The IFRC aims to use financial markets to keep pace with the world’s unprecedented humanitarian needs. Here’s how

The humanitarian and private sectors seem to be at opposite ends of the spectrum – but working closer together could lead to solutions to the world’s biggest problems.

From CSR to ESG, the corporate world has increasingly sought to engage in socially and environmentally beneficial activities. Meanwhile, humanitarian organizations are overwhelmed by rapidly growing needs that traditional funding cannot keep up with.

The 2022 Global Humanitarian Assistance Report found that overall crisis response funding has plateaued despite historically high (and increasing) demand. The report showed that the value of international humanitarian assistance was estimated to reach $31.3 billion in 2021. The World Economic Forum expects it to rise to $50 billion by 2030.

The donors we currently rely on – primarily a core group of governments – are too few and too fragile. We must grow and diversify our funding sources if we are to hope to keep up with the projected levels of humanitarian needs.

I believe it is possible to move to a co-ownership approach, where both the private sector and humanitarian partners align their goals, including financial returns.

Private sector responses to the conflict in Ukraine and the COVID-19 pandemic have shown its strength in times of crisis. So far, this has been mostly through grants – but the skills, knowledge and expertise of the private sector could be the real game-changers for the humanitarian sector.

Insurance companies are an example of where we have significant overlap when we break down our activities and goals: we both deal with the impact and consequences of losses and damages caused by crises and disasters.

Since 1985, the IFRC’s Disaster Response Emergency Fund (DREF) has served as a central pool of funds that can be distributed quickly and transparently to support community action in countries affected before and after disasters occur.

Now we are working with AON and the Center for Disaster Protection to structure an innovative insurance mechanism that leverages commercial insurance markets to leverage contributions from traditional donors to bring the DREF’s natural disaster response capacity to CHF 100 million by 2025 to increase We are aiming for the new insurance mechanism to be introduced in 2023.

We take a system that has been tried and tested for over three decades and adapt it to an uncertain future. Through the insurance mechanism, donors pay the premium instead of raising the money to fund disaster relief efforts. This extends the value of their contributions and shifts risk to the private sector when grant requests exceed available resources. The approach uses the reinsurance markets to manage the risks of excessive natural perils and ensure that funds are available in a timely and reliable manner even in times of excessive or unforeseen demand.

Our ambitions will not be achieved through grants alone. We will need innovative financing that leverages our resources and allows the private sector to engage meaningfully. Through our initiative, we want to demonstrate the value of structures that can be more sustainable, replicable and scalable to meet humanitarian needs.

We are currently exploring innovative financing options for our other flagship programs, including the ability to use green bonds or climate bonds and impact bonds for our water, sanitation and hygiene programs.

We have set up a pilot project with the Islamic Development Bank based on the impact bond model, which frees up private capital through investors. Instead of donors paying grants upfront, they pay when results are proven. Investors provide the upfront financing while the bank acts as guarantor, lowering the cost of the bond and allowing for true capital additionality.

With collaborative financing models, it is important to consider the value and approach for each partner: the private sector can engage in ways that drive both social impact and profits, governments can lead change by creating enabling environments, and humanitarian organizations can embrace more agility in their operating models – all aiming to mobilize more private sector resources for humanitarian assistance and to leverage overstretched government donor grants.

We must also strike the right balance between risk and opportunity, paying attention to conflicts of interest, value for money and ethical issues. Today’s humanitarian needs require that we create opportunities and conditions for private capital to increase funding – but it is of paramount importance that the product we develop lives up to our principles.

This transition will take time and will require difficult trade-offs and changes to our operating models. We will likely fail before we succeed, but if we don’t try—with a willingness to learn from our mistakes—our humanitarian investments will continue to be mere drops in a sea of ​​needs.

For the private sector, this will be an opportunity to innovate solutions consistent with its ESG approach and to be at the forefront of a new untapped market while saving the lives of millions of people.

Nena Stoiljkovic is Under-Secretary-General for Global Relations, Humanitarian Diplomacy and Digitization at the International Federation of Red Cross and Red Crescent Societies (IFRC). Her background lies in impact investing in emerging markets, change management and innovative financial instruments such as blended finance. Ms. Stoiljkovic has held several senior positions at the World Bank and the International Finance Corporation.

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