Sheffield's 'large and vibrant' community and voluntary sector contributes £810 million to the city's economy - almost as much as the turnover of both universities.
The annual State of Sheffield report, produced by the Sheffield City Partnership board, found volunteers helped communities face challenges across the city.
But it also added that the contribution of the voluntary sector should not be measured solely in economic terms and should take into account the impact it had on people's quality of life and wellbeing.
The report said: "If as a city we were to recognise the true value of the voluntary and community sector, recognise its impact on public service, coherence and wellbeing, we could tackle many of the challenges it faces, including financial security; harness the assets of the sector to tackle the collective problems we face; and enable people and communities to come together to take action.
"By making best use of all the assets in the city we will achieve inclusive growth to the benefit of all — socially and economically."
The report, co-edited by Professor David Robinson, head of geography at the University of Sheffield, and Andi Walshaw, performance and research manager at Sheffield Council, said Sheffield had around 3,300 voluntary groups, which was more than might be expected for a city of its size.
It also said some charities, social enterprises and co-operatives were operating 'under the radar' but that volunteers play a critical role, often in the most deprived areas of the city.
The report added: "Volunteer roles too are present across the city, with some clustering around areas of greatest deprivation. In short the location of volunteers and volunteer opportunities reinforces the picture that volunteering helps build social capital and enables people to take control of issues affecting them and their lives."
But the report said the sector also faced 'critical and growing challenges' and that demand for the services of charities and voluntary sector organisations was growing.
It added: "Demand for services is rising, the challenge is to enable organisations to continue to do (and to measure the impact of) what they do best with their communities —
providing services, connecting people and places, and helping people to build confidence and skills.
"Too often organisations are driven by financial deficit to chase funding at the detriment of their mission. If we lose the focus of organisations on their very reason to be, we will lose the
impact of the community sector in the city.
"Part of this challenge is how as a city we attribute value to the impact of voluntary and community groups."