov/omb/factsheet/paying-for-success

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Guiding the Conversation

This report follows three main areas discussed at Bellagio:

SPURRING THE INNOVATION AGENDA

DESIGNING AND ENABLING SUCCESS

OPPORTUNITIES FOR ACTION

Discussion explored these two overarching questions: What must be done to spur the global innovation agenda?

What are opportunities for action?

•

•

•

Which sectors and/or financing approaches

What are the barriers to innovation? What can

are ripe for innovation? Which high-impact

be done to enhance the quality and scale of

solutions are ready for further testing for

innovative finance solutions?

proof-of-concept? What research is needed?

How can we better coordinate public and private-sector efforts?

•

Are there existing mechanisms prepared to scale organically and/or across new sectors/ problem areas? What can be done to catalyze the development of these solutions?

Creating a Framework

Spurring the Innovation Agenda While the topic of innovative finance is not new, the forthcoming Sustainable Development Goals (SDGs) and the third International Conference on Financing for Development recently held in Addis Ababa, Ethiopia provide a unique opportunity to reflect on the current state of affairs. In Bellagio, participants assessed the progress of innovative finance to date, identified possible constraints, and explored opportunities for action. While stakeholders throughout the innovative finance ecosystem understand the importance of each of these elements individually, incorporating them into a cohesive strategy that can spur the global innovation agenda has proven more difficult in practice.

What are possible barriers to innovation in financing for development?

1. SILOS There is a need for more ‘connectors’ and partners.

Development banks have often played this role – working with civil society, private industry, and government.

To be successful in mobilizing private sector capital at scale, there must be more actors who can translate across industries and sectors.

2. UNCERTAIN REVENUE STREAMS The sector needs to move from uncertainty (e.g., ODA levels varying by country and political appetite) to predictability and stability. How might we identify additional, predictable, and sustainable revenue streams? Micro-levies like UNITAID have overcome this barrier in the past.

3. ORGANIZATIONAL READINESS Innovative finance has been generally driven by asset owners, not organizations needing capital.

There are examples of institutions having developed innovative financial mechanisms for funding public health, but the recipients of capital found themselves with structural and organizational barriers to receiving and deploying new funds.

4. LACK OF POLITICAL WILL The political context in developing countries can lead to uncertainty, and there are challenges in finding leaders to champion new ideas. Specifically, a lack of political will to drive innovations forward can kill or stall projects, and the policy and regulatory environment may not be favorable for financial innovation. This can be particularly true for innovations in financing disaster preparedness projects versus disaster response efforts.

5. LARGE AND UNCERTAIN RISKS There have been too few efforts to quantify risk and mitigate risk, particularly in emerging and frontier markets.

An inefficient use of subsidies, unclear governance structures, and the lack of data to determine a track record can lead to uncertainty and difficulties in properly assessing and pricing risk.

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Opportunities to overcome potential challenges

1. DONOR-LED DEVELOPMENT Donors (philanthropy and government) can lead the imperative for developing more innovative finance mechanisms, creating stronger incentives for traditional investment banks and financial advisory firms to address social and environmental issues.

2. LONG TERM APPROACH Donors should be encouraged to adopt a longer-term time horizon for capital allocations beyond yearly ODA cycles.

3. COLLABORATION New forums for collaboration with ideas from the private sector should be encouraged.

4. CAPACITY BUILDING Implementing organizations will need to build their internal capacity to effectively receive and deploy larger amounts of capital.

5. LOOKING AHEAD Sovereign government should take an ex ante instead of an ex post approach to protecting against natural disasters and public health crises.

6. FOCUS ON DATA Existing data must be analyzed and additional data should be generated through new modeling initiatives in order to create new methods for assessing risk.

Creating a Framework

Designing And Enabling Success If the international community is to be successful in unlocking private sector capital as an important means of achieving the SDGs, there must be a better, broader understanding of the key design elements and enabling success factors for innovative financing mechanisms:

Design Elements

Enabling Factors

Simplicity

Common Organizing Framework

Usefulness

Champions

Market Reality

Supportive Regulatory Environment

Standardization Potential

Collaboration Across Sectors

Evidence Base

Opportunism Fuzzy Mandate

Design Elements SIMPLICITY Successful innovative finance efforts keep the complexity of the mechanism “in the middle,” meaning that complicated deal structures affect neither the investor nor consumer user experience. Many Pay for Success models employ this design principle, where a third-party financial intermediary manages the complexity of the investment, and the investor and service provider focus on their core business activities.

USEFULNESS The mechanism must be grounded in an actual need. For instance, the R4 Rural Resilience Initiative responds to smallholder farmers’ need to protect against potential droughts or other

major disasters that lead to low crop yields and therefore negatively affecting their livelihoods.

MARKET REALITY Things that go against mainstream finance don’t work. Incentives must be aligned with investor or funder needs and expectations. Green bonds, for example, use an existing financial product that investors are already familiar with to steer capital toward environmentally sustainable projects.

STANDARDIZATION POTENTIAL Facilitate replicability by building in processes and procedures that can be standardized, thereby reducing transaction costs as quickly as possible and increasing profit margins over time.

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“ Innovative finance can’t happen in a vacuum.”

EVIDENCE BASE While the financial tool itself may be innovative, the intervention it is financing should have a strong evidence base. The project should have clearly defined targets and work toward measurable outcomes.

Enabling Factors COMMON ORGANIZING FRAMEWORK Early successes in innovative finance built on the Millennium Development Goals, providing a common framework that galvanized support around the globe. The new Sustainable Development Goals can serve as a strong foundation for a new wave of innovative finance mechanisms.

CHAMPIONS It is unlikely innovative finance will be successful in a vacuum. Finding the right champion(s) can make or break a project. There must be institutional and political will to ensure success.

SUPPORTIVE REGULATORY ENVIRONMENT Innovative finance may operate at the boundaries of the existing regulatory framework. In some cases, a new blueprint for public policy

interventions may be required to make the mechanism work.

COLLABORATION ACROSS TEAMS AND SECTORS There are diverse stakeholders involved in financing for development. Innovative finance often requires new forms of collaboration between private sector corporations, institutional investors, governments, and the philanthropic and nonprofit sector.

OPPORTUNISM Find where the social or environmental need and market inefficiencies intersect, and stay alert to when new partners and champions arise.

It is important to be nimble and open to new opportunities as they emerge.

THE FUZZY MANDATE Being innovative may require one to operate in an environment where the path forward is unclear. Optimizing success may mean remaining comfortable with ambiguity and staying open to experimentation.

After considering many of the potential opportunities outlined in the previous pages, Bellagio participants identified three major themes to take forward: • Creating and leveraging micro-levies • Creating risk transfer solutions to allow capital to flow • More effectively leveraging public credit

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Opportunities

Exploring Opportunities for Action Taken together, the barriers, opportunities, and key success factors provide a useful framework to explore ways for approaching innovative finance. At Bellagio, participants used this framework to examine a variety of themes for mobilizing large-scale capital, specifically focusing on these three areas: 1. micro-levies and public policy; 2. risk transfer solutions; and 3. more effectively leveraging public credit.

CREATING AND LEVERAGING MICRO-LEVIES TO COUPLE WITH PRIVATE CAPITAL As UNITAID has shown, global micro-levies can provide new, sustainable sources of revenue to fund international development efforts. While UNITAID was a small tax on airline tickets that funded public health projects, the new UnitLife levy provides income from extractive industries (e.g., oil, uranium, gold) and will support efforts to combat malnutrition. Some estimate this new

innovative governance structures for the launch of such micro-taxes. For instance, revenue generated from UNITAID has not been invested in capital markets, and therefore, the maximum financial or social impacts of the levy may not have been fully realized. While the public officials governing these funds are often risk averse, they should examine opportunities to grow and leverage these funds more effectively.

ORIGINATING RISK IN UNDER-SERVED MARKETS

levy will provide an additional $200 million in funding per year.

Recognizing that there have been tremendous technological innovations that allow for

As the international community considers new

better flows of information, thereby lowering

types of micro-levies, there may be interesting

transaction costs and increasing the ability to

ways to leverage these new pools of money to

create new products and services, there is a clear

increase their impact even more. In order to

need to better originate risk in under-served

do this, governing bodies will need to show a

markets and organize demand for existing credit

greater appetite for risk, which may also require

and insurance products.

16 Improved risk origination can happen at a variety

products that work ex ante, it is imperative to

of levels, including the macro (or sovereign risk)

analyze relevant data (wind speed on the ground

level, the traditional (or household and corporate)

during a hurricane, for example) to operationalize

level, or the micro (base of the pyramid) level. At

the parametric trigger. The good news is that the

the macro level, there is opportunity to create

majority of this type of data already exists and

more regional, sovereign risk pools. For instance,

is not proprietary – but someone has to spend

the African Risk Capacity (ARC) uses satellite data

time and resources to analyze it before assessing

to quantify the impact of severe droughts, which

the associated risk. ARC and R4 are benefiting

then triggers insurance payouts to participating

from this approach, with their leadership having

countries, and R4 Rural Resilience Initiative

realized it costs much less to manage risk than it

provides innovative ways for smallholder farmers

does to provide relief in a crisis.

to obtain insurance while also contributing to climate adaptation measures.

There are opportunities to learn from or replicate these models to create new insurance products

Still, assessing and pricing risk can prove difficult

that address new social and environmental

in practice, and there should be increased efforts

risks – providing a much-needed safety net for

to combine innovations in technology and data

low-income households in developing countries.

analysis to evaluate risk. For example, many

Such potential insurance products may also be

contemporary insurance products available in

uncorrelated to other asset classes and provide

developing countries contain enduring subsidies

institutional investors a new opportunity to

from government and philanthropy. On one

diversify their portfolios and contribute to global

hand, subsidies can play a catalytic effect for

resilience.

new products to be developed and enter the market. On the other, enduring subsidies have

At the traditional and micro-levels, innovative

serious implications for the solution’s commercial

insurance products can also help support and

viability and long-term success for the issuer,

protect NGOs that provide critical services to

as they do not generally allow the buyers the

the poor and most vulnerable. Similarly, insuring

chance to see the policy’s real premium (i.e., the

financial intermediaries that serve BOP clients

appropriately priced risk).

could unlock and provide more capital to lowincome households by transferring the risk to the

Data and technology can also help governments

broader capital markets.

and relief organizations take an ex ante approach to disaster preparedness and response rather

Insurance products can benefit BOP financial

than an ex post one. To create insurance

intermediaries by allowing them to expand

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17 services and products that build capacity

have followed suit by issuing their own green

in local enterprises as well as at the

bonds.

individual household level. Similarly, with stronger protections against public health

In addition to expanding to new areas for

catastrophes and natural disasters, NGOs

thematic bonds, issuers of public credit

can spend more money on resiliency efforts

should take more risk with their capital to

instead of response and treatment.

innovate and attract private sector actors.

MORE EFFECTIVELY LEVERAGING PUBLIC CREDIT

Multilateral development banks (MDBs) often

Development banks generally play the necessary ‘connector’ role among investors, development finance institutions (DFIs), philanthropy, and government. Welldesigned projects utilize a mix of capital and overcome cultural barriers and translation issues across sectors. While development banks have played that important role in the past, there are opportunities for other actors to step in as intermediaries and drive collaborative projects forward in the future.

Still, the role of DFIs in innovative finance is critically important. For example, DFIs have the opportunity to leverage existing sources of public credit more effectively as one option for attracting more private capital for public good. Current financing mechanisms, such as Green Bonds, provide a strong model for how public credit can eventually influence more mainstream financial institutions. Since the World Bank first developed green bonds in 2008, mainstream financial institutions

indirectly compete with private sector capital instead of convening diverse financing agents and encouraging participation in deals. Development banks have the ability to be anchor investors in more deals, signaling credibility to institutional investors – a concept dubbed the “MDB Halo Effect.”

MDBs have a clear opportunity to take the lead here; however, the process for doing business with MDBs is sometimes slow and opaque, especially for private sector companies accustomed to moving at a quicker pace.

While MDBs often conduct an “Ease of Doing Business” report on their partners, what might it look like to have a better understanding of what it’s like to do business with the MDBs themselves? Such a report could focus on how development finance institutions operate with their high value capital, support internal innovation and to what extent they focus on intentionally cultivating deals that allow for more effective private sector participation.

Conclusion

The international community has a prime opportunity to integrate innovative finance into the core development agenda.

In September 2015, the United Nations agreed on the Sustainable Development Goals (SDGs), setting the primary international development targets for the next fifteen years. A failure to live up to these commitments will have unprecedented costs to human wellbeing and planetary health.

These goals come with a hefty price tag. The

by exploring opportunities for more micro-

UN estimates that it will cost US $3.9 trillion

levies. However, as discussed, the revenue

per year to achieve the SDGs in developing

stream itself is not necessarily the innovation.

countries alone, yet current estimates place

One-to-one leverage is no leverage at all, and

both public and private funding at only US

creativity and an increased appetite for risk

$1.4 trillion—an annual shortfall of $2.5

will be critical to maximize the impact of this

trillion.

source of capital.

While funding alone will not achieve

Private companies, non-profits, and

the SDGs, filling this gap should be an

entrepreneurs should explore ways to

international priority and will require

create risk transfer solutions, specifically like

tremendous innovation in financing for

sovereign risk pools such as the Caribbean

development. As outlined in this report,

Catastrophe Risk Insurance Facility and

the successes over the last 10-15 years show

African Risk Capacity. Additional areas to

promise, but there is a still a long way to go.

explore include organizing demand at the base of the pyramid and activating relief

This report describes the key elements

organizations and financial intermediaries to

for success and a potential path forward.

explore how to transfer the risk they generally

One possibility is to determine additional,

take on to the capital markets.

sustainable, and predictable revenue streams

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“ Filling this gap should be an international

priority, and will require tremendous innovation.”

Finally, innovators should explore ways to more

health outbreaks and epidemics, and even a

effectively leverage public credit.

green bond coupon that better allows investors to discern the environmental impact of the asset.

Multilateral development banks (MBDs) can increase their impact by leading more deals to

These efforts require collaboration with

signal the credibility of projects to institutional

private and public sector partners, embraces

investors. For example, the World Bank’s “City

experimentation, risk-taking, and a long-term

Creditworthiness Initiative” aims to address

time horizon.

the demand for climate-smart infrastructure by helping cities improve their financial

Through these efforts, the goal is to develop

performance and secure private investment for

solutions that can help ensure that the

such projects. MDBs can also build their internal

development commitments made in 2015 are

capacity and create more transparent processes

successful.

that better engage the private sector.

Participants at Bellagio are moving forward with many of the recommendations in this report, including the new UnitLife micro-levy on extractive industries, more risk origination in under-served markets with life insurance products for base of the pyramid consumers in India, exploring risk transfer solutions for public

Attendees

Nick Ashburn, Wharton Social Impact Initiative

Shari Berenbach, United States African Development Foundation

Lorenzo Bernasconi, The Rockefeller Foundation

David Bresch, Swiss Re

Adam Connaker, The Rockefeller Foundation

Philippe Douste-Blazy, United Nations

Christopher EgertonWarburton, Lions Head Global Partners

Robert Filipp, Innovative Finance Foundation

Brinda Ganguly, The Rockefeller Foundation

Abyd Karrnali, Bank of America Merrill Lynch

Georgia Levenson Keohane, New America

Katherine Klein, Wharton Social Impact Initiative

Kenneth G. Lay, (formerly) World Bank

Saadia Madsbjerg, The Rockefeller Foundation

John W. McArthur, Brookings Institution

Sucharita Mukherjee IFMR Holdings

Bellagio Report: Bringing Innovation Back to Innovative Finance

Jeremy Rogers Big Society Capital

Lakshmi Venkatachalam, Asia Development Bank

David Wood, Initiative for Responsible Investment, Harvard Kennedy School

Glenn Yago Milken Institute, Financial Innovation Lab

Organizers

For more than 100 years, The Rockefeller Foundation’s mission has been to promote the well-being of humanity throughout the world. Today, The Rockefeller Foundation pursues this mission through dual goals: advancing inclusive economies that expand opportunities for more broadly shared prosperity, and building resilience by helping people, communities and institutions prepare for, withstand, and emerge stronger from acute shocks and chronic stresses.

To achieve these goals, The Rockefeller Foundation works at the intersection of four focus areas—advance health, revalue ecosystems, secure livelihoods, and transform cities—to address the root causes of emerging challenges and create systemic change. Together with partners and grantees, The Rockefeller Foundation strives to catalyze and scale transformative innovations, create unlikely partnerships that span sectors, and take risks others cannot—or will not.

To learn more, please visit www.rockefellerfoundation.org.

Wharton Social Impact Initiative leverages Wharton’s strengths to develop and promote business strategies for a better world. We use core business competencies to spur strategic and systems-level positive social impact in Philadelphia and around the globe. Through research, consulting, hands-on training, and outreach, we are advancing the science and practice of business social impact. Established in 2010, our interdisciplinary work explores the tools and strategies of impact investing and finance, impact entrepreneurship, and strategic corporate social impact. To learn more, visit socialimpact.wharton.upenn.edu to learn more.