The triple bottom line refers to an extension of the criteria used to measure organisational success. Traditionally, business success (or failure) is measured in terms of its economic performance. A business is considered to be successful if it has generated a sufficient financial return from its investments, financing activities and operating activities. The triple bottom line takes into account three criteria for assessing organisational performance; economic, social and environmental.
- The economic criteria can then be used to determine how much an organisation generates in monetary value. It can also be used to determine the net worth of the business at a given point in time.
- The social performance of an organisation is somewhat more difficult to define and measure. The social criterion of the triple bottom line takes into account the impact that a business has on people within the business (employees) and people outside of the business.
- Environmental performance is concerned with a business’ total impact on the natural environment. Triple bottom line organisations aim to improve the environment where feasible, or at the very least, reduce and limit their negative impact on the environment. Organisations need to look at more than just obvious environmental issues (like pollution) and should consider the total lifecycle impact of their products and services.
Triple bottom line reporting is becoming more widespread amongst both large and small organisations. Triple bottom line reporting makes business decisions and actions more transparent and allows people to gain a thorough understanding of a business’ level of corporate social responsibility. The triple bottom line report also helps manager to assess and compare their performance across all three criteria against the business objectives and long term goals.
Is this another business fad? Is it a new management technique like total quality management?
I see the triple bottom line as a way to think about yourself, your career, and your company. The essential challenge it poses to business leaders is to find a way to simultaneously please your investors and impress your grandchildren.
It is sometimes called the 3P approach – People, Planet and Profits. In each case it requires thinking in three dimensions, not one.
Why think this way? Why adopt such an approach?
It is argued by many that companies that factoring these impacts into their overall corporate balance sheets will be more successful because it delivers greater efficiency, makes them more competitive and sparks innovation — all drivers of profitability over time.
We certainly don’t measure the success of our families by how much money we have saved. Our family’s health, our kid’s education, and the amount of love and caring in our family, count as much, if not more, than our financial security. So why do we have to measure the success of our companies with only one metric?
Another concept often linked to triple bottom line is that of sustainability. We sometimes speak of adopting sustainable business practices or building sustainable businesses. But what does that really mean?
But as in most things, companies go through phases.
At first they tend to be defensive and focus on complying with regulations. When they move beyond that, they become tactical — looking for ways to reduce waste and become more efficient in the way they do things.
In the next stage they start to think systematically. Here, a company begins to identify its position in the value chain and explore how their customers use their products and how they dispose of them.
We can start to make our companies more efficient or wait until costs rise. We can redesign our products for a more sustainable world or we can try to catch up later. We can wait until our customers or the government ask us to report our carbon footprint or we can volunteer it now.
Calculating the TBL
The 3Ps do not have a common unit of measure. Profits are measured in dollars. What is social capital measured in? What about environmental or ecological health? Finding a common unit of measurement is one challenge.
Some advocate monetizing all the dimensions of the TBL, including social welfare or environmental damage. While that would have the benefit of having a common unit—dollars—many object to putting a dollar value on wetlands or endangered species on strictly philosophical grounds. Others question the method of finding the right price for lost wetlands or endangered species.
Another solution would be to calculate the TBL in terms of an index. In this way, one eliminates the incompatible units issue and, as long as there is a universally accepted accounting method, allows for comparisons between entities.
What Measures Go into the Index?
There is no universal standard method for calculating the TBL. Neither is there a universally accepted standard for the measures that comprise each of the three TBL categories. This can be viewed as a strength because it allows a user to adapt the general framework to the needs of different entities (businesses or non-profits), different projects or policies (infrastructure investment or educational programs), or different geographic boundaries (a city, region or country).
Who Uses the Triple Bottom Line?
Businesses, non-profits and government entities alike can all use the TBL.
The Triple Bottom Line concept developed by John Elkington has changed the way businesses, non-profits and governments’ measure sustainability and the performance of projects or policies. Beyond the foundation of measuring sustainability on three fronts—people, planet and profits—the flexibility of the TBL allows organizations to apply the concept in a manner suitable to their specific needs.
It includes measuring each of the three categories, finding applicable data and calculating a project or policy’s contribution to sustainability. These challenges aside, the TBL framework allows organizations to evaluate the ramifications of their decisions from a truly long-run perspective.
It’s no secret our world and business environments are always changing. More than ever, sustainability is key to giving you a competitive edge in today’s economy—financially, environmentally, and socially.
By: Neetika IIM Indore