by David Bruce, Tina Butler, Brian Bishop and Jennifer Boynton
Policies developed by the Obama administration need to integrate an entrepreneurial approach, government support, and the community in order to fully realize the triple bottom line. With full participation, we can successfully move beyond the Triple and create an integrated bottom line wherein social, environmental and financial benefits are all achievable at the same time
One of the biggest barriers to adopting an integrated bottom line into a traditional business model is agreement on how to quantify the value of environmental and social benefits. Another significant challenge is the ability of investors to capture a return on social benefits. The consequence of these barriers is that projects that can have major gains for a community may not be considered feasible by investors. Developing a community center, for example, with a caf√©, bookstore, farmer’s market, light industrial, and residential housing could have great benefit to a struggling neighborhood by providing jobs and services and drawing other businesses to the neighborhood. But the high cost of capital means a net negative return to investors over a typical payback period. As a consequence, such a project is not considered viable even though the net return for all stakeholders is positive. Our current system only measures benefits of such a project based on the financial returns to the investor. The external benefits like more jobs and services for a community are not captured unless the local government is brought in as a player.
Social investments are the domain of the government.
But even when a government is willing to invest in entrepreneurial projects, the conventional wisdom of the separation of government and business prevails and the involvement is limited primarily to subsidies. This allows the private investor to undertake projects with smaller returns, but the value to the community is questionable as stakeholders are left out of the process. What we need today is a greater involvement by the government to effectively employ resources for the benefit of the community while taking advantage of the dynamism and flexibility of the free market.
The private sector is very efficient at producing economic activity but with a limited view of returns and risks.
By partnering with a government entity, an enterprise can responsibly also consider social and environmental returns that are not normally the domain of the free market. The government is the partner that reaps the social, environmental and external financial returns of the investment and the private party reaps the direct financial returns. The government body would be the capital investor controlling the long-term assets and overseeing their sustained use, and the private body would control the operations and oversee the short-term economic activity.
This unconventional model has several benefits.
First, projects that in the past did not return sufficient returns to investors to pay for large capital investments, but have good returns to the community at large suddenly become viable.
Next, problems with accounting for hard-to-measure external benefits now become the exclusive domain of the government with its responsibility to stakeholders, and not a private party whose concerns are primarily to stockholders and managers. Other problems such as paying absurdly high bonuses to management, which can reduce the social benefits of a government investment, can be addressed in the structure of the partnership. Some control over the practices of the enterprise is necessary to ensure the effective allocation of resources. If the government owned the capital and dictated the terms of its use, guiding principles could be enforced.
Creating a model for government and private enterprise for social returns is a task that must be undertaken by the new administration.
The problems we all face from economic, to social, to environmental are at or perhaps beyond a critical tipping point. Our leaders appear to be unable to use the tools at their disposal to turn our fate around. An integrated approach is a potent tool that combines the power of the Government with the dynamic insight of the entrepreneur in a synergistic model for the future. The New Deal of the 21st century, it is an opportune time to experiment with this idea. As students of the Presidio School of Sustainable Management, we are acutely aware of the failures of the current system and are particularly suited to address the concerns and develop solutions for projects with integrated bottom lines.
Readers, what do you think? Post your ideas here, and we will be eager to read them!
The Presidio School of Management offers MBAs and Executive Certificates in Sustainable Business. The opinions expressed here are those of the individual authors.
Image courtesy of Vanity Fair