Triple bottom line

The triple bottom line (or otherwise noted as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and economic. Some organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value.^[1] Business writer John Elkington claims to have coined the phrase in 1994.^[2][3]

Background

In traditional business accounting and common usage, the "

An example of an organization seeking a triple bottom line would be a social enterprise run as a non-profit, but earning income by offering opportunities for handicapped people who have been labelled "unemployable", to earn a living by recycling. The organization earns a profit, which is invested back into the community. The social benefit is the meaningful employment of disadvantaged citizens, and the reduction in the society's welfare or disability costs. The environmental benefit comes from the recycling accomplished. In the private sector, a commitment to corporate social responsibility (CSR) implies an obligation to public reporting about the business's substantial impact for the better of the environment and people. Triple bottom line is one framework for reporting this material impact. This is distinct from the more limited changes required to deal only with ecological issues. The triple bottom line has also been extended to encompass four pillars, known as the quadruple bottom line (QBL). The fourth pillar denotes a future-oriented approach (future generations, intergenerational equity, etc.). It is a long-term outlook that sets sustainable development and sustainability concerns apart from previous social, environmental, and economic considerations.^{[citation needed]}

The challenges of putting the TBL into practice relate to the measurement of social and ecological categories. Despite this, the TBL framework enables organizations to take a longer-term perspective and thus evaluate the future consequences of decisions.^[1]

Definition

Sustainable development was defined by the Brundtland Commission of the United Nations in 1987.^[7] Triple bottom line (TBL) accounting expands the traditional reporting framework to take into account social and environmental performance in addition to financial performance.

In 1981,

A Triple Bottom Line Investing group advocating and publicizing these principles was founded in 1998 by Robert J. Rubinstein.^[10]

For reporting their efforts companies may demonstrate their commitment to corporate social responsibility (CSR) through the following:

• Top-level involvement (
  Board of Directors
  )
• Policy Investments
• Programs
• Signatories to voluntary standards
• Principles (UN Global Compact-Ceres Principles)
• Reporting (Global Reporting Initiative)

The concept of TBL demands that a company's responsibility lies with

, for example.

The Detroit-based Avalon International Breads interprets the triple bottom line as consisting of "Earth", "Community", and "Employees".^[11]

The three bottom lines

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The triple bottom line consists of social equity, economic, and environmental factors. The phrase, "people, planet, and profit" to describe the triple bottom line and the goal of sustainability, was coined by John Elkington in 1994 while at SustainAbility,^[3][9] and was later used as the title of the Anglo-Dutch oil company Shell's first sustainability report in 1997. As a result, one country in which the 3P concept took deep root was The Netherlands.

People, the social equity bottom line

The people, social equity, or human capital bottom line pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. A TBL company conceives a reciprocal social structure in which the well-being of corporate, labour and other stakeholder interests are interdependent.

An enterprise dedicated to the triple bottom line seeks to provide benefit to many constituencies and not to exploit or endanger any group of them. The "up streaming" of a portion of profit from the marketing of finished goods back to the original producer of raw materials, for example, a farmer in

alike to comparably report on the social impact of a business.

Planet, the environmental bottom line

The planet, environmental bottom line, or

of products to determine what the true environmental cost is from the growth and harvesting of raw materials to manufacture to distribution to eventual disposal by the end user.

Currently, the cost of disposing of non-degradable or toxic products is born financially and environmentally by future generations, the governments, and residents near the disposal site and elsewhere. In TBL thinking, an enterprise which produces and markets a product which will create a waste problem should not be given a free ride by society. It would be more equitable for the business which manufactures and sells a problematic product to bear part of the cost of its ultimate disposal.

Ecologically destructive practices, such as overfishing or other endangering depletions of resources are avoided by TBL companies. Often

is the more profitable course for a business in the long run. Arguments that it costs more to be environmentally sound are often specious when the course of the business is analyzed over a period of time. Generally, sustainability reporting metrics are better quantified and standardized for environmental issues than for social ones. A number of respected reporting institutes and registries exist including the Global Reporting Initiative, CERES, Institute for Sustainability and others.

The ecological bottom line is akin to the concept of eco-capitalism.^[12]

Profit, the economic bottom line

The profit or economic bottom line deals with the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It therefore differs from traditional accounting definitions of profit. In the original concept, within a sustainability framework, the "profit" aspect needs to be seen as the real economic benefit enjoyed by the host society. It is the real economic impact the organization has on its economic environment. This is often confused to be limited to the internal profit made by a company or organization (which nevertheless remains an essential starting point for the computation). Therefore, an original TBL approach cannot be interpreted as simply traditional corporate accounting profit plus social and environmental impacts unless the "profits" of other entities are included as a social benefit.^{[citation needed]}

Subsequent development

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Following the initial publication of the triple bottom line concept, students and practitioners have sought greater detail in how the pillars can be evaluated. The people concept, for example, can be viewed into three dimensions – organisational needs, individual needs, and community issues.

Equally, profit is a function of both a healthy sales stream, which needs a high focus on customer service, coupled with the adoption of a strategy to develop new customers to replace those that die away, and planet can be divided into a multitude of subdivisions, although reduce, reuse and recycle is a succinct way of steering through this division.

The initial understanding is now supplanted by thinking beyond TBL: added to the TBL concept of economics, ethics and environment is the idea of thinking of the environment as a mantel that the other pillars hold up, and add to Economics and Ethics, the notions of Energy, and Health or the 4 E's.

Supporting arguments

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The following business-based arguments support the concept of TBL:

• Reaching untapped market potential: TBL companies can find financially profitable niches which were missed when money alone was the driving factor. Examples include:

1. Adding ecotourism or geotourism to an already rich tourism market such as the Dominican Republic
2. Developing profitable methods to assist existing NGOs with their missions such as fundraising, reaching clients, or creating networking opportunities with multiple NGOs
3. Providing products or services which benefit underserved populations and/or the environment which are also financially profitable.

• Adapting to new business sectors: While the number of
  B Corp movement,^[14] there is more demand from consumers and investors for an accounting for social and environmental impact.^[15] For example, Fair Trade
  and Ethical Trade companies require ethical and sustainable practices from all of their suppliers and service providers.

Government

by which they could be systematically and globally reduced in some uniform way.

The argument is that the

Bretton Woods

in 1944.

With the emergence of an externally consistent

]

In the United Kingdom in particular, the London Health Observatory has undertaken a formal programme to address social deficits via a fuller understanding of what "social capital" is, how it functions in a real community (that being the City of London), and how losses of it tend to require both financial capital and significant political and social attention from volunteers and professionals to help resolve. The data they rely on is extensive, building on decades of statistics of the Greater London Council since World War II. Similar studies have been undertaken in North America.

Studies of the

for damage inflicted on ecosystems shared globally.

Advocacy for triple bottom line reforms is common in

, for these deficits.

To address financial bottom line profitability concerns, some argue that focusing on the TBL will indeed increase profit for the shareholders in the long run. In practice,

Furthermore, planning a sustainability strategy with the triple bottom line in mind could save companies a lot of money if a disaster were to strike. For example, when BP spilled "two hundred million gallons of oil in the Gulf of Mexico", it cost the company "billions". This company focused mostly on the financial and economic costs of this disaster, instead of the company’s environmental bottom line, furthering damage to the company and its reputation.^[17]

Adoption

Timothy Slater and Tanya Hall identified

Criticism

While many people agree with the importance of good social conditions and preservation of the environment, there are also many who disagree with the triple bottom line as the way to enhance these conditions. The following are the reasons why:

• Reductive method: Concurrently the environment comes to be treated as an externality or background feature, an externality that tends not to have the human dimension build into its definition. Thus, in many writings, even in those critical of the triple-bottom-line approach, the social becomes a congeries of miscellaneous considerations left over from the other two prime categories.[20] Alternative approaches, such as Circles of Sustainability,^[21] that treat the economic as a social domain, alongside and in relation to the ecological, the political and the cultural are now being considered as more appropriate for understanding institutions, cities and regions.^[20][22][23]
• depression or even sustained recession to replenish lost ecosystems. ^{[citation needed}
  ]
• Application: According to Fred Robins' The Challenge of TBL: A Responsibility to Whom? one of the major weaknesses of the TBL framework is its ability to be applied in the practical world.
• Equating ecology with environment: TBL is seen to be disregarding ecological sustainability with environmental effects, where in reality both economic and social viability is dependent on environmental well-being. While greenwashing is not new, its use has increased over recent years to meet consumer demand for environmentally friendly goods and services. The problem is compounded by lax enforcement by regulatory agencies such as the Federal Trade Commission in the United States, the Competition Bureau in Canada, and the Committee of Advertising Practice and the Broadcast Committee of Advertising Practice in the United Kingdom. Critics of the practice suggest that the rise of greenwashing, paired with ineffective regulation, contributes to consumer skepticism of all green claims, and diminishes the power of the consumer in driving companies toward greener solutions for manufacturing processes and business operation.
• Time dimension: While the triple bottom line incorporates the social, economical and environmental (People, Planet, Profit) dimensions of sustainable development, it does not explicitly address the fourth dimension: time. The time dimension focuses on preserving current value in all three other dimensions for later. This means assessment of short term, longer term and long term consequences of any action.^[24]
• "One problem with the triple bottom line is that the three separate accounts cannot easily be added up. It is difficult to measure the planet and people accounts in the same terms as profits—that is, in terms of cash."
  Triple Bottom Line Cost Benefit Analysis (TBL-CBA)
  .
• Performance/eco-efficiency: According to Rambaud, A. & Richard, J., "the TBL model [...] is based on the concept of ‘eco-efficiency’. In his seminal book, Elkington [...] gives a fundamental role to eco-efficiency in constructing the TBL model. According to him, the development of the concept of eco-efficiency allowed the development of the TBL model, a framework that he believes can save businesspeople from ecological communism".^[25] Eco-efficiency is equivalent to weak sustainability and corresponds to a relative measure of socio-environmental impacts compared to value creation. In this, eco-efficiency differs from eco-effectiveness, which is concerned with the absolute measurement of these impacts. A company can therefore increase its socio-environmental impacts and increase its eco-efficiency, if at the same time it increases its value creation even more. The TBL is thus the dedicated reporting system structuring this notion of performance at the expense of eco-effectiveness. Yet eco-efficiency is at the heart of rebound effects and cannot be a credible basis for ecosystem management in particular.
• Elkington himself has called for a rethink on TBL and a "product recall" on use of the concept. He argues that the original idea was to encourage businesses to manage the wider economic, social and environmental impacts of their operations, but its practical use as an accounting tool has now undermined its value. More precisely, he explains "It [Triple Bottom Line] was supposed to provoke deeper thinking about capitalism and its future, but many early adopters understood the concept as a balancing act, adopting a trade-off mentality. [...] Such experimentation [de la TBL] is clearly vital — and typically sparks a proliferation of potential solutions. But the bewildering range of options now on offer can provide business with an alibi for inaction. Worse, we have conspicuously failed to benchmark progress across these options, on the basis of their real-world impact and performance".^[2]

In short, the criticisms can be summarised as:

• attempting to divert the attention of regulators and deflating pressure for regulatory change;
• seeking to persuade critics, such as non-government organisations, that they are both well-intentioned and have changed their ways;
• seeking to expand market share at the expense of those rivals not involved in greenwashing; this is especially attractive if little or no additional expenditure is required to change performance; alternatively, a company can engage in greenwashing in an attempt to narrow the perceived 'green' advantage of a rival;
• reducing staff turnover and making it easier to attract staff in the first place;
• making the company seem attractive for potential investors, especially those interested in ethical investment or socially responsive investment;
• inability to add up the three accounts unless tools such as cost-benefit analysis or eco-efficiency (weak sustainability performance) are added to put social and environmental externalities in monetary terms.

In response to these limitations, the concept of the "Triple Depreciation Line" (also called "CARE - Comprehensive Accounting in Respect of Ecology - model") has been proposed ^[25][26]

Legislation

A focus on people, planet and profit has led to legislation changes around the world, often through

BCorp movement has been part of a call for legislation change to allow and encourage a focus on social and environmental impact, with BCorp a legal form for a company focused on "stakeholders, not just shareholders".^[28]

In

Government of Western Australia but its status was increasingly marginalised by subsequent premiers Alan Carpenter and Colin Barnett

.

See also

• B Corporation (certification)
• Bottom of the pyramid
• Circles of Sustainability
• Community interest company
• Conscious business
• Double bottom line, a similar concept predating the UN standard
• EC3 Global
• Eco-capitalism
• Grassroots Business Fund
• Impact investing
• Low-profit limited liability company
• Permaculture ethics
• Social entrepreneurship
• Triple top line
• Value network
• Value network analysis

References

1. ^ ^{a b c} Slaper, Timothy F. and Hall, Tanya J. (2011). "The Triple Bottom Line: What Is It and How Does It Work?" Indiana Business Review. Spring 2011, Volume 86, No. 1.
2. ^ ^{a b} Elkington, John (June 25, 2018). "25 Years Ago I Coined the Phrase "Triple Bottom Line." Here's Why It's Time to Rethink It". Harvard Business Review. Archived from the original on 22 March 2023. Retrieved 25 November 2023.
3. ^ ^{a b c} "Triple Bottom Line". The Economist. November 17, 2009. Retrieved August 14, 2014.
4. ^ Sustainability – From Principle To Practice Goethe-Institut, March 2008.
5. ^ "Enhancing the role of industry through for example, private-public partnerships" (PDF). United Nations Environment Programme. May 2011. Archived from the original (PDF) on 2012-11-12. Retrieved 2012-08-13.
6. doi:10.9774/GLEAF.4700.2009.sp.00009
   .
7. ^ "Egypt's sustainable finance trailblazer". Retrieved 2018-10-11.
8. ^ Spreckley, Freer (1981). Social Audit: A Management Tool for Co-operative Working (PDF). Beechwood College. Archived from the original (PDF) on 2020-03-01.
9. ^
   OCLC 963459936
   .
10. ^ Thorpe, Devin. "One Key To Impact Investing: Start Big". Forbes. Retrieved 2018-10-11.
11. ^ "Triple Bottom Line: Earth, Community, Employees". Avalon International Breads. Archived from the original on 12 November 2020. Retrieved 27 February 2015.
12. ISBN 0-385-41914-7
    .
13. ^ "The People's Business 2013". Social Enterprise UK. Retrieved July 15, 2015.
14. ^ Trapp, Roger (2015). "Business Leaders Urged To Find A Purpose In Life". Forbes. Retrieved 26 August 2015.
15. ^ "Mind the gaps. The 2015 Deloitte Millennial survey" (PDF). Deloitt. 2015. Retrieved 15 July 2015.
16. ^ "John Mackey: The conscious capitalist".
17. JSTOR j.ctt1pc5g1x
    .
18. ^ GE Energy Financial Services, GE Invests In Advanced Electron Beams; Technology Cuts, published 16 September 2008, accessed 21 February 2024
19. ^ Novo Nordisk, Annual Report 2019, accessed 21 February 2024
20. ^
    S2CID 145391691
    .
21. ISBN 978-1-4094-0893-2
    .
22. doi:10.1016/j.ecolecon.2012.02.027
    .
23. S2CID 153340355
    .
24. ^ Lozano, R. (2012). "Towards better embedding sustainability into companies’ systems: an analysis of voluntary corporate initiatives," Journal of Cleaner Production 25 pp. 14-26
25. ^
    doi:10.1016/j.cpa.2015.01.012
    .
26. ^ "Improving Nature's Visibility in Financial Accounting" Natural Capital Coalition's report". Retrieved 17 October 2022.
27. ^ "Community Interest Companies". UK Government. Retrieved 15 July 2015.
28. ^ "Becoming a Legal BCorp". BCorp. Retrieved 15 July 2015.
29. ^ Government of Western Australia. (2003, September). "Hope for the Future: The Western Australia State Sustainability Strategy", accessed August 30, 2013

• "Part I. What You Do Now Depends on Where You Are Now", Why We Vote, Princeton: Princeton University Press, pp. 11–92, 2010-12-31,
  ISBN 978-1-4008-3761-8
  , retrieved 2020-10-16

Further reading

• Social Audit - A Management Tool for Co-operative Working 1981 by Freer Spreckley [1]
• The Gaia Atlas of Green Economics (Gaia Future Series) [Paperback], by Paul Ekins, Anchor Books
• Harvard Business Review on Corporate Responsibility by
  Harvard Business School Press
• The Soul of a Business: Managing for Profit and the Common Good by Tom Chappell
• Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World's Most Difficult Problems by Professor Stuart L. Hart
• The Triple Bottom Line: How Today's Best-Run Companies Are Achieving Economic, Social and Environmental Success—and How You Can Too by Andrew W. Savitz and Karl Weber
• The Sustainability Advantage: Seven Business Case Benefits of a Triple Bottom Line (Conscientious Commerce) by Bob Willard,
  ISBN 978-0-86571-451-9

External links

• Explainer: what is the triple bottom line? - The Conversation
• The Triple Bottom Line: What Is It and How Does It Work? - Indiana Business Review
• Balancing Act - A Triple Bottom Line Analysis of the Australian Economy
• Citizens for Corporate Redesign Archived 2022-03-31 at the Wayback Machine (Minnesota)
• Triple Pundit - Blog on Triple Bottom Line (United States)
• Corporate Responsibility (United Kingdom)
• TBL Accounting without boundaries - Australian corporate and government experiences