The Triple Bottom Line (TBL) is a theory that seeks to gauge the level of corporate social responsibility in business. Instead of a single bottom line associated with profit, the TBL theory argues that there should be two more: people and the planet. By balancing people, the planet, and profit, it’s possible to build a more sustainable business model and a circular firm.
Understanding the triple bottom line
Sustainability in business is often difficult to understand. How is it measured or defined? How does a business make sustainability financially viable?
The triple bottom line theory seeks to address these questions by making sustainability a key performance metric.
Fundamentally, the TBL theory holds businesses accountable for their actions and provides a holistic approach to doing business that is not primarily concerned with profits.
The three Ps of the TBL theory
Companies must work simultaneously on the three bottom lines of:
1 – People
This encompasses the wide range of people that a business comes into contact with.
This includes employees, suppliers, distributors, and the wider community.
Triple bottom line companies ensure humane working conditions and pay their staff a reasonable wage.
They also give back to the community. For example, 3M uses its scientific background to solve the world’s toughest challenges.
The company has, among other things, funded STEM education around the world to improve and empower local communities.
2 – Planet
For businesses, the planet’s bottom line means finding ways to reduce their ecological footprint.
Broadly speaking, this means manufacturing products that are not harmful to the planet while also reducing wastage, natural resource dependence, and greenhouse gas emissions.
Apple is a clear leader in planet-driven initiatives, with over 93% of its energy coming from renewable sources.
Its large and resource-intensive data centers are also certified by the U.S. Green Building Council.
3 – Profit
Profit is the traditional measure of corporate success.
But increasingly, businesses are realizing that people and the planet do not have to compromise profitability.
Swedish furniture giant IKEA maintains profitability and sales in the billions of dollars while focusing on green initiatives.
For example, the company recycles much of its waste back into some of its bestselling products, with 98% of its home furnishing products (including packaging) derived from renewable or recyclable materials.
Advantages of the triple bottom line theory
Resilience
Businesses that adopt the TBL theory are more resilient to environmental stressors such as climate change.
Public relations
Businesses that see people and the planet as important parts of their strategy moving forward enjoy better relations with consumers.
They are likely to be seen as progressive and sustainable organizations with the best interests of society at heart.
This has positive effects on brand equity and profit generation.
Legitimacy
The TBL theory gives theories of sustainability and social responsibility more weight, especially as they are adopted by increasing numbers of influential businesses.
Disadvantages of the triple bottom line theory
Accountability
Since the TBL theory is rather vague and has no specific guidelines, businesses can preach they are using the theory without backing up their words with actions or verifiable data.
Indeed, while profit is measured in dollars, it is much more problematic to measure social capital or environmental health, for example.
Capitalist slant
In some respects, the TBL theory espouses the benefits of people and the planet if (and only if) they help increase profits.
Capitalism for the sake of the environment is still capitalism, and some posit that people and the planet should be given higher priority than making money.
Triple bottom line, GPI, and GRI
Many businesses, governments, and non-profits use the Genuine Progress Indicator (GPI) to measure standardized data across multiple economic, social, and environmental variables.
The GPI is used in various contexts with the practitioner able to alter each variable to suit.
For example, the State of Maryland used a combination of TBL and GPI to analyze the impact of investing in clean energy versus maintaining the status quo or pursuing other options.
The Canadian government also used aspects of GPI to measure public wellbeing and how it affects the economy.
In terms of business sustainability, many use the following multidimensional approach:
GPI
To measure environmental variables.
Each variable is converted into a monetary unit and then summed to arrive at a dollar-denominated measure.
GRI
To measure social variables.
The Global Reporting Initiative (GRI) is an international organization that has developed standards for measuring and reporting social impact and responsibility, among other standards.
With all of that said, let’s take a look at some of the social and environmental variables a business can analyze under the TBL theory.
Note that not all variables will apply to every business, government, or non-profit.
Environmental
Cost of water pollution
A reduction in water quality due to erosion, sedimentation, or nutrient and chemical runoff.
Cost of air pollution
Material and vegetational damage, remediation of damage resulting from acid rain or soot, and costs associated with a reduction in visual amenity and surrounding property values.
Cost of noise pollution
In factories, noise pollution causes permanent hearing loss which must be compensated. It can also cause sleep deprivation and a loss of productivity.
Loss of wetlands
These costs relate to the services wetlands provide, such as water purification, habitat for wildlife, and protection from weather such as storm surges and subsequent flooding.
Loss of farmland and soil quality or degradation
As the result of compaction, erosion, and urbanization.
This cost is cumulative and is measured for the total number of primary production years lost.
Loss of primary forest and damage from associated infrastructure
This is also a cumulative cost that can be measured via soil quality, water quality, biodiversity loss, recreation potential, and carbon sequestration.
CO2 emissions
The cost associated with releasing carbon dioxide into the atmosphere, measured on a per-ton basis.
Cost of ozone depletion
Or the cost of associated cancers, cataracts, and plant decline.
Depletion of non-renewables
Oere, the cost is measured by calculating the cost of switching to renewable sources.
Social
Let’s now take a look at some of the variables defined by the GRI.
Remuneration
Is remuneration equal for men and women?
Management approach
This encompasses occupational health and safety, training, education, diversity, and leader-subordinate relationships.
Workforce
Segmented by employment type, contract, region, and gender.
Turnover
Or the total number and rate of new hires and employee turnover based on metrics including gender, age group, or region.
Health
This encompasses education, training, prevention, and risk-control programs that are provided to employees, families, and communities to prevent health issues.
Some firms have initiatives in place for repetitive strain injuries, stress management, and safe and secure travel.
Skills and learning
These describe initiatives that support continuous employee learning or assist in the smooth transition to retirement, such as sabbaticals, transition assistance, and financial goal setting for retirees.
Labor standards
Freedom of association, collective bargaining, and the avoidance of child or forced labor.
Communities
A broad field including data privacy, security, providing access to education opportunities, anti-competitive behavior, community impact assessment, and development programs.
Beware of Greenwashing
The term “greenwashing” was first coined by environmentalist Jay Westerveld in 1986 at a time when most consumers received their news from television, radio, and print media. Some companies took advantage of limited public access to information by portraying themselves as environmental stewards – even when their actions proved otherwise. Greenwashing is a deceptive marketing practice where a company makes unsubstantiated claims about an environmentally-friendly product or service.
In a world where new generations seem interested in “sustainability,” greenwashing has become a common practice for many brands to change their public perception with deceptive marketing tactics.
When looking at the triple bottom line, it’s critical not to fall into greenwashing, so based on the attributes above, it’s possible to discern who’s really following a triple bottom line approach, vs. who’s just greenwashing.
Standards like the Genuine Progress Indicator (GPI) and Global Reporting Initiative (GRI) might be helpful in tracking progress.
However, those can also be easily gamed.
Thus, it’s critical as a consumer to have your own judgment beyond those standardized initiatives.
Triple bottom-line example: Patagonia
Patagonia follows a triple-bottom-line approach where it tries to align people, the planet, and profit with a movement that moves toward slow fashion.
Patagonia’s mission is “we’re in business to save our home planet. Its core values are to build the best product, cause no unnecessary harm, use business to protect nature, and not be bound by convention.
This moves in the opposite direction of fast fashion models like Zara.
Zara is a brand part of the retail empire Inditex. Zara is the leading brand in what has been defined as “fast fashion.” With almost €20 billion in sales in 2021 (comprising Zara Home) and an integrated retail format with quick sales cycles. Zara follows an integrated retail format where customers are free to move from physical to digital experience.
ASOS is a British online fashion retailer founded in 2000 by Nick Robertson, Andrew Regan, Quentin Griffiths, and Deborah Thorpe. As an online fashion retailer, ASOS makes money by purchasing clothes from wholesalers and then selling them for a profit. This includes the sale of private label or own-brand products. ASOS further expanded on the fast fashion business model to create an ultra-fast fashion model driven by short sales cycles and online mobile e-commerce as main drivers.
SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved on the ultra-fast fashion model by leveraging real-time retail, which quickly turned fashion trends in clothes’ collections through its strong digital presence and successful branding campaigns.
On the opposite spectrum, Patagonia follows a slow fashion approach.
Patagonia has a particular organizational structure, where its founder, Chouinard, disposed of the company’s ownership in the hands of two non-profits. The Patagonia Purpose Trust, holding 100% of the voting stocks, is in charge of defining the company’s strategic direction. And the Holdfast Collective, a non-profit, holds 100% of non-voting stocks, aiming to re-invest the brand’s dividends into environmental causes.
Thus the triple-bottom-line approach is built into Patagonia’s business model, with a complete restructuring of its organizational structure, rather than just in its marketing or communication (which is usually what happens in greenwashing).
Key takeaways
The triple bottom line theory is a measure of an organization’s ultimate sustainability. The theory argues that companies must work on the three bottom lines of people, planet, and profits.
While the TBL theory improves company resilience and brand equity, it can be difficult to quantify and thus is vulnerable to exploitation.
Businesses can incorporate Genuine Progress Indicator (GPI) and Global Reporting Initiative (GRI) standards to help them measure and analyze environmental and social initiatives respectively.
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.
The Standard for Portfolio Management (SfPfM) describes a suite of portfolio management processes concerning programs, projects, and organizational strategy. The Standard for Portfolio Management is a creation of the Project Management Institute (PMI).
Change is an important and necessary fact of life for all organizations. But change is often unsuccessful because the people within organizations are resistant to change. Change management is a systematic approach to managing the transformation of organizational goals, values, technologies, or processes.
An organizational structure allows companies to shape their business model according to several criteria (like products, segments, geography and so on) that would enable information to flow through the organizational layers for better decision-making, cultural development, and goals alignment across employees, managers, and executives.
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
