The impact investing industry stands poised for dramatic growth. The magnitude of that growth depends to a great extent on the degree to which the federal government will enact policy and regulatory changes to unleash the sector’s potential.

Take, for example, the La’i’Opua Health Center, a new 11,500-square-foot medical center being built in the Kealakehe community of Hawaii’s Big Island. In its first year, the health center—located in an underserved, low-income community—will provide medical and dental care to some 4,300 patients and add 25 full-time employees and another 10 part-time. The health center also serves as a catalyst for a broader area redevelopment plan that will include low- to moderate-income housing, a grocery store, a pharmacy, elementary schools, transit-oriented development, and a regional park. Yet the health center could never have been built without support from both private capital and public programs. The redevelopment plan relies on a bridge loan from the Nonprofit Finance Fund, matched with $10 million in tax credits from the federal New Markets Tax Credit program, and a grant from the Health Resources and Human Services agency of the Department of Health and Human Services.

Policy matters greatly. Government acts as regulator and standard setter, but also as coinvestor, risk mitigator, major buyer of goods and services, and sometimes as a market maker. The federal government exerts significant influence on where and how investors place their funds, regulating the use of pension funds, writing tax rules for foundations and others, and creating incentives to direct private capital. And the federal government is an extraordinarily powerful stakeholder with the ability to move and shape markets. It manages billions in domestic contracts, international development financing, and research funds; provides subsidies and credit enhancements; and builds market infrastructure.

With the leadership of forward-thinking policymakers, we can increase the efficiency and impact of public dollars, accelerate and expand the volume of private capital financing public goods, and use more of our country’s most talented entrepreneurs on fixing our most urgent problems. Indeed, numerous case studies throughout this report demonstrate that it is possible to apply the power and discipline of markets to public goals—and that smart policy can generate tremendous leverage on limited government funds. Today, investment areas once considered tenuous—from low-income housing to charter school development—have been proven, thanks to innovative partnerships between private-sector leaders and the government. By continuing to cultivate new and deeper partnerships, we have the opportunity to draw billions of dollars and untold amounts of entrepreneurial talent into the great task of solving our most persistent social problems and fostering economic prosperity for all over the medium and long term.