The 21st century has so far been marked by major challenges. Climate change, a global pandemic, and war in Europe have tested EU Member States’ resilience. The financial burdens imposed by this succession of crises are a huge test for Europe. Cooperation between the public and private sectors is essential to help shoulder that burden.
The need to accelerate the climate and energy transition in Europe has become clear. Over the last 40 years more than 138,000 people have died in the European Union due to extreme weather and other climate-related events and these events have led to financial losses of more than US$590 billion.1 Over the next 50 years, the global economy could face a staggering cost of US$178 trillion due to climate change2 and, according to the World Bank, climate change may force approximately 216 million individuals to migrate worldwide by 2050.3
The Russia-Ukraine war has already prompted an acute humanitarian crisis, with around 13.7 million Ukrainians leaving the country since February 2022.4 Of those that didn’t re-enter Ukraine, 4 million were benefitting from the EU’s temporary protection mechanism at the beginning of 2023.5 Just like the deep humanitarian costs of the war in Ukraine, the economic cost is tremendous. An assessment released in March 2023 by the government of Ukraine, the World Bank, the European Commission, and the United Nations reveals that the estimated cost of reconstruction and recovery in Ukraine has skyrocketed to US$411 billion (approximately €383 billion).6 It is estimated that in 2019 alone, the cost of conflicts and wars amounted to approximately US$14.4 trillion globally, equating to a daily cost of approximately US$5 per capita.7 Moreover, almost 100,000 people die every year due to direct violence in wars.8
The crises described above require huge investments for prevention and mitigation. Tackling them, as well as many of the other challenges Europe will face, requires a paradigm shift. The public and private sectors need to work together to respond.
When public and private actors collaborate, social welfare is higher, provided the right enabling conditions and incentives are in place. The benefits are:
The benefits of public-private collaboration are mirrored by the costs of noncollaboration when players act in an isolated manner.11 To fully grasp the origin of these costs, it is helpful to introduce the concepts of individual, synergistic, and social costs, and individual, synergistic, and social benefits (figure 2).
In essence, social benefits are the sum of individual and synergistic costs. Individual benefits and costs are those that players are aware of when acting in an isolated manner: they directly influence or impact the actions of the player. Conversely, synergistic benefits and costs are those that are not apparent to the players when acting alone and only become explicit when players collaborate.
The synergistic component is especially important for benefits because the nature of synergism is that the total effect of two players collaborating is greater than the sum of the individual effects. That is, an additional value arises from the joint action of the two.
We define the equilibrium as the point where benefits equal costs. Considering that external costs are imposed on society even if they are not apparent to the players, we only consider the social cost curve for the equilibrium. On the other side, there are two distinct benefit curves, depending on whether players collaborate or not. If players collaborate, they will consider all benefits. If they don’t, they will only consider those benefits that are apparent to them as individual players.
This rationale can be applied to the case study of the pandemic, where all players suffer the negative impacts, regardless of the individual benefits to mitigate the pandemic.
Therefore, two equilibria are possible – one where players do not collaborate (social cost equal to apparent benefit) and one equilibrium where players collaborate (social cost equal to social benefit).
Until we reach equilibrium, investments to address the challenges create temporary losses, as costs outweigh the benefits. From this point onwards, the net present value of these investments is positive.
In both the scenario of collaboration or the scenario of noncollaboration, there is a point where the investments to address the challenges start to pay off and the benefits outweigh the costs. However, it becomes clear that when players collaborate an equilibrium is reached faster.
In the COVID-19 pandemic both the development of vaccines and the vaccination process were greatly accelerated by collaboration, as the public and private sectors pooled resources and scientists and industry combined. The support provided by the public sector to pharmaceutical firms and research institutions led to the development of vaccines in record-breaking time, and in many countries, the vaccination process was carried out with remarkable speed. As a result, nations were able to address this emergency more quickly and effectively. The loss of human life was greatly reduced, as well as the damage to the global economy.
The fact that an equilibrium is reached faster when the players collaborate implies higher social welfare. In this context, social welfare is intended as the net impact of players’ actions to address the challenges–the difference between the benefits achieved and the costs incurred. Social welfare is higher because collaboration prevents substantial costs–costs of noncollaboration.
The concept can also be demonstrated based on other examples:
Below we set out examples of where public-private collaboration has contributed to a quicker mobilization of funds, meaning that the most complex challenges are addressed, and technological development in critical and strategic areas is achieved faster. This collaborative approach drives innovation, overcomes obstacles, and delivers impactful support to the affected communities.
The Dutch Fund for Climate and Development (DFCD) consortium,12 established by the Dutch government in 2019, works with the private sector with the objective of increasing the climate change resilience of developing countries. The consortium is managed by the Climate Fund Managers, the World Wide Fund for Nature-Netherlands, and the SNV Netherlands Development Organisation, and is led by the Dutch Entrepreneurial Development Bank. Its primary goal is to attract public and private capital for projects that can have a measurable impact in the least developed countries which lack sufficient funding to address climate change challenges. The consortium focuses on three facilities: land use, water, and origination. Through both private and public funding, the consortium has already made significant contributions. For example, over 12.5 million people have gained access to clean drinking water and more than 100,000 hectares of forests, wetlands, and farmland are now sustainably managed. Over €500 million in private finance has been mobilized and 40,000 tons in CO2 emissions have been abated.
The First Movers Coalition,13 formed by the US Department of State and the World Economic Forum in 2021, brings together companies committed to using their purchasing power to promote innovative clean technologies. Eighty-two coalition members share a commitment to reducing the world’s carbon emissions. In addition to private companies, government partners including the US, Japan, Canada, Norway, Denmark, Singapore, Germany, Sweden, India, UAE, Italy, and the UK are also significant members. The coalition's global efforts are concentrated on seven priority sectors for reduction in carbon emissions: aluminium, aviation, carbon dioxide removal, cement and concrete, shipping, steel, and trucking. This unique public-private collaboration seeks to integrate market incentives into the decision-making processes by forming a “buyers club” for emerging technologies with the objective of boosting their development and adoption.
The Windfloat Atlantic project14 is Continental Europe’s first floating offshore wind farm, being located in Viana do Castelo, Portugal. The company responsible for the development, construction and operation of the project is Windplus, S.A, whose sponsors are: Ocean Winds, an international company created as a joint venture between EDP Renováveis and ENGIE and dedicated to offshore wind energy; Repsol; and Principle Power Inc., a global energy technology and services company. Recognizing the project’s economic, societal, and environmental value, the European Investment Bank provided a €60 million loan15, through a special facility targeted at developing “first of a kind” projects. The wind farm already supplies electricity to approximately 25,000 Portuguese households annually, preventing the emission of 33,000 tons of CO2 per year. This partnership between public and private entities has not only facilitated the deployment of an innovative solution but has also supported the development of other emerging technologies capable of significantly reducing carbon emissions.
The Support Ukraine Now (SUN)16 initiative serves as an example of the transformative potential of public-private collaboration in addressing the challenges arising from the war in Ukraine. By bringing together actors from civil society, business, and government, including the Cabinet of Ministers of Ukraine, the Global Shapers Community, and the World Economic Forum, SUN has effectively responded to urgent needs on the ground. One of their successful crowdfunding campaigns has raised €54,858, providing 187 bulletproof vests for the Ukrainian Armed Forces. This collaboration not only offers immediate support but also nurtures a sense of shared responsibility and ownership, allowing for the mobilization of resources and innovative approaches to tackling the complex challenges faced by Ukraine.
The efforts by the UN High Commission for Refugees (UNHCR17) and the International Committee of the Red Cross (ICRC18) in addressing the humanitarian crisis in Ukraine highlight the significance of continuous and sustained support. Both organizations actively engage the private sector and governments, delivering aid to those forced to flee. This joint effort acknowledges the need for long-term engagement and collective action to meet the ongoing needs of affected individuals and communities.
Turkey's Disaster and Emergency Management Authority (AFAD)19 exemplifies the power of public-private collaboration in tackling disasters and emergencies. By effectively coordinating efforts among universities, public institutions, the private sector, and nongovernmental organizations, AFAD has raised awareness about disaster risks and reached over 32 million citizens through awareness activities. AFAD’s integrated planning approach and modular structure has minimized operational risks as it coordinates Turkey's response to devastating earthquakes and floods. Additionally, AFAD has provided crucial humanitarian assistance to over 50 countries worldwide.
It is important to recognize that past public-private partnerships in Europe have encountered problems that prevented them from having the beneficial impacts they might have had20. Consequently, it is essential to ensure that the right conditions are in place when the public and private sectors collaborate, learning from previous experience and understanding the best approach for governments and the private sector to take. It should be noted, however, that there is no one-size-fits-all solution since the conditions for a successful collaborative arrangement depend on the type of arrangement, the context of the collaboration, and the characteristics of each participant.
Based on a comprehensive analysis of examples, coupled with valuable insights gained from discussions with key stakeholders under the Reshaping Europe Initiative,21 we have derived several guidelines for promoting successful public-private collaboration arrangements.
Public-private collaboration will be shaped heavily by the role governments play. Proactive action by governments promotes success and faster equilibria. A reactive approach reduces the impact public-private arrangements can have.
Here we summarize a set of actionable steps that governments should consider when making strategic decisions. The steps encompass a variety of domains relevant to ensuring success in public-private collaboration. As a result, Deloitte has developed the GEEAR framework23 with an emphasis on governance, the ecosystems of the players involved, enablers of success, governmental approaches, and regulatory considerations. We set out the central principles below:
All in all, the public sector should become more adaptive to a changing world, with a mindset that fosters more collaboration with the private sector. It means creating trust on both sides, a sense of commitment, alignment of priorities, and pooling resources together toward the most complex and pressing challenges we face. It’s an opportunity to reach the most socially desirable outcome sooner rather than later.