Unlocking Innovative Finance for Nutrition

Nutrition – an ‘orphan’ sector

Malnutrition, including undernutrition and diet-related noncommunicable diseases, is the leading cause of poor health, lost productivity, and death worldwide. Globally, more than 1 in 5 children under the age of five are stunted (they are too short for their height as a result of poor nutrition) – harming their chances of reaching their full mental and physical potential.

Increasing pressure in the current context of conflict, climate change, increasing costs, and the aftermath of Covid-19 (4Cs) is exacerbating world hunger; an additional 200 million people are facing acute food insecurity since the pandemic.

Despite these facts, nutrition has always suffered as an ‘orphan sector’, receiving less than 1% of international aid and with a huge US$10.8 billion funding gap each year just for core nutrition support. To achieve the Global Goals and specifically Zero Hunger, we need an additional US$39 – 50 billion on top of that.

This desperate situation and need to plug the gap was the genesis of The Power of Nutrition. Our original model sought to catalyse donor grants for the sector by matching and maximising funds, ultimately achieving a six-times multiplier. Despite successes (an additional US$540 million mobilised for nutrition), the effects of the 4Cs has only increased pressure and need for funding in nutrition - so new avenues for finance must be explored.

Shifting private sector priorities

At the same time, we’re seeing private sector priorities shifting and more and more corporates ‘giving back’ through philanthropy and charitable efforts - simultaneously benefiting society and boosting their brand image. It’s reported that Fortune 500 companies spend US$20 billion on CSR efforts collectively. And it’s not just pure ‘giving’, but more and more corporates are identifying areas of strategic alignment between their objectives and charitable efforts. This in turn has led to more robust Environmental, Social and Governance (ESG) standards and principles, with corporates’ charitable efforts becoming measurable and recognized as a way of adding additional value.

Following the money

Innovative finance has exploded in recent years with huge investor demand for instruments delivering social returns. In response, we worked with Palladium to map such initiatives in health, education, and the environment with a view to assessing which of these could be applied to nutrition.

Conclusions are stark. Nutrition is already far behind other sectors like education and health in catalysing innovative finance, so much that it is at high risk of repeating in innovative finance the orphan status it has in traditional grant aid:

• Only two nutrition bonds (mobilizing less than US$500 million) have been issued, but 634 green bonds (over US$290 billion in 2020 alone).
• 31 health and 24 education social/development impact bonds have been issued, but only one in nutrition.
• The global health sector has mobilised over US$285 million through five impact investment funds, but only one nutrition impact fund.

On the upside, we can see clearly there is huge potential for nutrition across many innovative financing categories, including payment-by-results, blended finance, impact investing, market guarantees, and capital market social bonds.

The selection of the best innovative financing mechanism for each intervention depends on the nutrition issue to be tackled, the type of capital needed and the stakeholders involved. For example, for non-return generating interventions with verifiable outcomes such as treatment of severe acute malnutrition in children under-5, pay-for-results mechanisms can work for attracting new sources of funding, but transaction costs make them only viable at a meaningful size. At the other end of spectrum is capital markets instruments such as social bonds, which can be issued to finance large-scale private or public nutrition programmes, which in some cases, can create cross-sectional impact across SDGs.

It seems clear therefore that innovative financing for nutrition is the way forward. The adoption of these types of mechanisms however is not simple. The design, structuring, and implementation of innovative financing solutions requires a very specific set of technical skills (both in finance and nutrition) which can be hard to find together; investable and highly impactful opportunities are strenuous to source and finally successfully structuring an innovative finance deal in nutrition requires a range of different stakeholders work collaboratively, which takes time and commitment.

The call to action for the nutrition sector is loud and clear; we must broaden our approach to resource mobilisation and secure a footing for nutrition in the innovative finance space. One of the ways The Power of Nutrition is doing this is by supporting the development of its first innovative finance product together with Save the Children. The outcome-based finance programme aims to take to scale interventions validated through a randomised control trial (RCT) that empower mothers, caregivers and community health volunteers to detect and treat acute malnutrition (a condition where a child is severely undernourished and underweight). This programme would be financed through an outcomes-based contract with outcome payers, whose payments will only be triggered when pre-defined targets are met.

Severe malnutrition impacts far too many vulnerable children, worldwide but also particularly in Kenya. This innovative and high-impact programme aims to not only change this, but to lead to genuine systemic change in the way the sector detects and treat severe malnutrition.

Related Resources

• N3F: A blended finance model to increase the consumption of nutritious foods
• Blended finance: A Promising Approach to Unleash Private Investments in Nutritious Food Value Chains in Frontier Markets
• Impact Investing Holds Promise for Nutrition If Guided by Evidence
• IFSS Guide to Finding Funding for SMEs
• GAIN working paper Series 13: Supporting gender equitable systems through access to finance for SMEs
• Fueling the Business of Nutrition

Headline Image Credit: GAIN