Accelerating the Impact Economy Through Investment and Innovation

The US State Department is working to accelerate practices and thinking around the impact economy—an economy in which government works with civil society and the private sector to create positive social and environmental impact while generating economic value. The following article is part of a series written by participants in Secretary of State Hillary Clinton's Global Impact Economy Forum in Washington, DC, April 26-27.

Today at the US State Department in Washington, D.C., we are convening leaders across sectors and continents to discuss how we can work together to contribute to an impact economy by developing and deploying cutting-edge business and financial models that generate financial returns and positive social and environmental change. During our travels around the world, we have seen different institutions trying to address the same issue through disconnected programs—be it lack of skilled workers, sustainable supply chains, infrastructure, or the rising cost of natural resources. We know that government alone cannot solve these challenges—not in the best of times and certainly not in austere times; nor can business or civil society. We need to leverage and align the assets of multiple partners to achieve our common goals.

From our perspective, it is also increasingly evident that we need to engage in a different type of economic statecraft to position ourselves in the global marketplace and to adapt to global trends. Today 95 percent of the world's consumers live outside the United States. Increasing exports and creating long-term economic relationships with countries around the world is an effective way to spur growth, encourage investment, and create jobs at home.

We see the US State Department’s ability to catalyze and scale the impact economy as a tremendous opportunity to address investment in a way that enables the United State's greater foreign policy goals and creates sustainable value for business. Markets that focus solely on short-term results are not in our collective interest. Short-term incentives distort behavior, creating public consequences that can undermine the long-term health of our markets, our economy, and our way of life, as we recently have seen. The good news is that people are waking up to this problem, and behavior is beginning to change. This transformation has the potential to be as significant as the green revolution and the industrial revolution—where we take a longer-term view and enable a new era of sustainable economic opportunities.

When companies proactively integrate environmental and social impact into their business models, they are well positioned to provide investment performance over the long term as well as to affect corporate and ultimately market behavior for the greater social good. That’s why the US State Department is focused on the impact economy—because we believe that the more the market moves toward incorporating the externalities of doing business and advancing the impact economy, the more our foreign policy goals of good governance, stability, and inclusive economic growth are accomplished.

The challenge now is to understand how the government can facilitate the impact economy ecosystem and scale the innovations and partnerships needed to achieve sustainable, long-term growth. Governments have several tools at their disposal, such as credit guarantees, investment services, tax incentives, and regulations, to encourage the private sector to deploy sustainable business models. How can we better utilize these tools to incentivize firms to put into place long-term sustainability measures and to create new products and practices?

How can governments help facilitate a better understanding of real versus perceived risks in emerging and frontier markets? Aid organizations, development finance institutions, and civil society organizations have long-standing experience in and knowledge of these markets that can and should be leveraged. How can this be done more efficiently?

How can the government provide risk-taking capital and facilitate the work of intermediaries that are needed to create and scale financial and business innovations that yield simultaneous value for business and society?

A key barrier of entry into emerging markets is often the lack of on-the-ground knowledge and networks. The US State Department has local expertise and strategic position through US embassies to serve as a connector and to help the private sector and civil society make a difference. This isn’t a new role for government. The US Defense Advanced Research Projects Agency (DARPA) project that developed the seeds of the Internet, engaged researchers from many universities and companies to work together. Their collaboration spun off countless other innovations and new companies. The Human Genome Project, the Apollo Program, the Manhattan Project—none of these would have been possible without government convening experts who might otherwise be competitors to work together on a single project. Now we have to determine how we can do this again and more often.

Today’s forum is the beginning of a process and signifies a change in how we are doing business. The US State Department has been translating languages for more than 200 years. Now we have to serve as a translator among government, business, and civil society and to create uncommon alliances to solve common problems. We don’t claim to have all of the answers, but we are asking for your help as we move forward in our efforts to expand and scale the impact economy.

Read more stories by Kris Balderston & Lala Faiz.