Posted in GreenBiz
February 9, 2022

How to harness the transformative potential of public-private partnerships


In November, political and business leaders, activists and nonprofits from around the world gathered at COP26. During those two weeks, many important solutions were proposed and meaningful deals were struck. An important consensus reverberated through the conference halls and across the media headlines: Addressing the climate crisis will demand more collaboration between the public and private sectors.

There is no question: The time is now. Developed market countries have missed the mark on their pledge to provide $100 billion per year of climate finance to emerging markets. Only a fraction (around 18 percent) that was provided has been tagged as “mobilized private” finance. Yet, over the last few decades, foreign direct investment by the private sector has eclipsed government aid (or overseas development assistance) into emerging markets. Economic transformation and the transition to low-carbon economies cannot happen without it. This private capital — along with capital catalyzed by increased net-zero pledges — needs to be harnessed to address society’s most pressing challenges. The private sector has to be at the table.

Image: EY Quest.

Of course, the call for more public-private partnerships isn’t limited to the climate crisis. You can name almost any pressing societal challenge, and it’s a safe bet that a public-private partnership has been proposed to address it. They seem to be the go-to institutional answer to address a range of social challenges from sustainable growth to upskilling the workforce, advancing diversity and inclusion and more recently, addressing the pandemic. They have transformative potential — but only if we get them right.

Walking a mile in the other’s shoes

The reality is that effective public-private partnerships are difficult to design; the two sectors have historically focused on delivering value for very different stakeholders, align around different objectives, work at a different pace and often speak very different languages. To collaborate effectively, both sides need to develop “multi-lingualism” and have a full understanding of the value the other brings.

Success will depend on whether business leaders can think like policymakers, and policymakers can think like business leaders.

The private sector needs to think more like the public sector

With the important momentum stakeholder capitalism is experiencing, the business community is redefining how it creates value. By focusing on creating value for all stakeholders, business leaders are more likely to prioritize societal goals such as reducing carbon emissions, upskilling their workforce, and creating more diverse and equitable workplaces. Moreover, many are going beyond transforming their organizations to focusing on systemic change, a goal that necessitates collaboration — with the public sector, peers and even competitors.

The reality is that we must think beyond what we can do alone and recast our ambitions to what we can do together.

The good news is that this type of thinking is leading to real change: the Glasgow Financial Alliance for Net Zero (GFANZ) recently garnered the commitment of more than 450 financial firms across 45 countries, mobilizing $130 trillion in assets under management, to help finance the global transformation to a low-carbon economy. The initiative includes commitments from individual organizations, including EY, to lower carbon emissions, but also includes collaborative, systemic efforts to accelerate private climate financing for developed and developing countries alike.

The good news is that this type of thinking is leading to real change: the Glasgow Financial Alliance for Net Zero recently garnered the commitment of more than 450 financial firms across 45 countries.

Similarly, the Sustainable Markets Initiative (SMI), an initiative co-chaired by HRH the Prince of Wales and Bank of America CEO Brian Moynihan, and supported by more than 250 global CEOs, seeks to scale the impact of private finance to accelerate sustainable development, inclusive of a taskforce with multilateral development banks to catalyze public-private collaboration.

This is the private sector thinking like the public sector — prioritizing societal change and mobilizing resources collectively to get there. Working together, the private sector can shift the global economy in a more sustainable direction — once the domain only of policymakers.

The public sector needs to think more like the private sector

At the same time, governments can do more to harness the power of markets to incentivize change. When it comes to public-private partnerships, that means forging market-based programs that create demand, spur creativity and incentivize innovation to meet shared goals. It also means bringing in private sector expertise and those who understand market incentives into public sector jobs to manage private sector participation. This would go a long way to help the public sector communicate and collaborate with the private sector.

A recently announced public-private partnership, the First Movers Coalition, is a good example of harnessing market incentives for the public good. The US Department of State and the World Economic Forum have gathered a group of companies to form a “buyers club” for emergent technologies in hard-to-abate sectors that reduce carbon emissions and contribute to sustainable transformation.

Supporting entrepreneurs, who have a long history of harnessing economic incentives to address entrenched challenges, is another way to direct economic activity to social good. For example, the U.K.’s Foreign, Commonwealth & Development Office collaborated with EY and Unilever to pilot new business models serving the needs of low-income households in sub-Saharan Africa and South Asia. The initiative encourages market-based solutions to some of society’s biggest development challenges, such as expanding access to clean water and health services.

Time for cooperation and collaboration

We all know this is not the time for siloed thinking, but for collaborative problem-solving. It is time for the private sector to collaborate to promote social good and seek systemic change, and for the public sector to facilitate market incentives. The private sector needs to speak the language of social change, and the public sector needs to create economic incentives to harness the private sector’s innovation and expertise to address society’s challenges.

With shared goals, targeted action and monitored impact, we can move beyond dialogue and aspiration to the co-creation of a more inclusive, prosperous and sustainable future.

February 9, 2022 at 02:09PM

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