The Triple Bottom Line: Balancing Profit, People, and Planet for Long-Term Success
In economics, the triple bottom line (TBL) maintains that companies should commit to focusing as much on social and environmental concerns as they do on profits. TBL theory posits 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.
In 1994, John Elkington—the famed British management consultant and sustainability guru—coined the phrase “triple bottom line” as his way of measuring performance in corporate America. The idea was that a company could be managed in a way that not only makes money but also improves people’s lives and the planet’s well-being.
In finance, when speaking 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 the full cost of doing business. Triple-bottom-line theory says that companies should focus as much attention on social and environmental problems as they do on financial issues.
TBL theory also says that if a company focuses on finances only and does not examine how it interacts socially, it cannot see the whole picture and therefore cannot account for the full cost of doing business.
The 3 Ps of the Triple Bottom Line
According to TBL theory, companies should be working simultaneously on these three bottom lines:
- Profit: This is the traditional measure of corporate profit—the profit and loss (P&L) account.
- People: This measures how socially responsible an organization has been throughout its history.
- Planet: This measures how environmentally responsible a firm has been.
Profit
In the context of the triple bottom line, profit can mean more than just how much money a company makes. A company must ensure it earns its income in an ethical, fair manner. This includes soliciting business partners and vendors with which it aligns philanthropically. It also defines how a company develops its strategy or financial operating plan. For instance, profit also ties to a company’s responsibility to pay its lenders, creditors, and employees what is due to them and to have a sense of financial responsibility for these obligations.
Some users of the triple bottom line may also say profit refers to not only a company’s profit but also the profit of those around the company. This specifically refers to the community in which the business operates. This may include:
Ensuring the company is paying its fair share of local, state, or federal income taxes on a timely basis.
Make sure the company is fostering economic wealth within its community by shopping locally or utilizing small businesses.
Committing to financially investing in the community through partnerships, developments, or corporate sponsorships.
People
In the context of the triple bottom line, people refer to every individual that is in touch with a company. This includes but is not limited to:
Employees. This means ensuring workers receive a fair wage in a safe environment that encourages professional development.
Vendors. This means ensuring a diverse set of suppliers is used and prioritizing small businesses or minority owners when appropriate.
Customers. This means ensuring customers have fair access to products and that their feedback regarding equity or safety is considered.
Traditionally, a company would prioritize investors or shareholders. The triple bottom line shifts the focus to individuals potentially not financially invested in the company but still tangentially involved with its operations. Now, instead of attempting to create value by only increasing investor returns, the triple bottom line strives to create value by encouraging volunteerism of its employees or support or business success of small suppliers, for example.
Planet
The largest deviation from purely financial reporting relates to reporting on environmental impacts. Often, a company must be forced between a lower-cost option or a more environmentally friendly alternative. A company may also choose between a less favorable alternative; for example, eco-friendly transit will likely be slower than aircraft.
Instead of reporting a company’s positive changes to the planet, it is often much easier to assess the impacts of the alternatives elected by the company. Imagine a company that redesigned its distribution channels to reduce its energy use; such an activity would be reported as saving a certain amount of greenhouse gas emissions.
To amplify the impact of organizations embracing the Triple Bottom Line approach, UPDEED has introduced an innovative tool – UPDEED Campaigns. This platform enables businesses and non-profits to connect with a purpose-driven global audience, effectively amplifying their social and environmental impact.
Through UPDEED Campaigns, organizations can showcase their efforts, achievements, and commitment to the Triple Bottom Line, fostering transparency and engaging stakeholders in their sustainability journey.
How to Measure the Triple Bottom Line
Companies may need to get creative when measuring the triple bottom line. Traditional accounting rules provide very strong guidance on how a company must record its accounting profit.
Alternatively, there may be minimal to no structure in place on how a company must measure its triple bottom line, especially considering there may be no external reporting requirement to do so.
Measuring Profit
A company will still usually report company-wide net income as part of its triple bottom line. For this reason, profit is the easiest component of the triple bottom line to report as it already has strong guidance.
However, it may also report or call out several other profitability or financial metrics such as:
- Gross margin by geographical region to demonstrate consistent or equitable pricing across different demographic groups.
- Historical federal income tax payments, demonstrating its effective rate.
- Historical information (or lack of) late payments or penalties as a demonstration of financial responsibility.
Measuring People
Also referred to as social measures or social metrics, the people component of the triple bottom line may contain financial or non-financial measurements. Again, some may be stipulated by generally accepted accounting principles (GAAP) or other reporting rules, while others may be internally sourced data.
Examples of measurements of people include:
- Average employee payroll to demonstrate livable wages that exceed local expectations for pay.
- Average employee benefits per employee beyond pay to demonstrate the full benefits package per worker.
- Average number of vacation hours earned and used per employee to ensure workers can and have been stepping away from work.
- Employment demographics such as the proportion of employees of different ages, races, sexual orientations, or religious groups. Note that some of this information may be sensitive and must be provided voluntarily by employees (as employers are not entitled to some demographic information.
- Vendor demographics such as businesses identifying as small businesses, LGBTQ-owned, Veteran-owned, or minority-owned.
- Several product returns by geographical regions to ensure certain demographics are still receiving quality products.
Measuring Planet
Perhaps the most difficult triple-bottom-line component to measure is a planet. As a company may need to know its existing impact as well as its “eco-friendly” impact, measuring impacts on the planet may require the most expertise or effort.
However, there are very common environmental measurements such as:
- Reductions in greenhouse gas emissions are based on the difference between former processes and forecasted changes in new processes.
- Amount of waste generated in pounds; this may also include the amount of recycled product over some time.
- Amount of energy consumption, adjusted for seasonality.
- Amount of fossil fuel consumption (may be adjusted for per-employee or per-sales lead should the company be growing).
- Proportion of raw materials sourced ethically.
Advantages and Disadvantages of the Triple Bottom Line
Advantages of Applying the Triple Bottom Line
The obvious reason to apply the triple bottom line is to have a greater positive impact on the world. Instead of focusing on paper profit, companies can quantifiably determine how the business is favorably changing the world and the people it engages with.
Having a greater philanthropic presence may encourage employee retention and decrease attrition. Workers may be more likely to commit to a company if its environmental impacts are communicated. In addition, favorable working conditions including competitive wages, training, and time off to volunteer may keep employees around; this may reduce recruiting, training, onboarding, and general costs of new employees.
A greater triple-bottom line plan may also entice customers and consciously capitalistic investors interested in prioritizing certain non-financial metrics over financial metrics. Some customers may be torn between two similar products; the deciding factor may be the ESG prioritization of the companies. In addition, investors may actively seek to put their money into a company that has social and environmental plans.
Last, triple-bottom-line strategies may result in increased long-term profitability. Though short-term costs may increase, a company may become more efficient in the long run. Consider a company converting its fleet to electric vehicles. In short, this will be a massive capital investment. In the long term, the company may reap the benefit of lower energy costs, less maintenance, or better equipment durability.
Disadvantages of Applying the Triple Bottom Line
A key challenge of the triple bottom line is the difficulty of measuring certain social and environmental bottom lines.
Profitability is inherently quantitative, so it is easy to measure. However, consider the example of attempting to evaluate the economic impact of preventing an oil spill. A company may easily be able to identify the input costs, but it may be more difficult to pinpoint non-financial inputs or outcomes.
It can also be difficult to switch gears between priorities that are seemingly antithetical—such as maximizing individual 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.
In addition, electing to prioritize the triple bottom line will likely be more expensive. Consider a clothing 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 greatest possible profits for the company but at the expense of miserable working and living conditions for laborers, and harm to the natural environment and the people who live in that environment.
Examples of Companies That Subscribe to TBL or Similar Concepts
Today, the corporate world is more conscious than ever of its social and environmental responsibility.
Companies are increasingly adopting or ramping up their social programs. Consumers want companies to be transparent about their practices and to be considerate of all stakeholders. Many consumers are willing to pay more for clothing and other products if it means that workers are paid a living wage and the environment is being respected in the production process.
The number of firms—of all types and sizes, both publicly and privately held—that subscribe to the triple-bottom-line concept, or something similar, is staggering. Here are a handful of these companies:
- Ben & Jerry’s
Ben & Jerry’s is the ice cream company that made conscious capitalism central to its strategy. As stated on its website, “Ben & Jerry’s is founded on and dedicated to a sustainable corporate concept of linked prosperity.”
The company opposes the use of recombinant bovine growth hormone (rBGH) and genetically modified organisms (GMOs) and fosters myriad values such as fair trade and climate justice. - LEGO
The LEGO Group (privately held; Billund, Denmark) has formed partnerships with organizations like the nongovernmental organization (NGO) World Wildlife Fund. In addition, LEGO has committed to reducing its carbon footprint and is working towards 100% renewable energy capacity by 2030
Why Is the Triple Bottom Line Important?
A company’s triple bottom line is important because it de-prioritizes the importance of financial performance.
This alternative reporting metric encourages companies to set social, environmental, philanthropic, and non-financial goals instead of purely making decisions on what will maximize profit. In addition, the triple bottom line is important for investors considering what companies invest in.
Some may elect to invest in companies that may be reporting less financial profit but yield stronger philanthropic results.
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