What Is the Triple Bottom Line (TBL)?
The triple bottom line (TBL) is a business philosophy that incorporates the traditional responsibilities of corporations to generate financial profit while also attending to their social and environmental duties.
TBL presents a framework for businesses that makes it possible to address both money-making aspects and the civic duty to contribute positively to society and the environment.
Background of the Triple Bottom Line
The term "bottom line" refers to the final, bottom financial result of a business. The traditional idea of the "bottom line" is net income on an organization's profit and loss statement.
However, some researchers find this focus on purely financial results problematic. This is because it implies that social and environmental values do not count toward the bottom line.
Many believe businesses must contribute to society in more than just economic ways. Therefore, the triple bottom line emerged as a way to give equal weight to these three aspects: financial, social, and environmental concerns.
Most importantly, TBL enables companies to integrate their civic duties with roles as organizations involved in economic transactions.
The term was coined by author and entrepreneur John Elkington in 1994. He strove to measure sustainability by evaluating the ecological footprint of a company. He looked at its economic footprints in terms of profitability and societal impact, and its positive influences on society.
The Three Bottom Lines
The triple bottom line encompasses the three measurable aspects of a company's activities: profit, people, and planet.
Profit––Economic Gain
Profit is the gain made on investment or venture. In business terms, it represents revenue minus costs. It is generally represented as a dollar amount. It can be found on financial statements, such as balance sheets and income statements.
People––Social Effects
This refers to the effects of organizations' activities on their employees and surrounding communities.
TBL requires companies to consider how their products and services affect other people. This is particularly true for those who contribute or are affected by their operations.
As a framework, TBL encourages businesses to view themselves as full constituents in an interdependent society, rather than free riders. The way this idea is executed may vary from business to business.
For example, some organizations develop formal procedures for "stakeholder management".
People affected by or interested in the actions of a particular corporation––such as employees, consumers, suppliers, and communities near facilities––would be considered stakeholders.
This can require significant changes in corporate culture and values.
Planet––Environmental Quality
This refers to the ecological conditions affected by business activities.
TBL asks organizations to consider their effects on ecosystems of which they are a part. It looks at what can be done through innovation or cooperation with other entities to improve environmental quality.
Importance of the Triple Bottom Line
TBL challenges businesses to contribute financial gains and provide meaningful societal and environmental support. It is widely embraced because it brings social and environmental ideas more prominently into business models.
Many people have begun to criticize businesses for being too focused on the bottom line of net income, often at the expense of other concerns, such as human dignity and environmental impact.
By evaluating all aspects of an organization's work in terms of economic gain, social effects, and environmental quality, TBL provides a way to measure how business activities affect all three of these elements in society.
Challenges in Applying the Triple Bottom Line
Despite its widespread appeal, TBL is not without controversy. It is challenging for businesses to adopt because it broadens the scale at which they are evaluated.
Previously, companies were measured by their success or failure on financial metrics alone––bottom line profit. Now, as social and environmental responsibilities have been added to this framework, organizations must contend with more factors that can be impacted both positively and negatively.
Below are some of the challenges that companies must consider in order to adopt TBL.
Quantification of TBL
One of the biggest challenges when trying to implement TBL is quantifying it.
This refers to measuring the results and assigning importance and priority to them. Just because something is measurable does not necessarily mean it is essential or relevant.
Therefore, businesses may find themselves tempted to focus on issues that are easy to quantify rather than factors that are more important but harder to measure, such as workforce diversity.
This is one of the reasons why many companies struggle with finding how to apply TBL effectively.
Complexity of TBL
The subjectivity of TBL is also a source of concern.
As the framework develops, new questions will always come up that were not initially considered and must be studied and resolved. Some of these include how to handle negative social and environmental effects and whether employees count more than consumers.
For example, there is an ongoing debate about whether or not companies' suppliers should be included in their TBL evaluations. Some say yes because they are impacted by the company's operations. Others also say no because suppliers generally do not interact with customers.
Mixing Inverse Elements
Another challenge of TBL is that it does not allow for the mixing of inverse elements––that is, balancing positive social effects against negative environmental effects or vice versa.
For example, if a company creates a product that benefits the environment, this would not cancel out the negative social effects associated with the product's use.
Measuring TBL must take place as an additive exercise rather than a balancing one.
Therefore, organizations must be clear about how they measure each element so that all can have equal weight.
Companies Implementing the Triple Bottom Line Framework
Many organizations are now applying TBL to their daily operations and evaluating their decisions in terms of economic gain, social effects, and environmental quality. Here are some examples:
IKEA
IKEA is a well-known and established Swedish furniture company.
The sustainability strategy of IKEA clearly details its "People and Planet Positive Strategy".
It hopes to address some of the world's most pressing social and environmental concerns.
IKEA is committed to creating fair working conditions with their suppliers, using the planet's resources wisely, and inspiring their customers to live a sustainable life.
Patagonia
Patagonia is a globally recognized apparel company originally founded for rock climbing and mountaineering expeditions.
One of the core values of Patagonia has been "Build The Best Product, Cause No Unnecessary Harm”.
It states that they will make high-quality products and show concern for employees, customers, and the Earth.
As one means to achieve this mission, Patagonia established 1% For The Planet as an initiative where businesses commit to donate at least 1% of their post-tax profit from any product sales to environmental organizations around the world.
LEGO Group
The LEGO Group is a well-known toy manufacturer that uses sustainable materials in its supply chain.
Their core aim in building a sustainable future is centered on children. They aim to inspire and develop the builders of tomorrow.
Some of the efforts LEGO has committed to include making products out of sustainable materials by 2030. It is also aiming to venture into sustainable packaging by 2025.
Socially, it has also committed to responsible business principles, especially for its supplier and partner relations. It also promotes family-friendly workplaces to support employees in balancing work-life priorities.
The Bottom Line
TBL is a very popular framework because it can address complex business decisions in meaningful ways that benefit society.
However, many challenges still exist around this topic––especially the subjectivity of TBL, difficulty in quantifying elements, and mixing inverse elements.
Despite these barriers, companies like IKEA, Patagonia, and the LEGO Group continue to use TBL as an effective means of assessing their business practices.
As time goes on and more of the world's top businesses apply the three-bottom line approach, we will see more widespread awareness about how social and environmental responsibility shapes long-term success.
FAQs
1. What are the limitations of TBL?
TBL can be tricky to implement because it aims to measure three different aspects without mixing inverse elements. In other words, measuring social and environmental effects against economic benefits can have uncertain results. This makes it hard for companies to apply TBL as an effective evaluation tool.
2. How do companies compare their triple bottom line metrics?
Since each company may have metrics for measuring the three elements, it is tricky to compare TBL across different corporations. This makes it even more challenging in applying TBL because no universal metrics apply to every organization.
3. What is the difference between "sustainable" and "triple bottom line"?
Sustainability refers to organizations prioritizing social and environmental effects while balancing economic gain. The triple bottom line, on the other hand, aims at evaluating all these factors and putting equal weight on each element.
4. How does quantification help with making decisions?
Quantification allows companies to measure their performance against an agreed-upon metric (whether internal or external). It also helps them adjust course for future growth. Having a quantifiable means of measuring the three elements makes it easier to understand how companies make decisions––and whether they have succeeded in balancing economic gain with social and environmental impacts.
5. How can I contribute to triple bottom line initiatives?
The first step is to advocate for the movement. Share articles and stories about sustainable businesses, especially those that have implemented TBL as a framework to guide their business decisions. You can also volunteer with different organizations focused on social and environmental effects––helping them by providing data-driven insights about how these elements affect the organization's performance.
