Looking to make an impact with your investments? Invest in health. - Opinion Piece

By Jo Jewell , Director of Cities Changing Diabetes and Jeffrey Cyr , CEO of Raven Indigenous Impact Foundation & Managing Partner at Raven Indigenous Capital Partners

This week, the global impact investment community gathers in Copenhagen at the GIIN Impact Forum to explore opportunities for investments that make a real difference in society while delivering financial gains. Discussions at these forums traditionally revolve around sectors such as energy, forestry, and agriculture, but one important sector often takes up very little space: health. A mere 7% of global impact investments are directed towards health, as per the Global Impact Investment Network’s 2020 Investor Survey. However, the health sector offers promising investment opportunities with both meaningful social impact and financial returns.

Growing opportunities for impact investments within the health sector

The burden related to serious chronic diseases is already substantial and growing at an alarming rate. Worldwide, approximately 540 million adults are living with diabetes of which over 90% have type 2 diabetes. In addition, the World Heart Federation estimates that more than half a billion people are affected by cardiovascular diseases worldwide. And these numbers are only estimated to rise. The International Diabetes Federation estimates that the number of people with diabetes will reach 643 million in 2030 and 783 million in 2045. A similar increase can be expected in terms of people living with other serious chronic diseases, such as cardiovascular diseases.

This alarming trend will intensify the pressure on health systems that are already heavily overburdened while simultaneously posing a threat to economic development, as living with chronic diseases will often significantly reduce productivity, either due to sick days or reduced working capacity. ?Additionally, communities and families often bare unseen costs of adaptation to those with medical needs and the ripple effects in community are significant, such as cultural loss in Indigenous communities.

While this surge in chronic diseases is a global phenomenon, some regions face a more pressing challenge. Approximately 80% of those with diabetes or expected to develop it reside in low- and middle-income countries. Take Africa, for example: the International Diabetes Federation estimates diabetes-related health expenditures will skyrocket from $13 billion in 2021 to $43 billion in 2023 if current trends persist. These regions, grappling with a multitude of challenges, from food security to climate change, present an intriguing case for investors keen on addressing unmet needs in prevention and care.

Not only are some regions estimated to be hit harder by the growing need for healthcare, but health equity within nations is equally crucial. Diabetes continues to disproportionately affects Indigenous populations globally due to established factors like poverty, unequal access to medical care, limited access to fresh produce, and substandard living conditions. Investing in interventions tailored to the 476 million people in countries with Indigenous populations worldwide not only reduces the global disease burden but also contributes significantly to reducing health inequality and increasing community resilience.

Investing in prevention and care yield a high return – in social and financial terms

Today, we have a solid understanding of the factors that have an impact on the surge in the number of people with serious chronic diseases. Unhealthy diets, a lack of physical activity, and inadequate access to healthcare are just some of the causes that contribute to the growth of chronic diseases. We know what it takes to reduce the burden of these diseases, whether in terms of preventing people from developing diseases or effective management that lessens the social and economic impact of their condition.

The World Health Organization estimates that implementing their best recommendations for non-communicable diseases yields a remarkable average return of €7 for every €1 invested. Danish studies reveal that preventing minor diabetes-related complications saves about €7,000 per person annually, while preventing the progression to major complications costs approximately €15,000 per year.

Initiatives that effectively promote healthy behaviors, early detection, and disease management can yield tangible impacts, not only in terms of health outcomes but also in terms of economic benefits. Diabetes alone accounted for an estimated $966 billion in global health expenditures in 2021. When you factor in the costs associated with decreased productivity and premature death, the burden becomes significantly greater.

The fact that the costs of managing diabetes and other serious chronic diseases are massive, combined with our insight into how these diseases can be prevented, postponed, and managed, creates a solid foundation for building concrete investment programs that can yield high returns in economic as well as social terms.

Boosting healthcare investments through outcome-based financing

As the challenge of tackling non-communicable diseases intensifies, unlocking investments in health becomes paramount, and innovative financing mechanisms may serve as an effective tool. One model drawing attention across sectors is outcome-based financing, particularly impact bonds and outcomes finance contracts. Impact bonds and outcomes driven contracts involve agreements between governments, service providers, and investors to achieve predetermined outcomes, such as reducing long-term blood sugar levels in a specific target group. Investors receive repayment when the agreed-upon objectives are met.

By inviting external investors to finance health interventions in exchange for an outcome payment linked to observed improvements in health indicators among program participants, health authorities are better able to manage short-term budget constraints. Additionally, outcome-based contracting may also improve health outcomes, as this financing model ensures a continuous focus on the impact of the services that are delivered. It also uniquely allows for health services innovation in otherwise budget constrained environments.

In Denmark, the municipality of Aarhus invited two investors to finance interventions designed to foster behavior change aimed at people at high risk of developing diabetes-related complications. The intervention involves a combination of patient education and practical support in terms of promoting a healthy diet and physical exercise. In exchange, they would receive a share of the potential cost savings that this intervention would generate for the municipality. The investment was organized as an impact bond and is just one example of how outcome-based financing can address both social needs and be financially beneficial to both commissioners and investors. In Canada, Raven Indigenous Capital Partners is developing a community-driven outcomes contract in four remote Indigenous communities and is establishing an outcomes fund to facilitate the on-boarding of private investors.

Globally, the impact bond model has effectively unlocked more than 40 impact investment opportunities within the health sector, with new programs currently being developed in countries such as Canada, Denmark, the Netherlands, and Sweden with the support of the Cities Changing Diabetes (CCD) Network, Raven Indigenous Capital Partners, and Dalberg. As the outcome-based financing model gains ground in new regions and countries through different health interventions, this is prime time for investors to look at new investment opportunities that can make a real dent within the health sector.

More information:

Cities Changing Diabetes (CCD) is currently working on accelerating investments in diabetes prevention and care with a focus on outcome-based financing across different cities around the world. As part of their ongoing work, they will host a roundtable event on October 4th alongside the GIIN Impact Forum. The roundtable will bring together thought leaders to discuss solutions for attracting and scaling investments in health prevention and care.

CCD is also co-hosting a Masterclass with Raven Indigenous Impact Foundation. The Masterclass will bring together health care practitioners and outcome-based financing experts to help build outcome-financing models for NCD interventions. The Masterclass will be held in Ottawa, Turtle Island/Canada on November 13 and 14, 2023, and will be followed by the Raven Indigenous Impact Foundation’s Outcomes Summit. The Masterclass will combine inspirational sessions around designing community-based interventions, measuring social value, and other topics while allowing participants the time to work together to design an outcome-based financing health intervention.

If you are interested in knowing more about CCD’s work and outcome-based financing, please reach out.