What is the 'Triple Bottom Line'
Triple bottom line is a phrase introduced in 1994 by John Elkington and later used in his 1997 book "Cannibals With Forks: The Triple Bottom Line Of 21st Century Business," which seeks to broaden the focus on the financial bottom line by businesses to include social and environmental responsibilities. A triple bottom line measures a company's degree of social responsibility, its economic value and its environmental impact. A key challenge with the triple bottom line, according to Elkington, is the difficulty of measuring the social and environmental bottom lines, which necessitates the three separate accounts being evaluated on their own merits.
BREAKING DOWN 'Triple Bottom Line'Elkington's triple bottom line is intended to advance the goal of sustainability in business practices, in which the focus of companies is extended beyond profits to include social and environmental issues to measure the total cost of doing business. The elements of the triple bottom line are referred to as "people, profits and planet."
People in the Bottom Line
Adding the "people" element of social responsibility to corporate bottom lines shifts the focus to the fair treatment of employees and off-site labor, as well as enacting favorable practices in the communities where companies conduct business. For example, Mars Chocolate North America’s Sustainable Cocoa Initiative requires its cocoa farmers to be certified by fair trade organizations to ensure they follow a code of conduct that includes fair treatment to those providing labor. In exchange for certification, Mars provides productivity technology and buys cocoa at premium prices.
The bottom line referred to as the "planet" represents the implementation of sustainable practices and the reduction of environmental impact. These measures range in scope from green initiatives such as recycling programs within corporations to companies dedicated to manufacturing products using only sustainable materials. For example, Axion Structural Innovations builds railroad ties and pilings using recycled plastic bottles and industrial waste instead of using standard materials such as wood, steel and cement.
The Financial Bottom Line
The addition of social and environmental responsibilities can have a positive effect on a company's financial bottom line. A Nielsen report released in October 2015 found 73% of millennials, which represent the largest consumer demographic in U.S. history, were willing to pay more for sustainable goods, an increase of 46% from 2014. The study found 56% of consumers were willing to pay more for products offered by companies committed to social values.
In addition to growing revenues, companies are integrating social and environmental standards with corporate governance policies, which can reduce the chances of brand-damaging events and missteps. In addition to governance benefits, the transformation to a triple bottom line is increasingly seen as a vital factor in building corporate brands and goodwill, which represent 30% of the value of public companies, on average.