Rationale & Strategy
The Opportunity and Challenge
The fourth sector, if scaled properly, will offer a significant response to a wide array of complex social, environmental, and economic challenges the world is facing. Its development and growth are essential to achieving more sustainable, inclusive, resilient economies.
While there is a dearth of data on the sector, it is estimated that it already accounts for at least 10 percent of GDP in the U.S. and Europe, and is growing jobs almost twice as fast as traditional for-profit firms. The fourth sector is poised to grow rapidly, due to strong demand for business models that are aligned with societal benefit among consumers, investors, employees, managers, and millenials. And the fourth sector has the potential to unleash entrepreneurship and innovation at a massive scale. According to the Global Entrepreneurship Monitor, there are tens of millions of social enterprise startups (i.e. fourth sector enterprises) being launched around the world each year.
All this potential for growth is welcome news, because the urgency and scale of the problems to which the fourth sector is a response are immense. This is reflected in the adoption of the Global Goals for Sustainable Development (SDGs), which leaders from every country signed onto in a remarkable historic achievement in September 2015. The SDGs are a comprehensive set of goals which aim to mobilize a rapid global response to the critical challenges the world is facing, aiming to end poverty, fight inequalities, protect the planet, and ensure prosperity for all by the year 2030.
In order to achieve the SDGs, the World Bank has estimated that tens of trillions of dollars of private finance and investment need to flow into enterprises across the world that deliver strong social, environmental, and economic impacts. Many of these enterprises are not traditional profit-maximizing firms, but rather for-benefit enterprises whose purpose is to deliver public benefit.
What will it take for the fourth sector to scale so much, so quickly?
The key is the sector’s supportive ecosystem. There is clearly great demand from all corners to drive fourth sector growth, so that is not the challenge. The reality, however, is that despite all the advances the fourth sector has made and the growing support and recognition it has been receiving, for-benefit enterprises still face significant market and policy barriers because they do not fit into traditional for-profit or nonprofit molds. If they are to deliver on their full potential and achieve scale, for-benefits need access to their own well-developed supportive ecosystem—capital markets that seek positive social and environmental impacts, enabling laws, accounting standards, customized assessment tools, specialized technical and legal assistance, skilled talent, and more.
While such ecosystems have been developing in many countries, they remain very weak and fragmented, and current efforts to improve them are either focused on helping a very narrow subset of the organizations within the fourth sector, developing a small piece of the overall ecosystem required, or supporting for-benefits in a limited geographic scope. We need a different approach that can develop and strengthen fourth sector ecosystems rapidly all around the world.
Ecosystem development at the magnitude and pace required does not typically happen as a result of centralized design, planning, or management. Historically, organizational ecosystems at this scale have taken decades if not centuries to develop, as a consequence of countless different efforts by a multitude of actors in an organic and often uncoordinated fashion. In fact, the fourth sector’s ecosystem, such as it exists, has been growing in this same organic manner for the past several decades.
The urgency and scale of the global challenges we face -- to which the fourth sector is a response -- demands a new approach. Intentionality and strategic action are needed to accelerate cohesive and comprehensive fourth sector ecosystem development globally.
A fully developed fourth sector ecosystem will consist of millions of individuals and organizations working in their own spheres to support for-benefit enterprise in one way or another. Policymakers must structure laws and regulations, lawyers need to learn and practice for-benefit law, educational institutions will train for-benefit managers and practitioners, investors will provide the capital for-benefits need to launch and scale, media outlets will inspire and inform the public, and so on. And all of this will need to happen everywhere in the world, at the local, state, national, and global levels.
A fully developed fourth sector ecosystem requires millions of individuals and organizations around the world taking action in their own spheres.
Fortunately, much of this activity will be demand and opportunity driven. There is considerable demand for for-benefit organizations across the world from consumers, investors, employees, managers, and other stakeholders. This, in turn, creates significant demand on the part of for-benefit organizations for all the elements of the fourth sector’s supportive ecosystem—lawyers, accountants, laws and regulations, investment capital, and so on. This means there should be great incentive for various market actors to play their roles.
To activate and engage the millions of individuals and organizations required to develop the fourth sector’s ecosystem, we believe six core areas of strategic action need to be undertaken globally, in a coordinated, collaborative, and cohesive manner. These mutually reinforcing activities include enhancing knowledge; advancing policy; catalyzing and supporting engagement by raising awareness among key stakeholders, connecting them, and educating and training them; and mobilizing resources in support of fourth sector ecosystem development efforts.
4SG is a nonprofit platform organization that catalyzes, supports, and connects individuals, organizations, and initiatives working to advance these six strategic areas of activity around the world.