You don’t need me to tell you that 2020 has been a tumultuous year, or to remind you that we’re only halfway through. And with the instability and new challenges that the last six months has presented for businesses of all kinds, comes a newfound impetus for companies to demonstrate corporate awareness, responsibility, and solidarity with the prevailing causes of the time. Indeed, fostering a sense of ‘brand good will’ among clients, stakeholders, and the general public has perhaps never been so important from a strategic marketing perspective than it is now. Be it sustainability, diversity & inclusion, or social responsibility, measuring and improving the overall impact of doing business is now cemented as a cornerstone of any company’s competitive edge.
That’s why we’re offering a new series on what we might call an oldie, but a goodie: The Triple Bottom Line. A hallmark of sustainability policy and corporate social responsibility, the TBL approach has evolved into more than a simple accounting framework. And there has perhaps never been a better time to revisit how it has evolved over the past 25 years, some of its recent challenges and wins, as well as how to train students and employees on how to best leverage it for success.
What is the Triple Bottom Line?
The Evolution of the TBL Concept
The TBL has been touted as more than just a staple in the business lexicon of the last 25 years, but as a teller of a fundamental truth about doing business in today’s world. As the Economist wrote in the first few years after its inception, “Only a company that produces a TBL is taking account of the full cost involved in doing business.” In this sense, the TBL concept encompasses more than just an accounting framework, but is a lens through which we view capitalism in the late 20th and early 21st century.
Before we delve into how the meaning and significance of the TBL approach has evolved over time, let’s first go back to the basics. At its heart, the TBL is an accounting framework with three parts: social, environmental, & financial. It refers to a company’s adherence to more than direct profit as a measure for all overall performance and success. Under this approach, a company tracks direct profit (i.e. revenue less costs) in equal measure alongside its overall impact on both people (social responsibility) and the planet (environmental sustainability).
- Profit: The traditional measure of corporate profit
- People: Measures how socially responsible an organization has been throughout its operations
- The Planet: Measures how environmentally responsible a firm has been
Originally coined in 1994 by business writer John Elkington, the TBL framework has evolved significantly since its first conception. Namely, all three components have expanded and refined themselves over time in terms of what is measured and how. For example, in the last ten or so years, environmental performance is now evaluated through a lens of sustainability, not simply direct environmental costs. And whereas some view the profitability component as a fairly simple financial measure, others say this component actually encompasses the total economic impact a company makes. The latter definition expands the scope of this measure far beyond a company’s balance sheet or P&L.
Not only have the component parts of the TBL changed over time but some argue that the concept, on the whole, has experienced a limiting phenomenon, almost a “failure to launch” into its originally intended meaning. Elkington today has called for a “rethinking” of the TBL approach given his perceived failures in creating the kind of systems-level change he had hoped for.
“It was originally intended as a genetic code, a triple helix of change for tomorrow’s capitalism, with a focus on breakthrough change, disruption, asymmetric growth (with unsustainable sectors actively sidelined), and the scaling of next-generation market solutions.”
And while in many cases the adoption of the TBL approach has fallen short of this system change, Elkington says he is heartened by the progress being made by individual companies, as well as by the advent of the Benefit Corporation (see below). B Corps and progressive companies such as Denmark’s Novo Nordisk embrace a definition of success as being best for the world, over best in the world. It’s this kind of shift in the definition of strategic success that Elkington ultimately hopes the continued application and evolution of the Triple Bottom Line will bring about on a grand scale.
No matter how it is applied – as a simple accounting framework or as a lens through which to view and evaluate capitalism on the whole – there are some common challenges that arise when adhering to the TBL approach.
When organizations adopt the TBL framework, they are challenged with evaluating their performance in a broader perspective to create greater business value. What students need to understand when learning the TBL approach is how to balance trade-offs when developing and implementing corporate strategy. And while the term’s creator argues that the TBL approach should be more about rethinking our approach to capitalism, rather than a pure accounting method for reallocating value-added and value-destroyed, trade-offs do come with the territory. A TBL requires business leaders (and learners) to gauge a corporation’s level of commitment to corporate social responsibility and its impact on the environment over time, alongside traditional profit & loss. Balancing these three success factors is a challenge, and requires some shifts in traditional business thinking. Qualities like creativity, agility, and pragmatism are all needed on teams that have been tasked with embracing the TBL approach.
Difficulty Measuring People & Planet Impact
As discussed above, the three components of the TBL have been revised and refined over the years. While profitability, even in its expanded, economic impact definition, is inherently quantitative and therefore relatively easy to measure, assessing positive and negative impacts on social and environmental performance is more difficult. Formalized methods for measuring the social and environmental impact of companies are often grouped together under the banner of Corporate Social Responsibility (CSR).
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable—to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social, and environmental
Essentially, CSR refers to the People & Planet components of the triple bottom line, and is in some ways synonymous with the TBL approach. CSR is measured on large and small scales for both public and private companies using various rating systems and indices. However, measuring some of the more qualitative, subjective aspects of environmental and social impact means that no CRS rating or index is without potential pitfalls. A few examples to demonstrate this are included below:
Difficulty with Corporate Social Responsibility Measures
Approach: The Reputation Index
How it works: It asks expert observers to rate firms on their social dimensions, impact on the environment, and a series of other criteria. It is based on investment allocated to CSR.
Potential Pitfalls: Can bias the way data is collected and analyzed Nx toward examining input, while failing to observe impact
Approach #2: Content Analysis
How it works: Experts will study a firm’s annual reports, for example, to see how many times they refer to CSR. They then use that as a proxy for the level of CSR “embedded” in the organisation.
Potential Pitfalls: Companies can “game” the system and push themselves up an index simply by littering their reports with various keywords.
“The measurement systems a company uses to measure intangible assets such as loyalty or reputation can be hazy, and it is a challenge to link changes in these areas to separate activities in the short term.”
As demonstrated with the Reputation Index and Content Analysis approach, understanding how to accurately evaluate CSR and produce demonstrable impacts can be a major challenge for companies who adopt the TBL approach. In response, there have been many attempts to standardize and evaluate the people & planet aspects of the TBL approach. Other popular CSR Rating Systems & Indices:
- Dow Jones Sustainability Indexes (DJSI)
- Ethibel Sustainability Index (ESI)
- Calvert Social Index
- FTSE4Good Index
- KLD – Domini 400 Social Index
- Advanced Sustainable Performance Indices (ASPI)
- JSE SRI Index
- Maala Index
- Jantzi Social Index
- ΟWW Consulting-Malaysia
For a more thorough exploration of some of the challenges, limitations, and criticisms of the TBL approach, we suggest reading the following paper from the Asian Journal of Business Ethics. However, one of the ways the corporate regulatory world have attempted to minimize these challenges and standardize the evaluation of the TBL approach is through accreditation. In the next article of this series, we will examine TBL accreditation and the most common types in the U.S. and U.K.
If you are looking for options for how to teach and train the TBL approach to your learners, contact the HFX Training Team today.
Strategic Eco-Manager is a total enterprise game that puts the learner through the rigors of strategic, managerial decision-making in the context of sustainability and environmental risk management. In a world ever more conscious and cautious about the environmental impact of business policy and the triple-bottom-line, Strategic Eco-Manager makes an ideal strategy capstone for the prepared learner.
- Environmental Risk Management
- Triple Bottom Line
- Competitive Strategy