Globally, more than 1 in 5 children under the age of 5 years old are stunted (i.e., restricted from reaching their full mental and physical potential) due to poor nutrition. Malnutrition is the underlying cause of 45% of all preventable child deaths. Conflict, climate change, increasing costs, and the aftermath of COVID-19 are only exacerbating world hunger; an additional 200 million people are now facing acute food insecurity following the pandemic.

To save lives, we need to plug the enormous US$10.8 billion per year gap in global financing for nutrition. To address this gap, The Power of Nutrition, a global charitable foundation fighting malnutrition in Africa and Asia, in partnership with Palladium, has launched Nutrition Ventures, a unique and transformational hub in nutrition that identifies, pilots, and scales innovative finance mechanisms that catalyse more money for nutrition.

Nutrition programs, which work to address malnutrition and promote optimal health through various interventions, often do so by improving access to nutritious foods, increase awareness and education about healthy diets and nutrition practices, and provide specialised interventions for vulnerable groups such as pregnant and lactating women, infants, and young children. Historically, these programs, have largely been funded by large donors like high-income countries, multilateral institutions, and foundations.

However, these institutions and organisations alone are not enough to close the annual financing gap.

Recent analysis conducted by Palladium for The Power of Nutrition, showed that the private sector is the most untapped financing source for nutrition. While there is appetite within the private sector to provide grant financing, what’s needed are deeper, strategic private sector partnerships and products that have the potential to really move the needle for nutrition financing.

Innovative finance has the potential to unlock these partnerships.

The last 10 years have seen significant growth in innovative finance in the international development space—development impact bonds (DIBs) have mobilised nearly half a billion dollars, and more than 600 ‘green bonds’ have been issued in the capital markets—but the nutrition sector has not yet harnessed this momentum in a meaningful way.

So, how can the nutrition sector tap into this wave of innovative finance products for development and apply them to nutrition?

Innovative finance creates scalable and effective ways of channelling both private money and public resources towards solving pressing global problems, from the simple and purely philanthropic gift or donation aggregation mechanisms to more complex and commercial instruments such as social bonds in capital markets.

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 instance, in treating severe acute malnutrition in children under five, pay-for-results mechanisms such as DIBs can be optimal for attracting new sources of funding, but transaction costs only make them viable at a meaningful size.

In those instances, in which the goal is to catalyse more capital towards local production of nutrition products used to tackle severe acute malnutrition (such as ready-to-use therapeutic food), it could be more appropriate to use de-risking mechanisms or blended capital structures with concessional terms.

It may seem that innovative financing for nutrition is the way forward, but adopting these mechanisms in the sector is not as straight forward as it appears. First, the design, structuring, and implementation of innovative financing solutions require a very specific set of technical skills (both in finance and nutrition), which are difficult to find together.

Further, investable and highly impactful opportunities are hard to source, as most of the current interventions are funded by philanthropic sources. Finally, successfully structuring an innovative finance deal in nutrition will require a multitude of stakeholders – implementing agencies, governments, philanthropic donors, multilateral and bilateral institutions, private sector investors, and / or corporates – to work collaboratively, which takes time and commitment.

Nutrition Ventures

Nutrition Ventures leverages the impact investing expertise of Palladium’s capital advisory team and the in-depth sector knowledge of The Power of Nutrition to intermediate in the innovative finance space.

“There is great momentum in this space – the power of innovative finance has already been proven in other development sectors and we are well placed to replicate this success for the nutrition sector,” explains Steven van Weede, Managing Director of Palladium’s capital advisory team.

The program takes a systems change approach to identify specific gaps and select the appropriate innovative finance mechanisms that address these gaps, bringing together a variety of stakeholders.

“The world is currently facing the worst food and nutrition crisis in modern history, so we must look to more innovative sources to plug the huge nutrition financing gap” explains Simon Bishop, Power of Nutrition CEO. “Nutrition has sadly always struggled to secure the funding it needs, despite being one of the best-buys in all international development. If we’re unable to capitalise on the huge opportunities of innovative finance, we risk compounding the ‘orphan status’ of the sector – we need to seize this opportunity, now more than ever.”

Scaling innovative finance in nutrition will be a difficult endeavour; one that will require focused effort and an appetite for risk. The opportunity, however, is strong given the interest in nutrition that exists from donors and investors Nutrition Ventures will be a pioneering force, at the forefront of building this field.

Read 'For Lasting Impact and Financial Profit, We Must Support Impact Zebras' or contact info@thepalladiumgroup.com for more information.