Banking on Impact: How Government Can Save Money and Improve Outcomes by Engaging the Impact Economy
Director, GovLab, Deloitte Consulting
June 8, 2014 | 2252 views
Have you ever wondered whether government has a role to play in the impact economy? Deloitte has, and they believe that everyone from impact investors to social entrepreneurs should understand what government can do to grow the space. For this special bi-weekly series, the Skoll World Forum and Forbes have partnered with Deloitte to discuss policies, politics, and possibilities for government to accelerate the impact economy.
June 8, 2014 | 2252 views
So far, this series has discussed the Impact Economy in some detail by: providing a general overview, looking at the actors in the space, demonstrating why it matters to government and looking at what is working in other countries. For the final post in this series, we’ll examine three ways that Governments have secured cost savings and increased impact through exercising powers central to their daily course of business:
Removing barriers for businesses seeking to do good
In some cases government can enable public good by clearing out old laws and the regulatory burdens that inhibit the deployment or growth of social innovations. Government has often attempted to address transportation challenges with expensive multi-year infrastructure projects that are ill suited to address fast-moving trends. Fortunately, social innovators are stepping in to help. A single car sharing vehicle can be used by 6-10 households and deals like Car2Go’s agreement with the Washington, DC Department of Transportation can bring in revenues of up to $600,000 annually. By partnering with transportation sharing companies to provide parking, clear guidance, and a flexible regulatory environment, governments have driven down costs and created additional choices for consumers without sacrificing quality of service.
Buying results, not prescribing approach
Governments facing budgetary pressures often defer or avoid capital investments, even though they are likely to generate positive returns over time. To solve this issue, The Department of Energy created the Energy Savings Performance Contract (ESPC), agreement between a Federal agency and an Energy Savings Company (ESCO), a business set up with private capital to retrofit federal real estate with energy saving technology
The ESCO is charged with developing an energy saving project, arrange financing, and reducing energy waste, to save federal facilities millions annually. After the ESCO delivers the guaranteed cost savings, the additional savings accrue to the company. So far the Federal ESPC program has resulted in $7.2 billion in total guaranteed savings and 103 billion kilowatts in energy savings, the equivalent of powering all the households of Los Angeles for a year. This program required no government capital expenditure, saved billions, and contributed to a better environment for all. By setting the goals, but not over engineering the process, Government can benefit from private sector innovations for public good.
Convening private sector expertise and capital
The community development sector has a wealth of private sector experience and capital that government can tap. Governments alone do not have the knowledge or funding to build the quality and quantity of housing needed. By leveraging public funding through a combination of tax credits and grants, Enterprise Community Partners (ECP), a nonprofit leader in providing capital for affordable housing has increased affordable housing stock far beyond what government could have built with its original investment. ECP has invested $13.9 billion in communities with only $169.2 million in direct government grants. This has resulted in 300,000 homes built or preserved and the creation of 435,000 jobs over its 31 year history.
Of course, not all partnerships can replicate these kind of successes, but the three ways government can leverage the Impact Economy, as convener, regulator, and buyer, can be great ways to unlocking improved outcomes for citizens at lower cost. Whether cutting government costs, increasing social impact, or even simultaneously achieving both, impact investors and social entrepreneurs are playing a bigger role than ever in the public sector. If you would like to read more about steps government can take to grow the impact economy, check out our recent report, Government and the Impact Economy.