Triple Bottom Line and Sustainability
My son, a passionate eight-year-old, is an extremely ardent self-proclaimed Lego addict. However, it took me some time to become a fan of Lego all over again.
It all started when I read the news that the LEGO Group had achieved its ambition to balance 100% of its energy use with energy from renewable sources. Needless to say, my interest was piqued. Lego was working towards creating a sustainable future — extending the Triple Bottom Line — a term coined by John Elkington — the famed British management consultant and sustainability guru — as his way of measuring performance in corporate America. The idea was that we can manage a company in a way that not only earns financial profits but which also improves people’s lives and the planet.
What Is the Triple Bottom Line (TBL)?
The triple bottom line (TBL) is a framework or theory that recommends that companies commit to focus on social and environmental concerns just as they do on profits. The TBL postulates that instead of one bottom line, there should be three: profit, people, and the planet. A TBL seeks to gauge a corporation’s level of commitment to corporate social responsibility and its impact on the environment over time.
Understanding the Triple Bottom Line
The Full Cost of Doing Business
In finance, when we speak of a company’s bottom line, we usually mean its profits. Elkington’s TBL framework advances the goal of sustainability in business practices, in which companies look beyond profits to include social and environmental issues to measure thefull cost of doing business.
Moreover, the TBL tenet holds that if a company focuses on finances only and does not examine how it interacts socially, that company cannot see the whole picture, and thus cannot account for the full cost of doing business.
A thriving value-driven business should not be solely concerned with the current year’s profit and its statement of financial position. A company’s financial statements can show a seemingly healthy current year profit, but if the business is not forward-looking or acting in a sustainable manner, then all may not be as well as it seems in the annual accounts.
People + Planet = Social + Environmental Responsibility
According to TBL theory, companies should be working simultaneously on these three bottom lines:
- Profit: The traditional measure of corporate profit — the profit and loss (P&L) account.
- People: Measures how socially responsible an organization has been throughout its operations.
- The Planet: Measures how environmentally responsible a firm has been.
By focusing on these three interrelated elements, triple-bottom-line reporting can be an important tool to support a firm’s sustainability goals.
Challenges of Applying the Triple Bottom Line
Measuring the TBL
A key challenge of the TBL, according to Elkington, is the difficulty of measuring the social and environmental bottom lines. Profitability is inherently quantitative, hence offers ease of measurement. The computation of social and environmental responsibility, however, is rather subjective. For instance, how would one put a dollar value on an oil spill — or on preventing one?
Mixing Diverse Elements
It can be difficult to switch gears between priorities that are seemingly diverse, maximizing financial returns while also doing the greatest good for society. Some companies might struggle to balance deploying money and other resources, such as human capital, to all three bottom lines without favoring one at the expense of another.
Key Takeaways
- The triple bottom line aims to measure the financial, social, and environmental performance of a company over time.
- The TBL consists of three elements: profit, people, and the planet.
- TBL theory holds that if a firm looks at profits only, ignoring people and the planet, it cannot account for the full cost of doing business.
What you lose by Ignoring the TBL Framework
There can be dire repercussions of ignoring the TBL in the name of profits; three well-known cases are the destruction of the rainforest, exploitation of labor, and damage to the ozone layer.
Consider a manufacturer whose best way to maximize profits might be to hire the least expensive labor possible and to dispose of manufacturing waste in the cheapest way possible. These practices might well result in the highest possible profits for the company, but at the expense of miserable working and living conditions for laborers, and damage to the natural environment and the people who live in that environment.
While, profit margins have driven the corporate world towards creating larger imbalance, focusing on triple bottom line can bring the focus back to sustainability and perhaps attempt on seeking balance in an ever-skewed world. Even though, our reasons might differ — my son’s obsession and my sense of wonder, but we do have consensus when it comes to — Loving Lego.
Source:https://www.investopedia.com/terms/t/triple-bottom-line.asp