CSR through Triple Bottom Line - Unit 27

What Is the Triple Bottom Line (TBL)?

In economics, the triple bottom line (TBL) maintains that companies should
commit to focusing as much on social and environmental concerns as they do on
profits. TBL theory posits that instead of one bottom line, there should be three:
profit, people, and the planet. A TBL seeks to gauge a corporation's level of
commitment to corporate social responsibility and its impact on the environment
over time.

In 1994, John Elkington—the famed British management consultant and

sustainability guru—coined the phrase "triple bottom line" as his way of
measuring performance in corporate America. The idea was that a company can
be managed in a way that not only makes money but which also improves people's
lives and the well-being of the planet.

Understanding the Triple Bottom Line (TBL)

In finance, when speaking of a company's bottom line, we usually mean its
profits. Elkington's TBL framework advances the goal of sustainability in
business practices, in which companies look beyond profits to include social and
environmental issues to measure the full cost of doing business. Triple-bottom-
line theory says that companies should focus as much attention on social and
environmental issues as they do on financial issues.
TBL theory also says that if a company focuses on finances only and does not
examine how it interacts socially, it is not able to see the whole picture and
therefore cannot account for the full cost of doing business.
The 3 Ps of the Triple Bottom Line
According to TBL theory, companies should be working simultaneously on these
three bottom lines:
Profit: This is the traditional measure of corporate profit—the profit and loss
(P&L) account.
People: This measures how socially responsible an organization has been
throughout its history.
Planet: This measures how environmentally responsible a firm has been.2
Profit
In the context of the triple bottom line, profit can mean more than just how much
money a company makes. A company must ensure it earns its income in ethical,
fair manners. This includes soliciting business partners and vendors with which
it aligns philanthropically. It also defines how a company develops its strategy or
financial operating plan. For instance, profit also ties to a company's
responsibility to pay its lenders, creditors, and employees what is due to them and
to have a sense of financial responsibility for these obligations. Some users of the
triple bottom line may also say profit refers to not only a company's profit but the
profit of those around the company. This specifically refers to the community in
which the business operates.
This may include:
Ensuring the company is paying its fair share of local, state, or federal income
taxes on a timely basis
Making sure the company is fostering economic wealth within its community by
shopping local or utilizing small businesses.
Committing to financially investing in the community through partnerships,
developments, or corporate sponsorships.

People
In the context of triple bottom line, people refers to every individual that is in
touch with a company. This includes but is not limited to:
Employees. This means ensuring workers receive a fair wage in a safe
environment that encourages professional development.
Vendors. This means ensuring a diverse set of suppliers are used and prioritizing
small businesses or minority-owners when appropriate.
Customers. This means ensuring customers have fair access to products and their
feedback regarding equity or safety are considered.
Traditionally, a company would prioritize investors or shareholders. Triple
bottom line shifts the focus to individuals potentially not financially invested in
the company but still tangentially involved with its operations. Now, instead of
attempting to create value by only increasing investor returns, triple bottom line
strives to create value by encouraging volunteerism of its employees or support
or business success of small suppliers, for example.

Planet
The largest deviation from purely financial reporting relates to reporting on
environmental impacts. Often, a company must be forced between a lower-cost
option or a more environmentally-friendly alternative. A company may also
choose between a less favorable alternative; for example, eco-friendly transit will
likely be slower than aircraft.
Instead of reporting a company's positive changes to the planet, it is often much
easier to assess the impacts of the alternatives elected by the company. Imagine
a company that redesigned its distribution channels to reduce its energy use; such
an activity would be reported as saving a certain amount of greenhouse gas
emissions.

How to Measure the Triple Bottom Line

Companies may need to get creative when measuring the triple bottom line.
Traditional accounting rules provide very strong guidance on how a company
must record its accounting profit. Alternatively, there may be minimal to no
structure in place on how a company must measure its triple bottom line,
especially considering there may be no external reporting requirement to do so.
1. Measuring Profit
A company will still usually report company-wide net income as part of its triple
bottom line. For this reason, profit is the easiest component of triple bottom line
to report as it already has strong guidance. However, it may also report or call out
several other profitability or financial metrics such as:
Gross margin by geographical region to demonstrate consistent or equitable
pricing across different demographic groups.
Historical federal income tax payments, demonstrating its effective rate.
Historical information (or lack of) late payments or penalties as a demonstration
of financial responsibility.

2. Measuring People
Also referred to as social measures or social metrics, the people component of
triple bottom line may contain financial or non-financial measurements. Again,
some may be stipulated by generally accepted accounting principles (GAAP) or
other reporting rules, while others may be internally-sourced data. Examples of
measurements of people include:
Average employee payroll to demonstrate livable wages that exceed local
expectations for pay.
Average employee benefits per employee beyond pay to demonstrate the full
benefit package per worker.
Average number of vacation hours earned and used per employee to ensure
workers can and have been stepping away from work.
Employment demographics such as proportion of employees in different age,
race, sexual orientation, or religious groups. Note that some of this information
may be sensitive and must be provided voluntarily by employees (as employers
are not entitled to some demographic information.
Vendor demographics such as businesses identifying as small businesses,
LGBTQ-owned, Veteran-owned, or minority-owned.
Number of product returns by geographical regions to ensure certain
demographics are still receiving quality products.
3. Measuring Planet
Perhaps the most difficult triple bottom line component to measure is planet. As
a company may need to know its existing impact as well as its "eco-friendly"
impact, measuring impacts to the planet may require the most expertise or effort.
However, there are very common environmental measurements such as:
Reductions in greenhouse gas emissions based on the difference between former
processes and forecasted changes in new processes.
Amount of waste generated in pounds; this may also include amount of recycled
product over a period of time.
Amount of energy consumption, adjusted for seasonality.
Amount of fossil fuel consumption (may be adjusted for per-employee or per-
sales lead should the company be growing).
Proportion of raw materials sourced ethically.
Advantages and Disadvantages of the Triple Bottom Line
Advantages of Applying the Triple Bottom Line
The obvious reason to apply the triple bottom line is to have a greater positive
impact on the world. Instead of focusing on paper profit, companies can
quantifiably determine how the business is favorably changing the world and the
people it engages with.
Having a greater philanthropic presence may encourage employee retention and
decrease attrition. Workers may be more likely to commit to a company if its
environmental impacts are communicated. In addition, favorable working
conditions including competitive wages, training, and time off to volunteer may
keep employees around; this may reduce recruiting, training, onboarding, and
general costs of new employees.
A greater triple bottom line plan may also entice customers and consciously
capitalistic investors interested in prioritizing certain non-financial metrics over
financial metrics. Some customers may be torn between two similar products; the
deciding factor may be the ESG prioritization of the companies. In addition,
investors may actively seek to put their money into a company that has social and
environmental plans.
Last, triple bottom-line strategies may result in increased long-term profitability.
Though short-term costs may increase, a company may become more efficient in
the long run. Consider a company converting its fleet to electric vehicles. Short-
term, this will be a massive capital investment. In the long term, the company
may reap the benefit of lower energy costs, less maintenance, or better equipment
durability.

Disadvantages of Applying the Triple Bottom Line

A key challenge of the triple bottom line is the difficulty of measuring certain
social and environmental bottom lines.2 Profitability is inherently quantitative,
so it is easy to measure. However, consider the example of attempting to evaluate
the economic impact of preventing an oil spill. A company may easily be able
identify the input costs, but it may be more difficult to pinpoint non-financial
inputs or outcomes.
It can also be difficult to switch gears between priorities that are seemingly
antithetical—such as maximizing individual financial returns while also doing
the greatest good for society. Some companies might struggle to balance
deploying money and other resources, such as human capital, to all three bottom
lines without favoring one at the expense of another.

In addition, electing to prioritize the triple bottom line will likely be more
expensive. 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. These practices might well
result in the greatest possible profits for the company but at the expense of
miserable working and living conditions for laborers, and harm to the natural
environment and the people who live in that environment.

Examples of Companies That Subscribe to TBL or Similar Concepts

Today, the corporate world is more conscious than ever of its social and
environmental responsibility. Companies are increasingly adopting or ramping
up their social programs. Consumers want companies to be transparent about their
practices and to be considerate of all stakeholders. 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.
The number of firms—of all types and sizes, both publicly and privately held—
that subscribe to the triple-bottom-line concept, or something similar, is
staggering. Here are a handful of these companies:
1. Ben & Jerry's
Ben & Jerry's is the ice cream company that made conscious capitalism central to
its strategy. As stated on its website, "Ben & Jerry's is founded on and dedicated
to a sustainable corporate concept of linked prosperity." The company opposes
the use of recombinant bovine growth hormone (rBGH) and genetically modified
organisms (GMOs) and fosters myriad values such as fair trade and climate
justice.
2. LEGO
The LEGO Group (privately held; Billund, Denmark) has formed partnerships
with organizations like the nongovernmental organization (NGO) World Wildlife
Fund. In addition, LEGO has made a commitment to reducing its carbon footprint
and is working towards 100% renewable energy capacity by 2030.
3. Mars
Mars Incorporated (privately held; McLean, Va.) has a sustainable cocoa
initiative called Cocoa for Generations. It requires cocoa farmers to be fair trade
certified to ensure they follow a code of fair treatment to workers providing labor.
In exchange for certification, Mars provides productivity technology and buys
cocoa at premium prices.
4. Starbucks
Starbucks Corporation (SBUX), has been socially and environmentally focused
since its inception in 1971. The company has hired more than 30,000 veterans
since 2013 and is committed to hiring 5,000 more per year going forward.