Matt Bogoshian.
The Rise of the 4th Sector
On October 14, Impact Hub Yerevan and Kolba Labs co-hosted a discussion with Matt Bogoshian about social businesses, impact investing and the rise of the “for-benefit” sector.
Not sure what any of this means? We’ll walk you through it.
Matt Bogoshian is a former administration official from the U.S. Environmental Protection Agency, where he served under President Barack Obama.
Upon visiting Armenia this week, he was invited by Impact Hub Yerevan to share insights about U.S. trends in the social enterprise sector – in a nutshell, the know-how about linking profit, social benefit and environmental concerns.
In U.S. legislation, the economy is traditionally divided into three different sectors:
1. For-profit (traditional businesses whose goal is to make profit) 2. Public (governmental entities that provide services to the population) 3. Non-profit (NGOs, foundations or other groups whose goal is not to make profit but rather to help improve an identified social or environmental issue)
But in recent years, some have witnessed the rise of a 4th sector, sometimes called the “for-benefit” sector, associated with terms like “beyond profit,” “social business,” “double (or triple) bottom line,” “B corps,” and “impact investing.”
As Matt Bogoshian pointed out in his presentation, the 4th sector goes by many names, depending on places and jurisdiction. It can encompass slightly different realities, but is mostly used to describe businesses whose goal is not only to make profit, but also to have a beneficial impact on a given issue, whether it’s social, environmental or both.
Businesses and Social Good
“A company cannot thrive in an economic and social desert.” Franck Riboud, CEO of Danone
Of course, profitable businesses with social goals are not an entirely new phenomenon. In the early twentieth century, philanthropists Andrew Carnegie and John D. Rockefeller were among the first to start linking big profit-making industries to social benefit, paving the way for what would be later called corporate philanthropy.
In France in 1972, Danone’s founder Antoine Riboud gave a ground-breaking speech detailing his vision of a company’s interdependent economic and social goals. “A company cannot thrive in an economic and social desert” his son Franck Riboud would emphasize some thirty years later, upon becoming Danone’s CEO.
The basic concept of corporate social responsibility (CSR) also had its early opponents. As early as 1970, ultra-liberal economist Milton Friedman was already outraged at the mere thought that managers could have an objective other than profit in mind.
In 2010, the first “benefit corporation” legislation was passed in several U.S. jurisdictions, allowing corporate entities to include positive impact on society and the environment as their legally defined goals, in addition to profit-making.
The concept of linking financial, social and environmental profit has indeed been around for a while – but there definitely seems to be more discussion about it now. The growing use of vocabulary such as “impact investing” instead of “venture philanthropy” or “charity” is perhaps a hint of just how important a trend the “for-benefit” sector is becoming.
Reasons Behind the 4th Sector’s Growth
Participants at Matt Bogoshian’s presentation.
What is the explanation behind this heightened interest? Critics may suggest that if corporations decide to direct some of their focus towards social or environmental goals, then they must have a business incentive to do so… and they wouldn’t be completely wrong.
In the era of the “citizen consumer”, where transparency is the new rule and an online bad buzz can instantly lead to massive boycott, it is indeed in the best interest of corporations to be pro-active in social and environmental matters… or at least clean up their act.
“70% of a company’s value is in its brand,” said Matt Bogoshian on Wednesday. And he hinted that the main difference between yesterday’s deceptive “greenwashing” and today’s for-benefit efforts was the increased availability of data. “Big data is key to measuring the economic, social and environmental impact of any initiative.”
The paradigm change from for-profit to for-benefit may also be a matter of generation. “People increasingly want to do meaningful work for a meaningful organization,” Matt Bogoshian outlined. “And this is especially true for millennials.” So from a business point of view, the “for-benefit” sector seems to have a huge appeal both in terms of brand image, but also in terms of human capital.
Working for Profit, People and the Planet in Armenia
What does this mean for Armenia? Is the trend of for-benefits, social businesses and impact investing growing here, too ?
Judging by recent initiatives, it does seem like it. Kolba Labs, a UNDP initiative, has been working as a social venture incubator since 2012. Impact Hub Yerevan is set to open later this fall, and provide inspiration and support to all aspiring social entrepreneurs in Armenia and the Diaspora.
There are already a few social business success stories out there: the Green Bean Coffee shop is one of those. They managed to combine a successful business with an eco-friendly concept, while also partnering with the Homeland Development Initiative Foundation to promote and sell their products.
“How can we nurture this trend in Armenia? How can we encourage impact investing instead of charity, and entrepreneurs with social and environmental goals?” asked someone during the discussion. “Through proof,” answered Matt Bogoshian. “For-benefit businesses are useful, successful… and consumers love it.”
Charlotte Poulain
