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- What Is the Fourth Sector?

 

The economies in most countries comprise three sectors: the public sector (a.k.a. government), the private sector (a.k.a. business), and the nonprofit sector (a.k.a. civil society).


But now a nascent fourth sector of the economy is emerging, one that combines market-based approaches of the private sector with the social and environmental aims of the public and non-profit sectors to address pressing problems. Endeavors in this sector, also known as for-benefit enterprises, come in a wide variety of models, from mission-driven businesses, social enterprises, and sustainable businesses, to cooperatives, benefit corporations, and faith-based enterprises, among many others.


And as the world faces greater challenges every day — from increasing gaps in inequality to pandemic health threats to a global climate crisis — growing this emerging sector of the economy with an eye on solving the problems of people and planet is gaining traction.

                …the traditionally valid distinction between profit-based companies and non-profit 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.”

 

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– Pope Benedict XVI,

Encyclical Letter, Caritas In Veritate, 2009

-Why is The Fourth Sector Emerging?

The past century has created unprecedented prosperity and improved the quality of life for much of humanity. Despite this progress, today we face the most large-scale, urgent, and complex economic, social, and environmental challenges in our history.  Many of these challenges are the consequences of outdated and unsustainable economic systems that have become the global norm.

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Today’s dominant economic systems are centuries old, born out of the industrial age. While they have spawned trade, technologies, and infrastructure that have enhanced the quality of life for most people, they have not kept up with the dramatic global changes that define the 21st century. Calls for major reform are being heard from all corners—from citizens and civil society to business and political leaders to academia, and global institutions. Numerous studies point to an increasing demand among a majority of people, in various capacities, to align their economic choices with their values. The need to fundamentally upgrade our economic systems to meet today’s challenges is becoming increasingly apparent.

This new mindset is shaping the way we look at enterprise. More and more, organizations and entrepreneurs are seeking ways to do good and make money at the same time. 

Progress is being made. Numerous interventions to upgrade the system in this direction have taken place over the past few decades. The results are impressive. We have seen many for-profit companies broadening their purpose to pursue social and environmental aims, while many nonprofits and governmental organizations have adopted market-based approaches to advance and scale their objectives.

A Convergence of Movements

A Convergence of Movements

This has given rise to a number of powerful movements. Led by pioneers, innovators, and thought-leaders who have been challenging the status quo—reimagining finance, law, accounting, business, and philanthropy; rethinking the delivery of healthcare, education, and social services; reinventing products and industries, from agriculture and energy to apparel and transportation; and not least reconceiving the role of business in society and the fundamental purpose of the economy. These sympathetic movements have been instrumental in shaping the fourth sector and paving the road for its adoption and growth. Some notable examples include:

  • Affirmative Businesses

  • B Corporations

  • Base of the Pyramid

  • Blended Finance

  • Blended Value

  • Cause Marketing

  • Circular Economy

  • Conscious Capitalism

  • Cooperatives

  • Community Development Finance

  • Corporate Social Responsibility

  • Social Innovation

  • Fair Trade

  • Impact Investing

  • Inclusive Business

  • Kyosei

  • Natural Capitalism

  • New Economy

  • Shared Value

  • Social Business

  • Social Enterprise

  • Social Entrepreneurship

  • Social/Solidarity Economy

  • Social Ventures

  • Socially Responsible Investing

  • Stakeholder Accountability

  • Sustainability

  • Sustainable Development

  • Sustainable Enterprises

  • Transparency

  • Venture Philanthropy

These movements are just a few examples of how people and institutions are attempting to make a shift toward a more equitable and sustainable economy. Despite their massive growth and contributions, we have not been able to advance the system far enough, fast enough. The lack of coordination between these efforts, combined with the boundaries and constraints imposed by the current dominant systems, limit the degree of progress any intervention has been able to make.   ​

 

Fortunately, we are now at the verge of a significant shift. Collectively, these pioneering efforts have been challenging the status quo—disrupting the boundaries that separate the traditional public, private, and social sectors, and giving rise to a new, fourth sector of the economy.

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This rapidly growing fourth sector combines the institutional logics of the traditional three sectors, and consists of “for-benefit” enterprises that use market-based approaches and private capital to solve the world’s most urgent social and environmental problems – leveraging profit in pursuit of purpose. 

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A Weak and Fragmented Ecosystem

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In each of the traditional three sectors (for-profit, non-profit, and public), organizations rely on a specialized supportive ecosystem in order to operate successfully. This includes financial markets, policy and regulation, training and educational systems, measurement and reporting standards, and more. For-benefits, however, do not have their own tailored ecosystem and have to rely predominantly on the ecosystems of the traditional three sectors, often forcing them to compromise their impact in one way or another. 

> Continue to For-Benefit Organizations...

1- 2013 Cone Communications/Echo Global CSR study, 2 - 2015 Cone Communications. 3 - The UN Global Compact-Accenture CEO Study on. 4 - GSIA Global Sustainable Investment Review 2014. 5 - 2014 Net Impact Business as UNusual Report. 6 - Nonprofits and Business: A New World of Innovation and Adaptation Sustainability 2013. 7 - 2016 Cone Communications Millennial Employee Engagement Study.  8 - Global Entrepreneurship Monitor (2009)

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