How the private sector can scale humanitarian action

Ellen Brooks Shehata, director of innovative finance at the International Rescue Committee’s Airbel Impact Lab, shares how we can reduce risk and forge alliances to drive humanitarian investment in conflict areas.

The world today faces deep, interlocking crises—from conflict and climate change to migration, with 110 million people forcibly displaced worldwide in 2023. A committed humanitarian sector is on the job, working tirelessly to address these challenges. But the humanitarian sector faces a massive funding gap: 67% of need, or $41 billion, went unfunded in 2023, and 88% of all humanitarian funding comes from just 10 government donor budgets. 

The bottom line: If we’re going to solve the world’s big problems and scale solutions, we need all hands on deck. Because current funding frameworks are unsustainable, we need investment capital and finance, and the inherent efficiency and sustainability they bring. Philanthropy, government, and NGOs are part of the solution, but they can’t do it all and can’t do it all separately—we need to better link private sector dollars to the work of these partners, even in the most challenging contexts.

Private sector investors have a limited track record investing in the markets where humanitarians operate. The International Finance Committee has noted a multi-billion dollar investment shortfall for myriad reasons, from political instability and volatility to governance and infrastructure—real risks that cannot be dismissed. These risks are further compounded by limited access to critical information.

But as our world’s crises converge further, climate, migration, and conflict will only continue to exacerbate these frontier, fragile, and underdeveloped markets. Investors need to get comfortable underwriting this risk; it’s going to be more widespread. Solutions have emerged; “blended finance,” or the use of catalytic capital to increase private sector investment, has made inroads. A recent example is an investment by the Multilateral Investment Guarantee Agency (MIGA) in renewable energy services company Kube Energy’s new solar hybrid power plant in Baidoa, Somalia. With initial offtakers, including the United Nations, and a partnership from private sector investor CrossBoundary Group, this project represents the power and potential of cross-sector partnerships to deliver sustainable solutions to communities in need.

At the International Rescue Committee (IRC), we have been building investor–humanitarian partnerships since 2021 and are beginning to share publicly how a dynamic new approach—the “advisory model” for humanitarian-investor partnerships—can strengthen the social impacts of investment and mitigate social risk for the private sector. Using the advisory model, investors bring humanitarians to the table as partners, demonstrating how both groups can utilize different but complementary skill sets to improve the social outcomes of investments.

Here’s how it works. 

With Flat6Labs, an early-stage venture capital firm, we’re advising on the launch of a virtual innovation and entrepreneurship incubation platform, StartMashreq, which is raising capital to invest in the startup ecosystem in the Mashreq region of Lebanon, Iraq, and Jordan. To ensure they’re reaching potential participants and entrepreneurs most in need of opportunity, Flat6Labs partnered with IRC as collaborators on the design of client outreach, mentorship, and coaching programs, as well as general program communications support. IRC plays an integral role in identifying and engaging potential participants and entrepreneurs, both by recommending applicants in our network who are deemed suitable to join the StartMashreq program and by promoting the program among our global network to attract relevant startups. 

For IRC, bringing commercial entrepreneurship training and opportunity to populations that urgently need it is a big win. Flat6Labs has brought in a partner who enhances its impact with our specialized understanding of the community and its needs. 

In East Africa, we are exploring how to better link mini-grid solar developers to refugee communities where current power connections are unreliable and unsustainable. In west Irbid, Jordan, an urban community that has been hosting Syrians since 2011, we are advising the European Bank for Reconstruction and Development on a 65 million euro ($70.5 million) wastewater infrastructure investment, leveraging our humanitarians as boots on the ground to ensure inclusive community engagement around a critical infrastructure project thanks to their unique and specialized knowledge. 

We have also demonstrated how the advisory model can work directly with startups, with IRC and AquaPoro Ventures launching a “procurement as investment” pilot to scale an innovative technology that produces clean, drinkable water even from dry desert air. This addresses a massive challenge for IRC operations in the region. It has also helped AquaPoro mitigate risk and innovate by building the market for its product. We’re also designing new ways to support refugee-lens businesses in Latin America to leverage sovereign debt swaps for humanitarian aid, bring solar power to communities in need in Lebanon, and more.

In pilot after pilot, this model is making investments stronger, improving social outcomes, and closing gaps in the implementation of urgent social impact goals. And it’s working. It’s a model with momentum. With landmark agreements signed by multilateral development banks at COP28 to mobilize more capital, a New Global Financial Pact Summit which took place in June 2023, and reform on the agenda at the 2024 Spring World Bank meetings, multilateral and development investors are recognizing they need to move capital closer to communities in need.

I’m not a humanitarian. I come from financial services, where I was trained to carefully manage risks and returns as the key outcomes in assessing all potential investment opportunities. In banking, we were taught that if you can measure it, then it matters. What I’ve learned from the humanitarian sector is that social outcomes matter too: climate, health, access to water, and energy. These outcomes can be measured, and they, too, can be achieved—along with meaningful financial returns.

The problems we face are real, and the funding gap is large. However, through partnerships and alliances, investors and humanitarians are reducing risk, driving innovation, and surging solutions. Our message? New ways of working are possible. The technology exists. The expertise exists. We know what we need to do. Get out there and do it. 

Note: This article was created by the International Rescue Committee and funded by the EU.