FOURTH SECTOR DEVELOPMENT
CREATES BENEFITS FOR ALL
You may not have heard the term "fourth sector" before, but you've seen its impact.
Activated by societal and environmental concerns, for decades, millions of pioneering individuals and organizations have been reimagining and remaking systems of finance, enterprise, measurement, policy, production, consumption and more to better serve the common good. Impact investing, social enterprise, ESG reporting, venture philanthropy, circular economy, and blended finance are only a few examples.
This mosaic of innovations, involving countless organizations and networks around the world, is spurring the emergence of a new approach to economy and enterprise that combines the best of the public sector (governments), private sector (for-profit businesses), and third sector (non-profits). This evolution of enterprise has led to the blurring of the boundaries among these three sectors, bringing an additional fourth sector into focus. Viewed in aggregate, this burgeoning sector is estimated to represent as much as 10% of GDP in the U.S. and Europe.
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THE FOURTH SECTOR —
WHERE PURPOSE & PROFIT MEET.
"…the traditionally valid distinction between profit-based companies and nonprofit organizations can no longer do full justice to reality, or offer practical direction for the future. In recent decades a broad intermediate area has emerged between the two types of enterprise… It is to be hoped that these new kinds of enterprise will succeed in finding a suitable juridical and fiscal structure in every country.”
– Pope Benedict XVI,
Encyclical Letter, Caritas In Veritate, 2009
To see the vast array of organizations and activities that make up the fourth sector of the economy, it helps to take a 'bird's eye view' of the system. From this vantage point, we can see a new sector has been growing at the intersection of the traditional three sectors around the world for decades.
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For decades, pioneering organizations have been building the infrastructure of a new, purpose-driven sector that is blurring the boundaries of the three traditional (public, private and nonprofit) sectors. This emerging new fourth sector comprises purpose-driven or for-benefit organizations, which come in a wide variety of models, such as cooperatives, social enterprises, public benefit corporations, community banks, and community interest companies, among many others. (See diagram below.)
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For-benefit organizations have helped catalyze major business and policy innovations and given rise to impact investing, ESG reporting, venture philanthropy, sustainable business, the circular economy, and other transformative fields and practices. For-benefit organizations are uniquely capable of addressing some of the world’s most pressing challenges, like the ones we face now, by melding the purpose-driven focus of the public and nonprofit sectors with the scale and efficiency of the private sector.
The size and influence of the fourth sector is already significant.
Organizations operating in this emerging sector of the economy are estimated to account for as much as 10% of GDP in the U.S. and Europe, and there are tens of millions of startups in the fourth sector launched each year, and a growing number of for-profit organizations are shifting toward a purpose-first, stakeholder-centered model.
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Now more than ever, this sector of the economy is needed. The for-benefit organizations that currently make up the fourth sector deliver healthy food, affordable healthcare and housing, quality education, green transportation and energy, digital access, social services, water and sanitation, financial services, and countless other essential products and services. At the same time, they create quality jobs, pay taxes, make investments, contribute to countless causes, and innovate new products in areas often unidentified or under-prioritized by traditional markets — like low- priced medicines and medical equipment.
What for-benefits need is to scale, but the obstacle for scaling is the lack of a supportive ecosystem. And while all actors and sectors have roles to play in developing such an ecosystem, now is the time for governments to take action. The question is: what can and should they do, and how can we help them do it?
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To answer these questions, allies are joining our COVID-19 Fourth Sector Response effort. We're creating pathways to help the fourth sector scale, so that the planet has a plan to respond to the tough challenges we face, while also rebuilding our economies better.
WHAT ARE
FOR-BENEFITS?
A growing and diverse class of enterprise pursuing social and environmental aims as their primary purpose.
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“For-benefit” or “purpose-driven” are generic terms that refer to a wide range of emerging enterprises with a primary commitment to social and environmental purpose, while earning revenues by selling products and services. These hybrid business models are creating a new fourth sector of the economy. Now more than ever, we need to build a supportive ecosystem for for-benefits to unleash their power to address the world’s most pressing challenges…
Legacy "3-sector thinking" and the lack of an ecosystem.
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The growth of the fourth sector is constrained by legacy "three-sector thinking." This perpetuates the lack of a coherent and cohesive supportive ecosystem for the sector — including policies and regulations, financial markets, measurement and reporting standards, among other enabling conditions...
For decades, demands for a systemic shift have been growing
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Calls for system change were growing louder before COVID-19 breakout. Today, they have become a survival imperative. Recognizing, supporting and leveraging decades of social innovation and widespread demand to spur sustainable and equitable economic growth must become a priority for national strategies to achieve the SDGs…