Triple bottom line

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The triple bottom line (or "TBL", "3BL", or "people, planet, profit") captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, ecological and social. With the ratification of the United Nations and ICLEI TBL standard for urban and community accounting in early 2007, this became the dominant approach to public sector full cost accounting. Similar UN standards apply to natural capital and human capital measurement to assist in measurements required by TBL, e.g. the ecoBudget standard for reporting ecological footprint.

In the private sector, a commitment to corporate social responsibility implies a commitment to some form of TBL reporting. This is distinct from the more limited changes required to deal only with ecological issues.

Contents

[edit] Definition

In practical terms, triple bottom line accounting means expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance.

The phrase was coined by John Elkington in 1994.[1] It was later expanded and articulated in his 1998 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business.[2][3] Sustainability, itself, was first defined by the Brundtland Commission of the United Nations in 1987.

The concept of TBL demands that a company's responsibility be to stakeholders rather than shareholders. In this case, 'stakeholders' refers to anyone who is influenced, either directly or indirectly, by the actions of the firm. According to the stakeholder theory, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder (owner) profit.

[edit] The bottom lines

The triple bottom line is made up of "social, economic and environmental" the "people, planet, profit" phrase was coined for Shell by SustainAbility, influenced by 20th century urbanist Patrick Geddes's notion of 'folk, work and place'.

"People, planet and profit" succinctly describes the triple bottom lines and the goal of sustainability.

"People" (human capital) 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.

A triple bottom line enterprise seeks to benefit many constituencies, not exploit or endanger any group of them. The "upstreaming" of a portion of profit from the marketing of finished goods back to the original producer of raw materials, i.e., a farmer in fair trade agricultural practice, is a not unusual feature. In concrete terms, a TBL business would not use child labour and monitor all contracted companies for child labour exploitation, would pay fair salaries to its workers, would maintain a safe work environment and tolerable working hours, and would not otherwise exploit a community or its labour force. A TBL business also typically seeks to "give back" by contributing to the strength and growth of its community with such things as health care and education. Quantifying this bottom line is relatively new, problematic and often subjective. The Global Reporting Initiative (GRI) has developed guidelines to enable corporations and NGOs alike to comparably report on the social impact of a business.

"Planet" (natural capital) refers to sustainable environmental practices. A TBL company endeavors to benefit the natural order as much as possible or at the least do no harm and curtail environmental impact. A TBL endeavor reduces its ecological footprint by, among other things, carefully managing its consumption of energy and non-renewables and reducing manufacturing waste as well as rendering waste less toxic before disposing of it in a safe and legal manner. "Cradle to grave" is uppermost in the thoughts of TBL manufacturing businesses which typically conduct a life cycle assessment 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. A triple bottom line company does not produce harmful or destructive products such as weapons, toxic chemicals or batteries containing dangerous heavy metals for example.

Currently, the cost of disposing of non-degradable or toxic products is borne financially by governments and environmentally by the 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 environmental sustainability 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 4 Sustainability and others.

"Profit" is the bottom line shared by all commerce, conscientious or not. In the original concept, within a sustainability framework, the "profit" aspect needs to be seen as the economic benefit enjoyed by the host society. It is the lasting 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. Therefore, a TBL approach cannot be interpreted as traditional corporate accounting plus social and environmental impact.

Books on the topic include:

  • 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.

[edit] Arguments for the concept

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: Since many business opportunities are developing in the realm of social entrepreneurialism,[4] businesses hoping to reach this expanding market must design themselves to be financially profitable, socially beneficial and ecologically sustainable or fail to compete with those companies who do design themselves as such. For example, Fair Trade and Ethical Trade companies require ethical and sustainable practices from all of their suppliers and service providers. A business which is planning to work with Fair Trade or Ethical Trade companies must design their business model to be TBL.

Fiscal policy of governments usually claims to be concerned with identifying social and natural deficits on a less formal basis. However, in a democracy at least, such choices may be guided more by ideology than by economics. The primary benefit of embedding one approach to measurement of these deficits would be first to direct monetary policy to reduce them, and eventually achieve a global monetary reform by which they could be systematically and globally reduced in some uniform way.

The argument is that the Earth's carrying capacity is itself at risk, and that in order to avoid catastrophic breakdown of climate or nature's services, there is a need for a comprehensive reform in global financial institutions similar in scale to that undertaken at Bretton Woods in 1944, and not since[citation needed]. Marilyn Waring has been a major proponent of this reform.

With the emergence of an externally consistent green economics and agreement on definitions of potentially contentious terms such as full-cost accounting, natural capital and social capital, the prospect of formal metrics for ecological and social loss or risk has grown less remote through the 1990s.

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 nature's services and assessments of the value of Earth have tried to determine what might constitute an ecological or natural life deficit. The Kyoto Protocol relies on some measures of this sort, and actually relies on some value of life calculations that, among other things, are explicit about the ratio of the price of a human life between developed and developing nations (about 15 to 1). While the motive of this number was to simply assign responsibility for a cleanup, such stark honesty opens not just an economic but political door to some kind of negotiation - presumably to reduce that ratio in time to something seen as more equitable. As it is, people in developed nations can be said to benefit 15 times more from ecological devastation than in developing nations, in pure financial terms. According to the IPCC, they are thus obliged to pay 15 times more per life to avoid a loss of each such life to climate change—Kyoto seeks to implement exactly this formula, and is therefore sometimes cited as a first step towards getting nations to accept formal liability for damage inflicted on ecosystems shared globally.

Advocacy for triple bottom line reforms is common in Green Parties. Some of the measures undertaken in the European Union towards the Euro currency integration standardize the reporting of ecological and social losses in such a way as to seem to endorse in principle the notion of unified accounts, or unit of account, for these deficits.

[edit] Arguments against the concept

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 main arguments against it are summarised below.

  • Division of labour is characteristic of rich societies and a major contributor to their wealth. This leads to the view that organisations contribute most to the welfare of society in all respects when they focus on what they do best: the baker exchanges his loaves with the shoemaker rather than making his own shoes to the benefit of both and by extension the whole of society. In the case of business the expertise is in satisfying the needs of society and generating a value added surplus. Thus the 'Triple Bottom Line' is thought to be harmful by diverting business attention away from its core competency. Just as charitable organisations like the Salvation Army would not be expected to attend to environmental issues or pay a cash dividend, and Greenpeace would not be expected to make a profit or succor the homeless, business should not be expected to take on concerns outside its core expertise.
  • Effectiveness: It is observed that concern for social and environmental matters is rare in poor societies (a hungry person would rather eat the whale than photograph it). As a society becomes richer its citizens develop an increasing desire for a clean environment and protected wildlife, and both the willingness and financial ability to contribute to this and to a compassionate society. Indeed support for the concept of the 'Triple Bottom Line' itself is said to be an example of the choices available to the citizens of a society made wealthy by businesses attending to business. Thus by unencumbered attention to business alone, Adam Smith's Invisible Hand will ensure that business contributes most effectively to the improvement of all areas of society, social and environmental as well as economic.
  • Nationalism: Some countries adopt a nationalistic approach with the view that they must look after their own citizens first. This view is not confined to one sector of society, having support from elements of business, labour unions, and politicians.
  • Libertarian: As it is possible for a socially responsible person to sincerely believe that the 'Triple Bottom Line' is harmful to society, the libertarian view is that it would be arrogant to force them to support a mechanism for the improvement of society that may, or may not, be the best available. That is, those who would not force Greenpeace and the Salvation Army to generate a profit should not force businesses to take responsibilities outside their area of expertise.
  • Inertia: The difficulty of achieving global agreement on simultaneous policy may render such measures at best advisory - and thus not enforceable. For example, people may be unwilling to undergo a depression or even sustained recession to replenish lost ecosystems.
  • Application: According to Fred Robin's The Challenge of TBL: A Responsibility to Whom? one of the major weaknesses of the TBL framework is its ability to be applied in a monetary-based economic system. Because there is no single way in monetary terms to measure the benefits to the society and environment as there is with profit, it does not allow for businesses to sum across all three bottom lines. In this regard, it makes it difficult for businesses to recognize the benefits of using TBL for the company, itself.

[edit] Legislation

Legislation permitting corporations to adopt a 'Triple Bottom Line' is under consideration in some jurisdictions including Minnesota and Oregon.

Some businesses have voluntarily adopted a 'Triple Bottom Line' as part of their articles of incorporation or bylaws, and some have advocated for state laws creating a "Sustainable Corporation" that would grant triple bottom line businesses benefits such as tax breaks.[5]

The triple bottom line has been adopted as a part of the State Sustainability Strategy,[6] accepted by the Government of Western Australia.

[edit] See also

Sustainable development portal

[edit] Notes

  1. ^ Elkington, J. (1994) "Towards the sustainable corporation: Win-win-win business strategies for sustainable development." California Management Review 36, no. 2: 90-100
  2. ^ Brown, D., J. Dillard and R.S. Marshall. (2006) "Triple Bottom Line: A business metaphor for a social construct." Portland State University, School of Business Administration. Retrieved on: 2007-07-18.
  3. ^ Business and Sustainable Development: A Global Guide
  4. ^ http://socialedge.org
  5. ^ http://nylawline.typepad.com/greencounsel/2007/01/nau_a_legally_e.html
  6. ^ http://www.sustainability.dpc.wa.gov.au/docs/Strategy.htm

[edit] External links

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