What is the triple bottom line?
Traditionally, the term “bottom line” refers to business results, such as earnings, profit, net income or earnings per share (EPS). But these results don’t measure many other additional impacts, including costs and benefits, of running a business. That’s where triple bottom line reporting comes in.
Sustainability is an often discussed goal for businesses, not-for-profit organisations and governments. The challenge has been how to measure the extent to which an organisation is sustainable and how to pursue this goal.
In 1994, author and business expert John Elkington developed the TBL framework to measure the sustainability performance of businesses. While traditional accounting measures profit and loss, cash flow and other financial ratios, the triple bottom line goes beyond financial measures to include economic (beyond the business), environmental and social gains and costs of operating a business. The social and environmental dimensions are summarised as benefiting people and the planet now and for future generations.
Under the triple bottom line concept, you go beyond your business results of being financially profitable to measure the economic impact you are creating beyond your business. While maintaining a traditional focus on profitability, a business can boost the economy by supporting the networks and communities it belongs to. Concrete steps include:
- Supporting local businesses instead of always seeking less expensive alternatives.
- Paying wages that stimulate economic growth and spending.
- Choosing inventory, materials and supplies that don’t have a negative impact in other areas. For example, selling products made from recycled materials and not selling products that are produced using slave labour.
Although these steps can increase the cost of doing business, they add to they enhance the local and broader community, increasing the triple bottom line.
Triple bottom line sustainability assumes that the less natural resources your business uses and the lower impact you have on the environment, the better your long-term results.
Implementing this approach means monitoring and managing the consumption of resources and the resulting waste and emissions. Examples of environmental sustainability include:
- Using renewable energy and suppliers that do the same to minimise their carbon footprint
- Recycling products that used and using products made from recycled materials
- Minimising the use of water when possible
- Using equipment and vehicles that use less energy.
One example of an SME taking steps to environmental sustainability is Dance Mafia, a Gold Coast dance studio founded by Caitlin McMahon. The business collects cans, bottles, and water bottles. So far, they’ve recycled over 7000 cans used by used at home by the studio’s students and their families. Caitlin says, “When you think about it, it doesn’t seem like much. But then you realise it’s 7,000 cans that are not in the ocean!”
Find out how Caitlin launched Dance Mafia directly out of high school in Dance Mafia: Elevating the future of dance.
The social bottom line measures the business profits in human capital, including your impact on the broader community. Labour practices that are fair and beneficial increase the social bottom line. Actions that contribute to this include creating a positive work environment where employees feel that they are valued. This includes going beyond the basic requirements and business practices to increase employee wellbeing with benefits, such as training and development opportunities and additional paid parental leave.
Outside of a business, social sustainability includes measures that benefit the community and society as a whole. Examples include supporting charities and volunteering in the community. While some businesses might choose to support a particular charity and have employees volunteer in groups, others might make it easier for the employees to volunteer by offering flexibility to participate in volunteer activities.
On a broader scale, there is a crossover between social sustainability and economic sustainability, including working with supply chain partners that use fair trade practices.
Triple bottom line reporting
One of the biggest challenges for implementing a triple bottom line approach is reporting. While large organisations have the resources to put reporting processes in place, it’s more difficult for SMEs. In addition, many of the aspects of the triple bottom line, especially social and environmental, are difficult to quantify.
More solutions are now available to simplify TBL reporting. Environmental impact reporting software can facilitate the monitoring of resources used. One example is GreenKPI, cloud-based software that manages resource use and provides automated reporting that can feed into triple bottom line reporting.
Criticisms of the triple bottom line
For many small businesses, taking a triple bottom line approach is not a priority, as they have many more pressing issues to deal with in pursuing business survival and growth. Top challenges for SMEs include insufficient cash flow, access to finance and recruitment challenges, so TBL is not a priority when planning business strategy.
In addition, there are no commonly agreed standards for measuring or disclosing the elements of the triple bottom line.
Another criticism is how some large businesses use the TBL to exaggerate their environmental, social and economic impacts by highlighting their positive results while not reporting activities that have a negative impact. Although the idea of “corporate social responsibility” is often spoken about, it’s not always applied consistently in large businesses.
While it might not be practical for SMEs to implement a full TBL program, including monitoring and reporting, they can take small and consistent steps to increase positive impacts on people and the planet.