As ESG and CSR considerations move center-stage, the concept of a triple bottom line is increasingly relevant. Evaluating corporate performance not just on financial terms but also on your impact on the planet and its inhabitants is fast becoming the norm.
What is the Triple Bottom Line?
The triple bottom line (TBL) is the belief that companies should focus on social and environmental concerns as much as they do on profit.
The term triple bottom line was coined in 1994 by corporate responsibility strategist John Elkington. Explaining its origins, Elkington commented that there was no “eureka moment,” but instead, the term came out of a search for “new language to express what we saw as an inevitable expansion of the environmental agenda.”
Triple bottom line theory advocates that instead of one bottom line focusing on profit, companies should have three: profit, people and the planet. You may also hear the theory referred to as the 3Ps, TBL or 3BL.
In the late 1990s, as the need for corporate social responsibility grew more widely recognized and environmental, social and governance (ESG) considerations became more deeply embedded in corporate strategy, the use of triple bottom line to describe organizations’ obligation to consider social and environmental issues really took off. The triple bottom line and corporate social responsibility are closely interlinked, as is ESG.
Importantly from a commercial perspective, the triple bottom line doesn’t prioritize environmental and social concerns over profit — in fact, it suggests that all three ‘p’s of people, the planet and profit are interwoven. It has been shown that a focus on sustainability, ethics and business integrity can enhance corporate performance rather than coming at its expense.
Why Is the Triple Bottom Line Important?
Today’s business landscape increasingly values non-financial metrics. Climate change is imperative, with reporting frameworks like the TCFD making businesses and their directors more publicly accountable.
The triple bottom line concept dovetails this trend, capturing the need to recognize, measure and report on business performance beyond the purely financial. Today, its importance is underscored by ESG reporting moving into the mainstream and potential shareholders increasingly using ESG Ratings as a means of assessing possible investments.
Putting people and the planet at the heart of your business, on a par with profits, isn’t just the right thing to do from a business integrity perspective. There are also sound business arguments for taking a 3BL approach, driving some of the world’s biggest companies, including General Electric, Unilever and Procter & Gamble, to embrace the concept.
Focusing on people and the planet can:
- Improve your corporate culture — in turn, making employee attraction and retention easier, increasing employee engagement and loyalty and enabling you to tap into the benefits of a more diverse and inclusive workforce.
- Enhance customer relationships. A company’s ethical performance is a purchasing consideration for 64% of US consumers. Create an organization where integrity, society and the environment genuinely matter, and you will build a reputation that attracts clients and customers.
- Improve business performance. Profits are just one aspect of the triple bottom line. Still, if you attend to the other two elements, profitability should follow. Financial performance among ethical businesses consistently outranks that for other organizations.
- Minimize regulatory compliance and governance risk. Reporting on ESG issues isn’t mandated. Still, it is increasingly becoming best practice, with penalties for non-compliance. And at a more fundamental level, failings in areas like pollution and employee relations can incur hefty fines, remediation costs and reputational damage.
- Strengthen your supply chain. Sustainable supply chains aren’t just good practices; they can increase the robustness of your operations and make your company less vulnerable to the effects of business interruption.
- Make you a better investment proposition. With ESG performance increasingly transparent and ESG scores a core consideration for potential investors, paying attention to your impact on people and the planet makes sound business sense.
Is it Time to Rethink the Triple Bottom Line?
In recent years, John Elkington has expressed a desire to “recall” the 3BL concept. Not because he believes it is no longer relevant, but quite the opposite — because the issues it covers are more important than ever, but the concept has shifted away from its original intentions.
While the triple bottom line model has arguably been the basis for many accounting and reporting frameworks, such as Social Return on Investment (SROI), Elkington designed it to be more than an accounting tool. In his words, “it was supposed to provoke deeper thinking about capitalism and its future, but many early adopters understood the concept as a balancing act, adopting a trade-off mentality.”
When it comes to the triple bottom line, Elkington expresses a view that “It is time to either step up — or to get out of the way.” In other words, organizations need to commit to action or abandon the concept.
Given the triple bottom line’s relevance to today’s business landscape, abandonment doesn’t sound like the best option. So, what are the practical steps companies can take to operationalize 3BL?
How to Measure the Triple Bottom Line
There’s no shortage of books, articles and other resources on corporate social responsibility and related topics. And yet, many businesses struggle to build an ESG strategy based on agreed metrics and consistent reporting structures.
In part, this reflects a historical lack of frameworks for ESG reporting. Organizations have struggled to “get their arms around” the entirety of the issue — to identify the areas they should be measuring and capture data within their own business. Often, a lack of visibility of their entire organization has been a barrier; many businesses do not have full oversight of all their subsidiaries and entities, particularly when it comes to ESG matters.
There has also been a historical lack of benchmark data in this area, giving business leaders a headache when identifying best practices and comparing their performance to others. As a result, while it can be relatively easy to identify high-level objectives and aspirations on ESG, putting them into practice, understanding your start point and measuring progress towards your goals can be challenging.
This is where Diligent’s ESG Solutions can help. Users have access to up-to-date information on ESG standards and expectations across geographies, expediting your understanding of your baseline and making it easier to set measurable objectives. Access to unparalleled governance data enables you to identify discrepancies in your own performance on issues like diversity, governance and executive pay. Meanwhile, built-in governance intelligence allows users to keep track of ESG trends, regulations and stakeholder sentiment to inform goal-setting and drive strategic decisions.
Find out more about Diligent’s ESG Solutions on our website. By understanding external standards and guidelines and translating these into tangible aims and actions, you can accelerate the progress of your ESG strategies and make real advances towards achieving the aims of the triple bottom line.
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