triple-bottom-line

What Is The Triple Bottom Line And Why It Matters To Build A Sustainable Business

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, 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 and disadvantages of the triple bottom line theory

Advantages

  • 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

  • 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:

  1. GPI – to measure environmental variables. Each variable is converted into a monetary unit and then summed to arrive at a dollar-denominated measure.
  2. 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

  1. Cost of water pollution – a reduction in water quality due to erosion, sedimentation, or nutrient and chemical runoff. 
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. CO2 emissions – the cost associated with releasing carbon dioxide into the atmosphere, measured on a per-ton basis. 
  8. Cost of ozone depletion – or the cost of associated cancers, cataracts, and plant decline. 
  9. Depletion of non-renewables – here, 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.

  1. Remuneration – is remuneration equal for men and women?
  2. Management approach – this encompasses occupational health and safety, training, education, diversity, and leader-subordinate relationships.
  3. Workforce – segmented by employment type, contract, region, and gender.
  4. Turnover – or the total number and rate of new hires and employee turnover based on metrics including gender, age group, or region.
  5. 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.
  6. 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.
  7. Labor standards – freedom of association, collective bargaining, and the avoidance of child or forced labor.
  8. Communities – a broad field including data privacy, security, providing access to education opportunities, anti-competitive behavior, community impact assessment, and development programs.

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.

Connected Business Concepts

sustainable-competitive-advantage
Sustainable competitive advantage describes company assets, abilities, or attributes that are difficult to duplicate or exceed. The qualities of these attributes mean the company that possesses them can enjoy a superior and long-term position in its market or industry. In business theory, sustainable competitive advantage is associated with cost leadership, differentiation, or cost focus.
sustainable-marketing-green-marketing
Sustainable marketing describes how a business will invest in social and environmental initiatives as part of its marketing strategy. Also known as green marketing, it is often used to counteract public criticism around wastage, misleading advertising, and poor quality or unsafe products.
marketing-strategy
A marketing strategy is the “what” and “how” to build a sustainable value chain framed for a target customer. A powerful marketing strategy needs to be able to manufacture desire, amplify the underlying value proposition, and build a brand that feels unique in the mind of its customers.
brand-storytelling
Brand storytelling involves the use of authentic, sustainable, and emotion-driven narratives that promote organizational growth and customer loyalty. Brand storytelling is a form of integrated marketing where a company’s brand content is streamlined across multiple media channels and market activities. This may include social media, content marketing, public relations, video, search engine optimization, sales collateral, messaging, and advertising.
engines-of-growth
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.” He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.” The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics.

Other strategy frameworks

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