What is the Triple Bottom Line (TBL)
The triple bottom line (TBL) is a concept which broadens a business' focus on the financial bottom line to include social and environmental considerations. A TBL measures a company's degree of social responsibility, its economic value and its environmental impact.
The phrase was introduced in 1994 by John Elkington and later used in his 1997 book "Cannibals with Forks: The Triple Bottom Line of 21st Century Business." A key challenge with the TBL, 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 (TBL)
Normally, a company's bottom line on its income statement is its net income, i.e., its profits. Elkington's TBL 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. An investment manager, individual investor or CEO that wants to pursue the TBL must consciously consider, in addition to the economic bottom line, the social and environmental areas in making investing and business decisions. Deploying money and other resources, such as human labor, to a project or an investment can either contribute to these three goals or focus on profit at the expense of one or both of the other two. Some of the repercussions that have come about from ignoring the TBL in the name of profits include destruction of the rainforest, exploitation of labor, and damage to the ozone layer.
In effect, TBL is the idea that it is possible to run an organization in a way that not only earns financial profits but also betters people’s lives and helps the planet. The elements of the TBL are referred to as "people, profits and planet."
People + Planet = Social + Environmental Responsibility
It can be challenging to maximize financial returns while also doing the greatest good for the people and the environment. 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. The result might be the highest possible profits for the company but miserable working and living conditions for laborers, and damage to the natural environment and the people who live in that environment. In the past, such practices were more socially acceptable, but today, 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. Many consumers want companies to be transparent about their practices and to be considerate of all their stakeholders, hence the popularity of the TBL concept that accounts for the full cost of doing business.
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, Incorporated's Cocoa for Generations is a sustainable cocoa initiative that 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.
Profits: 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 that 73 percent of millennials, which represent the largest consumer demographic in U.S. history, were willing to pay more for sustainable goods, up from 55 percent in 2014.
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 TBL is increasingly seen as a vital factor in building corporate brands and goodwill, which represent 30 percent of the value of public companies, on average.
Measuring the TBL
The TBL can be difficult to measure because while the issue of profitability is black and white, what constitutes social and environmental responsibility is somewhat subjective. How do you put a dollar value on an oil spill — or on the prevention of one? Is it good enough to pay workers in Bangladesh three times the average local wage if that wage still sounds horrifyingly low to consumers in the United States? How do you measure the cost of child labor? Does it benefit children and their families by allowing them to rise out of poverty, or does it perpetuate poverty by denying children sufficient time to get educated and deprive them of a carefree childhood?
The upside of this lack of standardized measurement is that metrics can be adopted that make the most sense for each organization, project or location. A restaurant could measure and report on how much it reduces its waste by switching to environmentally friendly packaging and serving leftover food to a local homeless shelter that would otherwise be thrown out. A car manufacturer could measure its progress toward producing less-polluting vehicles. A government project to expand public transit could measure how much it reduces highway and surface road congestion.
Other key factors to report on, depending on the organization, might include job creation, employee turnover, fossil fuel consumption, hazardous waste management, percentage of women and minorities employed overall and in management positions, contributions to charity, how employee income and benefits compare with a living wage, and number of employees taking advantage of workplace benefits for pursuing higher education.
Federal, state and local governments as well as nonprofit organizations have also implemented the TBL approach. For example, Grand Rapids, MI, has applied the TBL concept to creating a sustainable local economy through focused efforts related to environmental quality, economic prosperity, and social capital and equity. Indicators used by the city to measure its TBL include alternative fuel usage, traditional fuel consumption, number of air pollution ozone action days, personal income per capita, unemployment rate, public transportation ridership, crime statistics, educational attainment and voter participation.