Authors: Ilaria Giabbani, Alberto Melis.
With the imminent launch of multiple Covid-19 vaccines on the market the end of the pandemic, that has been pressuring our health, economic and political systems, finally appears to be within reaching distance. Yet, the safe return to social interactions will be far from immediate. As WHO director Tedros Adhanom Ghebreyesus recently reminded us “No one is safe until everybody is safe”, hinting at the fact that our social and economic life will fully resume its course only if access to immunization will be granted to the population on a global scale. This requires an unprecedented effort to coordinate logistic systems for distribution, health systems for administration and, while it may be less obvious, financial systems for funding. This article will explore how some “social” investments as vaccine bonds can speed up the transition to a post-Covid life, and possibly save thousands of lives in the process.
The cost of immunization
Global health organizations estimate that immunizing the entire population against Covid-19 will require around $25 billion. While high income countries are already bidding pharmaceutical companies to purchase the highest number of vaccine doses in the shortest period of time, least developed countries lack the resources to secure an appropriate share of Covid-19 vaccines and to successfully deliver them in a capillary manner to the population. The problem of low immunization rates in LDCs is far from new. Indeed, such countries have long been plagued by epidemics caused by diseases that have almost entirely disappeared in areas of the world characterized by a higher level of development. For instance, as late as in 2000 over 30 million children lacked access to basic vaccines including those against measles, polio and meningitis. The Global Alliance for Vaccines and Immunization (GAVI) operates in these contexts.
GAVI and immunization programs
GAVI has 20 years of experience in immunization programs. Founded in 2000 with the financial support of the Bill and Melinda Gates Foundation, the main aim of the organization is that of combining the efforts of private philanthropists, sovereign governments, and international organizations (the WHO, the World Bank and UNICEF) to improve access to both newly developed and currently available vaccines in low income countries. The impact of GAVI on the vaccine market is twofold: on the one hand, it catalyzes the entrance of suppliers in the market and fosters competition; on the other, it prompts pharmaceutical industries to abate the price of vaccines sold to low income countries due to the large-scale aggregation of demand. Importantly, GAVI does not act as a direct health supplier and does not substitute governments and local facilities in the provision of health services. On the opposite, it actively supports beneficiary countries by boosting the capacity of their health systems and civil society organizations to deliver life-saving vaccines, with the final aim of rendering them independent from GAVI’s support.
The IFFIm and vaccine bonds
At the heart of the functioning of GAVI is a vital financial tool, the International Finance Facility for Immunisation (IFFIm). The IFFIm turns long-term pledges of private and public donors into traditional marketable bonds, with the World Bank acting as a treasurer. The money collected in the financial markets provides capital immediately available to GAVI to finance all its initiatives: more than 20% of the Alliance’s total funding comes from the IFFIm. In other words, when private investors acquire vaccine bonds, they offer the amount of money required up-front for immunization programs and receive a positive yield (0.44% in the latest bond) in the subsequent years. In a financial context dominated by negative or null returns, these opportunities are very well accepted by the financial community. In addition to this, the credibility of the IFFIm and the strength of the pledges (mainly UK, France, and Italy) ensure a very solid credit rating (AA-, Aa1, AA) and a low default risk. IFFIm’s ratings are also supported by the conservative financial policies and risk management of the World Bank, which limits the institution’s net debt as a percentage of the net present value of pledges (to a maximum of 58%).
Greenwashing and vaccine bonds
Environmental, social, and corporate governance (ESG) investing has become more and more common as investors are increasingly willing to put their money in financial assets that also generate positive social spillovers. While these investments used to be rare in the past decades, it is now almost impossible to come across a company or organization which does not endorse sustainability in some dimension. In this context, investors face the arduous task to distinguish serious commitments from greenwash (apparent environmentalism producing no real outcomes on the planet) and other vague or void sustainability claims. On the opposite, Vaccine Bonds offer investors an unambiguous purpose backed by the credibility of international organizations. With such high credit ratings, vaccine bonds can easily act as a risk-free component of many ESG funds, which, in a recent study, have also been found to outperform their non-ESG equivalents.
Discussion
As the interest in social sustainability grows, social bonds are becoming increasingly attractive to investors. Among them, vaccine bonds have been described by the Wall Street Journal as “One of the most successful social-bond efforts to date”. Private capital raised through vaccines bonds has already helped GAVI to save 13 million lives. Yet, the prominence of the organization is likely to increase in the upcoming years. As a matter of fact, GAVI has teamed up with the World Health Organization (WHO) and the Coalition for Epidemic Preparedness Innovations (CEPI) to establish a COVAX Facility aiming at granting equal access to Covid-19 vaccines to all countries, irrespective of their purchasing power and capacity. For GAVI, this will entail extending its operations to countries that have never before been eligible for its support. For these reasons, vaccine bonds are likely to continue playing a prominent role in the imminent future both on financial markets and in the field of healthcare.
What do think about this synergy between finance and healthcare? Would you prefer similar investments to more traditional corporate stocks? Let us know in the comments.
Photo by Markus Spiske on Unsplash
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