Daniel Nowack, head of social innovation at the Schwab Foundation, speaks to Impact Investor about the growing gap between climate finance and health system resilience, and the opportunities for investment.
Ujala Cygnus, a healthcare company in India and one of more than 500 social enterprises supported by the Schwab Foundation | Ujala Cygnus
Climate change is reshaping health. It is expected to cause approximately 250,000 additional deaths per year, from malnutrition, malaria, diarrhoea and heat stress alone, according to the World Health Organisation (WHO). Yet despite the growing toll, health remains one of the most neglected areas of climate finance.
“If you think about climate finance, you tend to think about the trillions of dollars that are announced for climate mitigation each year, but only a fraction of that is directed at climate adaptation, and only half a percent to dealing with the health implications,” says Daniel Nowack, head of social innovation at the Schwab Foundation for Social Entrepreneurship, the Swiss non-profit launched by Klaus Schwab, founder of the World Economic Forum (WEF) and his wife Hilde in 1998, to drive social innovation at scale.
Daniel Nowack, Schwab Foundation
Nowack leads the organisation’s ecosystem engagement work. This includes the Global Alliance for Social Entrepreneurship, a network formed in 2020 in response to the Covid pandemic which brings together corporations, industry organisations, and the public sector in support of social innovators. He believes that climate finance is falling woefully short of meeting the health needs of communities negatively impacted by climate change across the world.
Multi-faceted challenges
According to the IPCC and the WHO, there are between 3.3 and 3.6 billion people today who live in areas highly vulnerable to climate change and related health risks, from malnutrition when crops fail to the emergence of infectious diseases, including zoonotic ‘spill over’ events such as the recent Ebola outbreak. The WHO also highlights the growing impact of climate change on mental health.
“We’re also seeing an uptick in heat stress-related disease and at the moment that is an area that is really underserved. But, there are also pressures on the infrastructure of the healthcare system,” says Nowack, who highlights issues of accessibility or building damage to healthcare settings in the aftermath of a flood for example. Energy access is also an issue.
Renewable energy access
“Renewable energy could provide a solution but the challenge for many hospitals and other healthcare facilities is that they don’t have working capital to actually make themselves climate proof,” says Nowack, giving the example of Ujala Cygnus, a healthcare company in India and one of more than 500 social enterprises supported by the foundation, that is helping to democratise access to affordable healthcare through a low-budget chain of around 30 tertiary-care hospitals across the country.
“The company operates on lower margins, which ultimately also means that they have limited cash flow to invest into infrastructure in those hospitals. There is very limited funding available to adapt this kind of infrastructure to the realities of climate change,” he adds.
Dwindling access to finance
Public funding is also running dry due to recent geopolitical instability and the continued burden of debt servicing, particularly in African countries – according to the UN over 40% of African countries allocate more funds to debt service than to health. The recent decline in overseas development aid (ODA) has only served to exacerbate the problem.
“So, at the same time as external shocks are getting more severe, funding is actually coming under increased pressure, particularly with the exit of USAID and the decline in ODA more broadly,” says Nowack.
The growing costs of inaction are also economic according to a report published in The Lancet last year.
“The report found that the earnings lost due to heat-related reduction in labour capacity alone rose to over $1trn (€942bn) in 2024 and that is likely to increase,” warns Nowack.
Rising to the challenge
Nowack sees a role for a range of impact investors to respond to the challenge.
“Obviously, you need grant funding to de-risk the first pilots, and if you’re talking about really early-stage innovations, there is a role for the venture capital-style impact investors to take on early risk. To unlock capital and develop new funds, first loss tranches provided by DFIs are helpful,” he says.
Later in a company’s development, Nowack would like to see greater participation of ‘at scale’ commercial finance, including local banks and private equity funds, noting that some of the early investment risk could be offset through outcomes-based financing.
“You can be infinitely creative in designing that capital stack but bringing the right stakeholders to the table is going to be tricky,” he says.
In relation to outcomes-based funding in particular, Nowack says one of the key bottlenecks to driving greater adoption of outcomes-based healthcare funding models is the time it takes to set them up as well as the transaction costs.
“It’s simply prohibitively expensive and time-consuming to set up these instruments in a corporate context unless you leverage purely corporate philanthropy or CSR. For companies to pay for outcomes, the sector needs to develop novel solutions,” he says, giving the example of the Common Good Marketplace, a platform listing audited and verified impact projects and their outcomes generated by social enterprises and non-profits. These outcomes are converted into standard units called verified impact assets (VIAs) which can then be traded, helping to unlock investment capital and advance the UN’s sustainable development goals.
“If structures like these mature, companies can, in the future, join uptake agreements, a form of guarantee where they promise to pay for a certain type of social impact once it’s proven and verified,” he says, explaining that “once in place, early-stage investors are more likely to invest into a particular social enterprise, given that this enterprise can later refinance part of its setup costs through outcomes payments.”
Data and metrics
Better data would also help to galvanise investment towards healthcare resilience.
“A lot of the health topics are linked to resilience but how do you measure resilience? Climate adaptation itself has been facing challenges in actually defining good adaptation in the first place,” says Nowack, explaining that the foundation is currently engaged in a project with the University of Cape Town to find data-driven solutions that will allow social innovators to gain better access to finance.
“One of the key challenges is that investors struggle to identify a scientifically proven intervention that works, that they can invest in and then scale,” he adds.
Opportunities in healthcare
In Nowack’s eyes, impact investors should be looking towards two types of healthcare enterprises to improve resilience in the face of climate change.
The first, is in concrete initiatives that have already reached a critical scale and are focused on improving healthcare access or levels of care for individuals. The second, is enterprises working at a systems level, supporting the overarching infrastructure needed to ensure an operationally sound and resilient healthcare system such as the Financing Alliance for Health. Headquartered in Nairobi, Kenya, the health financing specialist works with governments across Africa to set their own healthcare agendas and reduce dependence on development aid.
“They help governments to cost and create investment case toolkits by analysing what it would take to actually invest in a certain area or for a certain disease, and then calculating the best returns on investment for public sector finance,” explains Nowack, adding that the organisation is also working with community health workers and local NGOs to document how climate shocks, including heatwaves and floods, are disrupting primary and community healthcare.
“This will help governments understand where their biggest risk exposures are,” he adds.
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