Bringing Innovation Back to Innovative Finance

Bellagio 2015 | Final Report

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

Bringing Innovation Back to Innovative Finance

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.

Bellagio Report: Bringing Innovation Back to Innovative Finance

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.

3

Overview

The MDGs galvanized efforts to increase

funding levels for international development

projects. Leaders called for a renewed

commitment to increase official development

assistance (ODA) to 0.7% of GDP and to

develop new approaches and mechanisms for

financing development. Reflecting a growing

interest in these new approaches and

mechanisms, delegates to the United Nations

International Conference on Financing for

Development first declared “innovative

finance” a policy priority under the Monterrey

Consensus in 2002.

Innovative finance refers to new mechanisms

and approaches to harness private sector

capital for addressing the world’s key social,

economic, and environmental problems.

These financing mechanisms and approaches

have taken a variety of forms across fields and

geographies, from blended finance and pay

for success structures, to advanced market

commitments and new insurance products.

Notable examples include the International

Finance Facility for Immunization (IFFIm)

which has raised more than US $5 billion to

date to support the Gavi Alliance, the world’s

leading health organization committed to

increasing access to immunization in poor

countries.

Green Bonds are another example of

innovative finance success. First launched in

2007 with US $800 million in issuances for

climate-related investments, the green bond

markets has grown to US $42 billion in 2015.

Yet another mechanism is UNITAID, a public

sector-driven levy on airline tickets that has

successfully raised US $2.5 billion for public

health since 2006. (For more examples in

innovative finance, see Box 1.)

While these examples point to significant

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.


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

challenges we face in the 21st century.

Estimates currently set the investment need for

the emerging “Sustainable Development Goals”

5

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

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

continued, page 6

(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,

patience, and collaboration.

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,

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-de-velopment-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/;

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


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

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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

USE-RELATED MARKETING:

The late 2000’s saw an increase in use- or cause-related 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).

(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

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:

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 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

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.gf-drr.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


Guiding the Conversation

9

SPURRING THE INNOVATION AGENDA

DESIGNING AND ENABLING SUCCESS

OPPORTUNITIES FOR ACTION

What must be done to spur the global innovation agenda?

• What are the barriers to innovation? What can

be done to enhance the quality and scale of

innovative finance solutions?

• How can we better coordinate public and

private-sector efforts?

What are opportunities for action?

• Which sectors and/or financing approaches

are ripe for innovation? Which high-impact

solutions are ready for further testing for

proof-of-concept? What research is needed?

• 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?

Discussion explored these two overarching questions:

This report follows three main areas discussed at Bellagio:

What are possible barriers to innovation in financing for development?

1. SILOSThere 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 READINESSInnovative 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 WILLThe 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 RISKSThere 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.

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.


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1. DONOR-LED DEVELOPMENTDonors (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 APPROACHDonors should be encouraged to adopt a longer-term time horizon for capital allocations beyond yearly ODA cycles.

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

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

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

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

Opportunities to overcome potential challenges

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

SIMPLICITYSuccessful 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.

USEFULNESSThe 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 REALITYThings 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 POTENTIALFacilitate 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.

Simplicity Common Organizing Framework

Usefulness Champions

Market Reality Supportive Regulatory Environment

Standardization Potential Collaboration Across Sectors

Evidence Base Opportunism

Fuzzy Mandate

Design Elements Enabling Factors

EVIDENCE BASEWhile 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 FRAMEWORKEarly 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.

CHAMPIONSIt 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 ENVIRONMENTInnovative 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 SECTORSThere 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.

OPPORTUNISMFind 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 MANDATEBeing 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.


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

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


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.

Opportunities

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

levy will provide an additional $200 million in

funding per year.

As the international community considers new

types of micro-levies, there may be interesting

ways to leverage these new pools of money to

increase their impact even more. In order to

do this, governing bodies will need to show a

greater appetite for risk, which may also require

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

Recognizing that there have been tremendous

technological innovations that allow for

better flows of information, thereby lowering

transaction costs and increasing the ability to

create new products and services, there is a clear

need to better originate risk in under-served

markets and organize demand for existing credit

and insurance products.

Exploring Opportunities for Action

15

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Improved risk origination can happen at a variety

of levels, including the macro (or sovereign risk)

level, the traditional (or household and corporate)

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

the macro level, there is opportunity to create

more regional, sovereign risk pools. For instance,

the African Risk Capacity (ARC) uses satellite data

to quantify the impact of severe droughts, which

then triggers insurance payouts to participating

countries, and R4 Rural Resilience Initiative

provides innovative ways for smallholder farmers

to obtain insurance while also contributing to

climate adaptation measures.

Still, assessing and pricing risk can prove difficult

in practice, and there should be increased efforts

to combine innovations in technology and data

analysis to evaluate risk. For example, many

contemporary insurance products available in

developing countries contain enduring subsidies

from government and philanthropy. On one

hand, subsidies can play a catalytic effect for

new products to be developed and enter the

market. On the other, enduring subsidies have

serious implications for the solution’s commercial

viability and long-term success for the issuer,

as they do not generally allow the buyers the

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

appropriately priced risk).

Data and technology can also help governments

and relief organizations take an ex ante approach

to disaster preparedness and response rather

than an ex post one. To create insurance

products that work ex ante, it is imperative to

analyze relevant data (wind speed on the ground

during a hurricane, for example) to operationalize

the parametric trigger. The good news is that the

majority of this type of data already exists and

is not proprietary – but someone has to spend

time and resources to analyze it before assessing

the associated risk. ARC and R4 are benefiting

from this approach, with their leadership having

realized it costs much less to manage risk than it

does to provide relief in a crisis.

There are opportunities to learn from or replicate

these models to create new insurance products

that address new social and environmental

risks – providing a much-needed safety net for

low-income households in developing countries.

Such potential insurance products may also be

uncorrelated to other asset classes and provide

institutional investors a new opportunity to

diversify their portfolios and contribute to global

resilience.

At the traditional and micro-levels, innovative

insurance products can also help support and

protect NGOs that provide critical services to

the poor and most vulnerable. Similarly, insuring

financial intermediaries that serve BOP clients

could unlock and provide more capital to low-

income households by transferring the risk to the

broader capital markets.

Insurance products can benefit BOP financial

intermediaries by allowing them to expand


services and products that build capacity

in local enterprises as well as at the

individual household level. Similarly, with

stronger protections against public health

catastrophes and natural disasters, NGOs

can spend more money on resiliency efforts

instead of response and treatment.

MORE EFFECTIVELY LEVERAGING PUBLIC CREDIT

Development banks generally play the

necessary ‘connector’ role among investors,

development finance institutions (DFIs),

philanthropy, and government. Well-

designed 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

have followed suit by issuing their own green

bonds.

In addition to expanding to new areas for

thematic bonds, issuers of public credit

should take more risk with their capital to

innovate and attract private sector actors.

Multilateral development banks (MDBs) often

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.

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These goals come with a hefty price tag. The

UN estimates that it will cost US $3.9 trillion

per year to achieve the SDGs in developing

countries alone, yet current estimates place

both public and private funding at only US

$1.4 trillion—an annual shortfall of $2.5

trillion.

While funding alone will not achieve

the SDGs, filling this gap should be an

international priority and will require

tremendous innovation in financing for

development. As outlined in this report,

the successes over the last 10-15 years show

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

This report describes the key elements

for success and a potential path forward.

One possibility is to determine additional,

sustainable, and predictable revenue streams

by exploring opportunities for more micro-

levies. However, as discussed, the revenue

stream itself is not necessarily the innovation.

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

creativity and an increased appetite for risk

will be critical to maximize the impact of this

source of capital.

Private companies, non-profits, and

entrepreneurs should explore ways to

create risk transfer solutions, specifically like

sovereign risk pools such as the Caribbean

Catastrophe Risk Insurance Facility and

African Risk Capacity. Additional areas to

explore include organizing demand at the

base of the pyramid and activating relief

organizations and financial intermediaries to

explore how to transfer the risk they generally

take on to the capital markets.

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.

Finally, innovators should explore ways to more

effectively leverage public credit.

Multilateral development banks (MBDs) can

increase their impact by leading more deals to

signal the credibility of projects to institutional

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

Creditworthiness Initiative” aims to address

the demand for climate-smart infrastructure

by helping cities improve their financial

performance and secure private investment for

such projects. MDBs can also build their internal

capacity and create more transparent processes

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

health outbreaks and epidemics, and even a

green bond coupon that better allows investors

to discern the environmental impact of the asset.

These efforts require collaboration with

private and public sector partners, embraces

experimentation, risk-taking, and a long-term

time horizon.

Through these efforts, the goal is to develop

solutions that can help ensure that the

development commitments made in 2015 are

successful.


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“ Filling this gap should be an international priority, and will require tremendous innovation.”

Attendees

Nick Ashburn, Wharton Social Impact

Initiative

Kenneth G. Lay, (formerly) World Bank

Adam Connaker, The Rockefeller Foundation

Brinda Ganguly, The Rockefeller

Foundation

Lorenzo Bernasconi,The Rockefeller

Foundation

John W. McArthur, Brookings Institution

Christopher Egerton-Warburton, Lions Head

Global Partners

Georgia Levenson Keohane,

New America

Shari Berenbach,United States African

Development Foundation

Saadia Madsbjerg,The Rockefeller

Foundation

Philippe Douste-Blazy, United Nations

Abyd Karrnali, Bank of America Merrill

Lynch

David Bresch,Swiss Re

Sucharita Mukherjee IFMR Holdings

Robert Filipp, Innovative Finance

Foundation

Katherine Klein, Wharton Social Impact

Initiative

Organizers


Jeremy RogersBig Society Capital

David Wood, Initiative for Responsible

Investment,Harvard Kennedy

School

Lakshmi Venkatachalam,

Asia Development Bank

Glenn YagoMilken Institute,

Financial Innovation Lab

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.

Documents

Bringing Innovation Back to Innovative Finance