Heerad Sabeti
Case Studies on Leaving No One Behind
A companion volume to the Development Co-operation Report 2018
36. Fourth Sector Development Initiative - multi-stakeholder collaboration to create an enabling ecosystem for For-Benefit Enterprises
While private sector growth can be positive for development, it can also generate negative social and environmental externalities
One of the aims of development co-operation is to foster private sector growth, typically measured by more and larger for-profit businesses in an economy. This, it is assumed, creates jobs, reduces poverty, enhances quality-of-life through the products and services firms provide, and generates the tax base and philanthropic resources needed by the public and nonprofit sectors respectively. However, while private sector growth can produce these benefits, it also generates significant harmful social and environmental externalities. The Sustainable Development Goals (“SDGs”) are essentially an attempt to course correct from this unsustainable model of development, which has become the global norm.
Most of the challenges addressed by the SDGs are downstream consequences of this “business-as-usual” approach whose roots date back to the industrial age when human rights and the welfare of the planet were not prevalent concerns. Responding to the scale, urgency and complexity of our global challenges demands that we fundamentally upgrade how we do business, bringing the interests of people and the planet to its core.
A fourth sector is growing, driving solutions to social and environmental challenges while making profits
Most economies comprise three-sector systems: public, private and social sectors (government, for-profit businesses, and non-profit organisations). This landscape has been changing, with many for-profit firms embracing social and environmental aims, and many non-profits and governmental organisations adopting market-based approaches. At the same time, a new fourth sector has emerged, consisting of for‑benefit organisations that advance societal benefit as their primary purpose (like non‑profits), and generate income from business activities (like for-profits). These organisations often have values‑driven features like inclusive ownership and governance, fair compensation standards, and commitment to environmental responsibility.
The fourth sector might already account for 10% of GDP and nearly twice the job‑growth rate as traditional for-profits in the United States and Europe. And it is poised to grow rapidly, with significant demand among consumers, investors and employees, and more than ten million for-benefit startups launched globally each year.
Incorporating the fourth sector into national economic development plans can positively disrupt the business-as-usual model of development co-operation. Fostering more inclusive, sustainable businesses, such as for-benefits, will achieve more inclusive, sustainable economies that leave no one behind. Growing the fourth sector can also help fill the so-called “billions to trillions” gap in achieving the SDGs by promoting scalable, market-based solutions across all SDGs while reducing counterproductive harmful externalities typically associated with growth.
To succeed, for-benefits need a tailored ecosystem - purpose-driven financial markets, enabling policy and regulation, integrated assessment and reporting standards, specialised technical assistance and training, and other mechanisms that make a market function.
The Fourth Sector Development Initiative (FSDI) - an initiative of the Fourth Sector Group in association with the World Economic Forum’s System Initiative on Shaping the Future of Economic Progress - fosters multi-stakeholder collaboration to create an enabling ecosystem for the fourth sector to flourish. Founding partners include Unilever, Philips, Salesforce, CARE, Oxfam, the Ibero-American General Secretariat, United Nations Development Programme, the African Development Bank, among others. FSDI partners work globally to: enhance knowledge and raise awareness; develop enabling policy and regulatory environments; promote new business and investment models; increase educational and training opportunities; mobilise resources toward ecosystem development; and develop local and regional hubs.
Building a supportive ecosystem for fourth sector growth requires a holistic, co‑ordinated approach
Key success factors in building the fourth sector’s ecosystem include:
Co-ordination and collaboration: Policy makers, companies, consumers, media and faith communities: all have important roles to play to support growth of for‑benefits. Platforms that support multi-stakeholder engagement will be critical.
Don’t reinvent: A nascent ecosystem for the fourth sector has been developing through decades of innovations in finance, policy, measurement and other domains. Further development should build on existing efforts.
Holistic approach: For-benefits can only be as strong as the weakest element of their ecosystem. It will be essential to take a comprehensive, systems approach, rather than a narrowly focused, piecemeal strategy (such as relying on metrics alone).
Integrity and accountability: Measures must be taken to maintain integrity and accountability in for-benefits as they scale. Otherwise, the “green washing” seen in the sustainability movement is likely to occur here, as well.
Investments: To grow the sector at the scale and pace required to achieve the SDGs, significant resources need to be invested and deployed in ecosystem development efforts in every country.
Rapid prototyping: Because it is distinct, new policy and regulatory frameworks, financial structures, and other ecosystem innovations can be rapidly piloted and scaled in the fourth sector without directly affecting existing organisations in other sectors.
What next?
The next two years are critical for building a solid foundation that enables the fourth sector to scale exponentially. The Fourth Sector Development Initiative is bringing together stakeholders from public, private and philanthropic institutions to collaborate on a mutually reinforcing set of market-building activities, including:
Mapping the fourth sector in each country to establish a baseline, identify opportunities and gaps, and support data-driven policy and decision making.
Developing a comprehensive fourth sector policy framework that can be adapted for different countries.
Identifying and promoting effective for-benefit structures, models, and practices.
Identifying and promoting investment models needed to finance for-benefit enterprises.
Establishing platforms and hubs in each country to co-ordinate and accelerate the efforts of stakeholders and serve as innovation laboratories.
Figure 36.1. Fourth sector development: delivering on the SDGs
Source: Authors.