What Is the Triple Bottom Line (TBL)?
The triple bottom line (TBL) is a framework or theory that recommends that companies commit to focus on social and environmental concerns just as they do on profits. The TBL 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 we can manage a company in a way that not only earns financial profits but which also improves people’s lives and the planet.
Understanding the Triple Bottom Line
The Full Cost of Doing Business
In finance, when we speak 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.
Moreover, the TBL tenet holds that if a company focuses on finances only and does not examine how it interacts socially, that company cannot see the whole picture, and thus cannot account for the full cost of doing business.
People + Planet = Social + Environmental Responsibility
According to TBL theory, companies should be working simultaneously on these three bottom lines:
- Profit: The traditional measure of corporate profit—the profit and loss (P&L) account.
- People: Measures how socially responsible an organization has been throughout its operations.
- The Planet: Measures how environmentally responsible a firm has been.
By focusing on these three interrelated elements, triple-bottom-line reporting can be an important tool to support a firm's sustainability goals.
Challenges of Applying the Triple Bottom Line
Measuring the TBL
A key challenge of the TBL, according to Elkington, is the difficulty of measuring the social and environmental bottom lines. Profitability is inherently quantitative, so it is easy to measure. What constitutes social and environmental responsibility, however, is somewhat subjective. How do you put a dollar value on an oil spill—or on preventing one, for example?
Mixing Diverse Elements
It can be difficult to switch gears between priorities that are seemingly diverse, maximizing 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.
- The triple bottom line aims to measure the financial, social, and environmental performance of a company over time.
- The TBL consists of three elements: profit, people, and the planet.
- TBL theory holds that if a firm looks at profits only, ignoring people and the planet, it cannot account for the full cost of doing business.
Repercussions of Ignoring the TBL Framework
There can be dire repercussions of ignoring the TBL in the name of profits; three well-known cases are the destruction of the rainforest, exploitation of labor, and damage to the ozone layer.
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 highest possible profits for the company, but at the expense of miserable working and living conditions for laborers, and damage to the natural environment and the people who live in that environment.
[Important: Profits do matter in the triple bottom line—just not at the expense of social and environmental concerns.]
Examples of Companies That Subscribe to the TBL or Similar
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, and 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; we cite a handful of these companies:
- Axion Structural Innovations LLC (privately held; Zanesville, OH) is known for its commitment to sustainability. Axion builds railroad ties and pilings using recycled plastic bottles and industrial waste instead of standard materials such as wood, steel, and cement.
- Ben & Jerry's (NYSE: UL) 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 supports opposing the use of recombinant bovine growth hormone (rBGH) and genetically modified organisms (GMOs) and fosters myriad values such as fair trade and climate justice.
- Interestingly, in 2000 Ben & Jerry's became a wholly owned subsidiary of Unilever PLC, (NYSE: UL), the British-Dutch Multinational Corporation (MNC). Was Unilever's acquisition emblematic of corporations' renewed interest? Part of the deal was that Unilever agreed to encourage, and fund, Ben & Jerry's social missions; and in turn, Ben & Jerry's would help to strengthen Unilever's social practices worldwide.
- The LEGO Group (privately held; Billund, Denmark) has formed partnerships with organizations like the non-governmental organization (NGO), World Wildlife Fund. In addition, LEGO has made a commitment to reduce its carbon footprint and is working towards 100% renewable energy capacity by 2030.
- Mars, Incorporated's (privately held; Mc Lean, VA) Cocoa for Generations is a sustainable cocoa initiative that requires its cocoa farmers to be fair trade certified to ensure that they follow a code of fair treatment to those providing labor. In exchange for certification, Mars provides productivity technology and buys cocoa at premium prices.
- Starbucks Corporation (NASDAQ: SBUX), which has been socially and environmentally focused since its inception in 1971, promises to hire 25,000 veterans before 2025.