The triple bottom line (or otherwise noted as TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial. Some organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value. Business writer John Elkington claims to have coined the phrase in 1994.

Background
In traditional business accounting and common usage, the “bottom line” refers to either the “profit” or “loss”, which is usually recorded at the very bottom line on a statement of revenue and expenses. Over the last 50 years, environmentalists and social justice advocates have struggled to bring a broader definition of bottom line into public consciousness by introducing full cost accounting. For example, if a corporation shows a monetary profit, but their asbestos mine causes thousands of deaths from asbestosis, and their copper mine pollutes a river, and the government ends up spending taxpayer money on health care and river clean-up, how do we perform a full societal cost benefit analysis? The triple bottom line adds two more “bottom lines”: social and environmental (ecological) concerns. 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. Use of the TBL is fairly widespread in South African media, as found in a 1990–2008 study of worldwide national newspapers.

An example of an organization seeking a triple bottom line would be a social enterprise run as a non-profit, but earning income by offering opportunities for handicapped people who have been labelled “unemployable”, to earn a living by recycling. The organization earns a profit, which is controlled by a volunteer Board, and ploughed back into the community. The social benefit is the meaningful employment of disadvantaged citizens, and the reduction in the society’s welfare or disability costs. The environmental benefit comes from the recycling accomplished. In the private sector, a commitment to corporate social responsibility (CSR) implies a commitment to transparent reporting about the business’ material impact for good on the environment and people. Triple bottom line is one framework for reporting this material impact. This is distinct from the more limited changes required to deal only with ecological issues. The triple bottom line has also been extended to encompass four pillars, known as the quadruple bottom line (QBL). The fourth pillar denotes a future-oriented approach (future generations, intergenerational equity, etc.). It is a long-term outlook that sets sustainable development and sustainability concerns apart from previous social, environmental, and economic considerations.

The challenges of putting the TBL into practice relate to the measurement of social and ecological categories. Despite this, the TBL framework enables organizations to take a longer-term perspective and thus evaluate the future consequences of decisions.

Definition
Sustainable development was defined by the Brundtland Commission of the United Nations in 1987. Triple bottom line (TBL) accounting expands the traditional reporting framework to take into account social and environmental performance in addition to financial performance.

These three dimensions of sustainability essentially mean:

Ecological sustainability: It is based strongly on the original idea of not exploiting nature. Ecologically sustainable would be a lifestyle that claims the natural basis of life only to the extent that they regenerate.
Economic sustainability: A society should not live economically beyond its means, as this would inevitably lead to losses for future generations. In general, an economic mode is considered sustainable if it can be operated permanently.
Social sustainability: A state or society should be organized in such a way that social tensions are contained and conflicts can not escalate, but can be resolved in a peaceful and civilian way.

In 1981, Freer Spreckley first articulated the triple bottom line in a publication called ‘Social Audit – A Management Tool for Co-operative Working’. In this work, he argued that enterprises should measure and report on financial performance, social wealth creation, and environmental responsibility. The phrase “triple bottom line” was articulated more fully by John Elkington in his 1997 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business A Triple Bottom Line Investing group advocating and publicizing these principles was founded in 1998 by Robert J. Rubinstein.

For reporting their efforts companies may demonstrate their commitment to corporate social responsibility (CSR) through the following:

Top-level involvement (CEO, Board of Directors)
Policy Investments
Programs
Signatories to voluntary standards
Principles (UN Global Compact-Ceres Principles)
Reporting (Global Reporting Initiative)

The concept of TBL demands that a company’s responsibility lies with stakeholders rather than shareholders. In this case, “stakeholders” refers to anyone who is influenced, either directly or indirectly, by the actions of the firm. Examples of stakeholders include employees, customers, suppliers, local residents, government agencies, and creditors. According to the stakeholder theory, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximizing shareholder (owner) profit. A growing number of financial institutions incorporate a triple bottom line approach in their work. It is at the core of the business of banks in the Global Alliance for Banking on Values, for example.

The Detroit-based Avalon International Breads interprets the triple bottom line as consisting of “Earth”, “Community”, and “Employees”.

The three bottom lines
The triple bottom line consists of social equity, economic, and environmental factors. The phrase, “people, planet, and profit” to describe the triple bottom line and the goal of sustainability, was coined by John Elkington in 1994 while at Sustain Ability, and was later used as the title of the Anglo-Dutch oil company Shell’s first sustainability report in 1997. As a result, one country in which the 3P concept took deep root was The Netherlands.

People, the social equity bottom line
The people, social equity, or human capital bottom line 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.

An enterprise dedicated to the triple bottom line seeks to provide benefit to many constituencies and not to 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, for example, a farmer in fair trade agricultural practice, is a common 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, the environmental bottom line
The planet, environmental bottom line, or natural capital bottom line 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 minimize environmental impact. A TBL endeavour 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.

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.

The ecological bottom line is akin to the concept of eco-capitalism.

Profit, the economic bottom line
The profit or economic bottom line deals with the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It therefore differs from traditional accounting definitions of profit. In the original concept, within a sustainability framework, the “profit” aspect needs to be seen as the real economic benefit enjoyed by the host society. It is the real 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 (which nevertheless remains an essential starting point for the computation). Therefore, an original TBL approach cannot be interpreted as simply traditional corporate accounting profit plus social and environmental impacts unless the “profits” of other entities are included as a social benefit.

Subsequent development
Following the initial publication of the triple bottom line concept, students and practitioners have sought greater detail in how the pillars can be evaluated.

The people concept for example can be viewed in three dimensions – organisational needs, individual needs, and community issues.

Equally, profit is a function of both a healthy sales stream, which needs a high focus on customer service, coupled with the adoption of a strategy to develop new customers to replace those that die away.

And planet can be divided into a multitude of subdivisions, although reduce, reuse and recycle is a succinct way of steering through this division.

Supporting arguments
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:
Adding ecotourism or geotourism to an already rich tourism market such as the Dominican Republic
Developing profitable methods to assist existing NGOs with their missions such as fundraising, reaching clients, or creating networking opportunities with multiple NGOs
Providing products or services which benefit underserved populations and/or the environment which are also financially profitable.
Adapting to new business sectors: While the number of social enterprises is growing, and with the entry of the B Corp movement, there is more demand from consumers and investors for an accounting for social and environmental impact. For example, Fair Trade and Ethical Trade companies require ethical and sustainable practices from all of their suppliers and service providers.
Fiscal policy of governments usually claims to be concerned with identifying social and natural deficits on a less formal basis. However, 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.

Related Post

The argument is that the Earth’s carrying capacity is at risk, and that in order to avoid catastrophic breakdown of climate or ecosystems, there is need for comprehensive reform of global financial institutions similar in scale to what was undertaken at Bretton Woods in 1944.

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 since 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 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 — the Kyoto Protocol 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.

To address financial bottom line profitability concerns, some argue that focusing on the TBL will indeed increase profit for the shareholders in the long run. In practice, John Mackey, CEO of Whole Foods, uses Whole Foods’s Community Giving Days as an example. On days when Whole Foods donates 5% of their sales to charity, this action benefits the community, creates goodwill with customers, and energizes employees—which may lead to increased, sustainable profitability in the long-run.

Criticism
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 following are the reasons why:
Operationalizability
The three-pillar model is controversial in the art. Above all, critics complain that it is difficult to operationalize and that hardly any practical consequences can be derived from it. Thus, the Study Commission of the German Bundestag has not specified whether the guiding principle of sustainable development continues to serve primarily the preservation of natural capital or those long-term goals are always linked with actually feasible short-term objectives, so as to maintain the current development model.

In its 2002 Opinion, the German Council of Environmental Advisors (SRU) gave orientation to the three-pillar model because it resulted in a three-pronged wish list in which each actor could enter his or her concerns. But this leads to a “hyper-complexity, which overtaxes the division of labor political system”.

Unclear weighting in the objective: strong and weak sustainability
From the point of view of many critics, the model describes economic, ecological and social sustainability as equal to each other; in fact, the objective of environmental sustainability must be given priority, since the protection of natural living conditions is also a prerequisite for economic and social stability.

The scientific sustainability discussion distinguishes between “weak” and “strong” sustainability. “Weak sustainability” refers to the idea that ecological, economic and social resources can be balanced against each other. For example, in the context of weak sustainability, it would be acceptable for natural resources, and therefore natural capital, to be depleted if they are matched by adequate amounts of human capital or physical capital. Economy and ecology are equal here.

Strong sustainability means that natural capital is only very limited or not at all replaceable by human or physical capital. This approach corresponds z. B. the environmental space concept, the well-known ecological footprint or the “guard rail model”. According to him, the ecological parameters, which secure long-term stable living conditions on earth, form a development corridor, which must be observed. Only within this corridor is there scope for implementing economic and social goals.

From the point of view of critics, the three-pillar model of weak sustainable development speaks. For example, the German Council of Economic Experts criticizes the three-pillar model for the mutual integration of economic, environmental and social concerns. It thus contradicts the so-called cross-cutting principle of environmental policy, which was also enshrined in the Treaty of Amsterdam and which first calls for the integration of environmental concerns into all policy areas.

The SRU therefore recommended in 2002 to say goodbye to the three-pillar model and instead use the “more manageable” principle of integrating environmental concerns. This reflects the fact that environmental protection has the greatest backlog compared to the implementation of economic and social objectives, and that the greatest shortcomings exist in terms of long-term stabilization of the ecological basis.

The SRU also criticized the fact that the isolated application of the concept of sustainability to the subsections of ecology, economics and social affairs gave rise to the idea that ecological, economic and social sustainability could be realized independently of each other and thus undermine the integrative function of the sustainability idea (see SRU 1994, Item 19).

Missing global dimension
As part of a study by the Forschungszentrum Karlsruhe, the concept of the Enquete Commission was supplemented:

“In contrast to the operationalization approach of the Enquete Commission, which was limited to Germany from the outset, the HGF project first attempts to formulate minimum requirements for sustainable development that are independent of the national context. Since these minimum conditions are to be globalisable, they must consequently take into account both the objectives of the mission statement, ie both the conservation and the development perspective “.

Fundamental criticism of the sustainability discourse
In general, sustainability is about more closely aligning human action not only with intergenerational equity, but also with global justice. Whether it is really appropriate to speak of “three pillars” in view of this orientation (and whether non-essential parts of the “economic” and “social” side have nothing to do with sustainability) is not the only contentious issue. Likewise, the usual debate is accused of over-emphasizing the background question as to why future generations as well as people in other parts of the world should receive more attention.

Persistent Base
Despite the multiple criticism of the three-pillar model, so far no other model has prevailed. In almost all definitions of sustainable development, the three pillars and inter- and intragenerational justice are the greatest common denominator. Many significant implementations also target the three pillars, such as the World Community under item I.2 of the Johannesburg Implementation Plan (World Summit on Sustainable Development) or the European Community in Article 1 of the EC Treaty (Treaty on the Foundation of the European Community). Thus, it should be noted that the three pillars are still an important starting point for many sustainability discussions, since they are pragmatic and find great consensus as a magical target group for sustainable development. According to the Johannesburg Conference (World Summit on Sustainable Development), the goals should always be pillars that are independent but support each other (interdependent and mutually reinforcing pillars).

This is summarised below as:
attempting to divert the attention of regulators and deflating pressure for regulatory change;
seeking to persuade critics, such as non-government organisations, that they are both well-intentioned and have changed their ways;
seeking to expand market share at the expense of those rivals not involved in greenwashing; this is especially attractive if little or no additional expenditure is required to change performance; alternatively, a company can engage in greenwashing in an attempt to narrow the perceived ‘green’ advantage of a rival;
reducing staff turnover and making it easier to attract staff in the first place;
making the company seem attractive for potential investors, especially those interested in ethical investment or socially responsive investment.
inability to add up the three accounts unless tools such as cost-benefit analysis are added to put social and environmental externalities in monetary terms.
Legislation
A focus on people, planet and profit has led to legislation changes around the world, often through social enterprise or social investment or through the introduction of a new legal form, the Community Interest Company. In the United States, the BCorp movement has been part of a call for legislation change to allow and encourage a focus on social and environmental impact, with BCorp a legal form for a company focused on “stakeholders, not just shareholders”.

In Western Australia, the triple bottom line was adopted as a part of the State Sustainability Strategy, and accepted by the Government of Western Australia but its status was increasingly marginalised by subsequent premiers Alan Carpenter and Colin Barnett.

Further development

Integrated sustainability approach
The three-pillar model was further developed by Forschungszentrum Karlsruhe as part of a major study. Central is the extension to the institutional dimension, the operationalization, cross-dimensional sustainability goals such as “securing the human existence,” “preservation of the social productive potential” and “preservation of development and possibilities for action,” and the integration of intra and Intergenerational aspects of justice:

“It does not start from the limited perspective of the individual dimensions, but – in an integrating viewpoint – three general, cross-dimensional sustainability goals are projected onto the dimensions and conveyed with the ‘intrinsic logics’ of the individual dimensions embodied in different discourses. The result is operationalization of the general goals with regard to sustainability-relevant constitutive elements of the individual dimensions in the form of “rules”. The general sustainability goals in detail are “securing human existence”, “preserving the social productive potential” and “preserving opportunities for development and action”. They represent both fundamental normative justice principles of sustainability in the preservation or Development dimension as well as its most general analytic-functional premises. Intra- and intergenerational aspects of justice are seen in this context as equal and in anthropocentric perspective “.

Integrating representation
However, if the three-pillar model is retained, it must be adapted to the requirements of an integrated representation. This is where the takeover of a triangular diagram spread in technical and scientific fields lends itself. The diagram, also known as Gibbs triangle, forms a mixture of three components (x + y + z = 100%). In this sense, farewell to the idea of three isolated pillars must be taken. Instead, the pillars are to be understood as dimensions to which sustainability aspects can be continuously assigned. For example, eco-efficiency concernsas an economic-ecological concept two dimensions alike (50% economy + 50% ecology), while biodiversity is to be considered predominantly as an ecologically dominated topic (about 100% ecology). The central field stands for a position with three, approximately equal explanatory contributions. The Integrating Sustainability Triangle can represent all possible combinations.

This integrative presentation allows a much more differentiated analysis, more precise integration of other concepts (eg eco-efficiency) and at the same time a synoptic compilation. Compared with earlier approaches to a Magical Triangle of Sustainability, the Integrating Triangle of Sustainability takes advantage of the inner surface and emphasizes the interaction of the three sustainability dimensions. It is for many more applications like u. a. Sustainability assessment, collection of indicators or content-based structures.

Source from Wikipedia

Share