How social impact affects the third sector

The rise of social impact is significantly transforming the third sector. What role will foundations and philanthropy have if all companies become social impact enterprises, balancing economic performance with their positive societal impact?

Here are some ideas I foresee happening in the coming decades with the rise of the purpose economy and philanthropic capitalism:

Competition for Funds and Talent:

Third sector organizations, such as NGOs and foundations, might face increased competition for funding and talent as companies also attract funds and skilled personnel for their social impact initiatives.

Collaboration and Partnerships:

The rise of social impact encourages collaboration between the private sector and the third sector. Non-profit organizations may partner with businesses to access additional resources, including funding, technology, and expertise.

Innovation and Capability Improvement:

Competition and collaboration with businesses will drive third sector organizations to innovate and improve their capabilities. They will adopt more efficient practices and use advanced technologies to enhance their impact.

Increased Accountability and Transparency:

With the growing focus on social impact, third sector organizations are expected to be more transparent and accountable regarding the management of their resources and the outcomes of their projects, demonstrating greater social impact.

Diversification of Revenue Streams:

NGOs and other non-profits may diversify their revenue sources, seeking more funds from social impact companies in addition to traditional donations and government grants.

In any case, the third sector will always have a crucial role in humanitarian projects or disasters where generating a minimally viable economic model is impossible, such as:

Focus on Underserved Areas:

Philanthropy may focus on areas that companies do not address, such as human rights, social justice, and support for marginalized communities. This allows foundations and philanthropists to fill critical gaps that are not profitable or attractive to businesses.

Innovation and Experimentation:

Philanthropy will continue to be an important source of funding for innovation and experimental projects. Foundations can take greater risks than companies, testing new ideas and approaches that, if successful, might be adopted on a larger scale by the private and public sectors.

Rapid and Flexible Response:

Foundations and philanthropists can respond quickly to emergencies and urgent needs in a more flexible manner than companies, which may be limited by their internal processes and business objectives.

Advocacy and Public Policy:

Philanthropy can play a crucial role in promoting changes in public policy and advocating for causes that require government intervention. Philanthropists can fund research, awareness campaigns, and lobbying efforts to influence legislation and regulations.

Scalability and Sustainability:

Philanthropic initiatives can serve as pilot projects for programs that can later be scaled by businesses or governments. This role as “social venture capital” allows philanthropy to be a driver of sustainability and scalability for effective solutions.

The rise of social impact in the private sector is redefining the third sector, fostering collaboration, innovation, and efficiency. In this new context, philanthropy will continue to play a vital role, especially in areas where the private sector cannot or will not intervene, and will remain a driver of innovation and systemic social change. The complementarity between philanthropy and social impact (ESG) will enable a more holistic and effective approach to addressing global social and environmental challenges.