5 Actions Governments Can Take to Build Impact Economies

Our economic system has been on the brink for decades, now operating at the very limits of its own capacity amid climate change, widening inequality, and accelerating biodiversity loss. What stands in the way of addressing these challenges is not the lack of capital: more than USD 270 trillion is currently allocated in private financial markets globally and could be redirected to finance more resilient public infrastructure, higher-quality education systems and climate adaptation and mitigation efforts. Rather, the core problem lies in how the public good has long been perceived and understood.

For much of the past century, our economic systems have been treated as detached from the public good - as if the decisions and activities of businesses, investors, and consumers had no consequences for society as a whole - and the responsibility for collective wellbeing was relegated to governments alone. Preventing our system from collapsing requires us to challenge both premises head-on, building economies that deliver long-term prosperity for people and the planet and breaking down the silos that prevent public and private actors from working together in pursuit of the common good.

Governments hold the key to drive this paradigm shift: while they do not have the resources to tackle all the complex challenges of the 21st century on their own, they hold the power to shape the incentives, activities and behaviour of key market players across the economy. Through the strategic use of policies and regulation, they can align spending, investment, and consumption decisions with the goal of building more resilient economic systems, with impact considerations at their core.

This article offers a practical guide for policymakers seeking to move from theory to practice and work with markets to deliver more (and better) for the public good. Drawing on more than a decade of experience working with governments, investors, and social entrepreneurs across nearly 50 countries, GSG Impact identifies policy levers that have proven effective on the ground in building impact-driven economies. The five actions outlined below -from untapping domestic capital for community benefit to implementing outcomes partnerships- share the same common goal: embedding social and environmental impact at the heart of economic decision-making.

1. Creating incentives and enabling conditions to mobilise institutional capital at scale

With asset managers overseeing around USD 139 trillion globally and pension funds managing tens of trillions of dollars in long-term savings, there is a vast pool of private capital that governments can help steer towards the public good. The use of targeted fiscal incentives, that reward investors for financing impact-driven projects and businesses offer an effective way to do so, as illustrated by the UK's Social Investment Tax Relief (SITR), which mobilised over GBP 11.2 million in investment for social enterprises over the past decade.

Beyond tax incentives, governments can foster enabling regulatory environments that facilitate the flow of institutional investors’ capital towards the areas where it delivers the greatest value for society as a whole. By clarifying that investors’ fiduciary duty - the obligation to act in the best interest of beneficiaries - also encompasses the consideration of climate- and social-related risks and opportunities, and not only financial returns, governments can help ensure that capital in the financial system supports investments that are both profitable and aligned with sustainable development and long-term economic growth. Some public pension funds have already embedded this interpretation into their investment policies: for example, Japan’s Government Pension Investment Fund (GPIF), which manages approximately USD 1.7 trillion in assets, explicitly requires the integration of non-financial factors into every investment choice.

2. Unlocking citizen's savings and dormant bank accounts for community benefit

Citizens’ savings and dormant bank accounts also represent major untapped sources of capital that could be leveraged to finance local development. As demonstrated in the United Kingdom and Japan, regulatory reforms can unlock millions in unclaimed assets, which in the UK helped capitalise the world’s first social investment bank. Furthermore, governments can develop investment funds that allow citizens to channel their savings towards priority projects, as illustrated by Chile’s Ecological Mutual Fund, created by the state-owned bank BancoEstado to enable citizen investment in local green bonds.

3. Mandating impact transparency

Governments can also use regulation strategically to require companies, investors, and financial intermediaries to measure, manage and disclose the social and environmental impacts of their activities. Through mandatory sustainability disclosure regulations – such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), or the more than 39 jurisdictions that have taken steps towards adopting the International Sustainability Standards Board (ISSB) standards into their national regulation - governments can expand and improve the quality of information available to investors and consumers on the impact of their decisions. In doing so, they can help shape their behaviour and hold both companies and investors to account.

4. Recognising impact-driven businesses through specific legal forms and certification schemes

With around 10 million social enterprises worldwide - generating approximately USD 2 trillion in annual revenue and spanning across sectors such as healthcare, education and renewable energy - policymakers have a compelling opportunity to enable the growth of impact-driven businesses and amplify their role in contributing to solve public problems at scale.

One effective way to do so is by establishing dedicated legal forms for purpose-driven businesses or public certification schemes, as countries such as Italy, France and South Korea have done. These frameworks allow social enterprises to credibly signal their social mission, making it easier to attract investors, be recognised as eligible suppliers in public procurement tenders, and strengthen market trust. In some cases, when combined with fiscal incentives – as in the case of Colombia where tax reliefs are linked to this specific legal form – they also encourage more companies to embed impact into the core of their business models.

5. Placing outcomes at the heart of government spending

Ultimately, governments need to rethink how they purchase goods and services and deliver on their mission. With public expenditure accounting for over 40% of GDP across OECD countries, maximising the impact of every dollar spent is a strategic response in the face of persistent fiscal constraints.

Outcomes partnerships -such as Social Impact Bonds (SIBs) and Outcomes Funds- offer governments a practical way to place outcomes at the centre of public service delivery by shifting the logic of public spending from paying for activities to paying for predefined results. First pioneered in 2010 in the United Kingdom, these innovative financial mechanisms link public payments to measurable outcomes, with private investors providing upfront capital to finance social programmes and governments paying only once pre-agreed results are achieved. With the potential to deliver up to nine dollars of public value for every dollar invested, these models have enhanced public sector effectiveness across sectors such as education, employment and health – ranging from improving children’s literacy and numeracy skills in Sierra Leone to expanding employment opportunities for vulnerable populations in Colombia.

The direction of travel is clear: a better world requires Impact Economies. We know our envisioned destination and how to get there. What is needed now is to translate intent into action. For more real-world examples on how governments can leverage policy and regulatory tools to advance the transition towards economies that put impact at its core, take a look at GSG Impact's Policymakers’ Toolkit.