Triple bottom line (accounting)
The Triple Bottom Line (TBL) is an accounting framework that evaluates a company's commitment to social, environmental, and financial responsibilities, often summarized as "People, Planet, Profit." This concept extends the traditional focus on financial performance by incorporating metrics that assess how corporate practices impact society and the environment. Originating from the work of John Elkington in 1994, TBL emphasizes that businesses should not only strive for economic success but also engage in fair labor practices and sustainable environmental stewardship.
A significant challenge of TBL is quantifying social and environmental impacts in monetary terms, as seen in scenarios like oil spills, where the total costs encompass financial losses, ecological harm, and social repercussions. Companies adopting TBL principles not only work to minimize waste and conserve resources but also aim to foster positive relationships with employees, customers, and communities. The increasing consumer awareness and demand for corporate accountability have led many organizations, such as Nike and Starbucks, to reevaluate their operational practices to align with TBL standards, ultimately aiming for a more sustainable and responsible business model.
Triple bottom line (accounting)
"Triple bottom line"—also called TBL, 3BL, the Three Pillars, and People, Planet, Profit—is a three-part accounting term that is used to measure a company's social, environmental, and financial bottom lines. The term "bottom line" refers to a company's profits or losses. Triple bottom line is used to measure the full cost involved in all aspects of a business, including its responsibility to people and the planet as well as its finances.
One downfall of triple bottom line is that it is not easy to measure social and environmental factors in terms of money. For example, if a tanker spills oil into an ocean, the total cost of the accident cannot be measured in financial terms alone. Costs associated with the loss of the oil affect the company's financial bottom line. Fixing the ruined habitat for displaced wildlife affects the environmental bottom line, and the impact the spill has on people and other businesses in the surrounding area affects the social bottom line.
People, Planet, Profit
The triple bottom line includes everything that may be affected by a company's practices: people (social), planet (environment), and profit (financial). To become successful, companies must be responsible in how they address these three areas. Research shows that people trust businesses that consider factors that affect customers and the environment as well as profits.
Being socially responsible means companies should engage in fair and just business practices in regards to employees, customers, and the community.
Companies that are environmentally responsible (or environmentally sustainable) use materials and processes that sustain and protect Earth and its resources. They also try to reduce waste and conserve energy and water.
Being financially responsible means a company should consider all factors that affect its profits and losses—including social and environmental factors. Businesses should also look at economic variables that directly influence the flow of money, such as employment costs, expenditures, income, operating costs, and taxes.
Sustainability and the Triple Bottom Line
John Elkington coined the phrase "triple bottom line" in 1994. He expanded on the idea in his 1997 book Cannibals with Forks: The Triple Bottom Line of 21st Century Business. He also wanted to measure the sustainability of businesses by using this idea. In this sense, "sustainability" refers to how companies are socially and environmentally responsible. This relates to the way they make their products and handle their employees. Companies should strive to produce items in such a way that is not damaging to Earth. This can be achieved by using fewer resources and creating less waste. Companies should also strive to treat their employees well by offering fair and competitive wages and clean and safe working environments.
The triple bottom line is an important tool for reaching goals related to sustainability. Companies that use triple bottom line accounting examine how their practices affect people and the environment. This forces them to be socially and environmentally responsible. The financial bottom line has always been the top priority for most businesses; however, many companies began using this three-part accounting process during the twentieth and twenty-first centuries. American companies that operated facilities in places such as Brazil, China, and India began to realize the hidden social and environmental costs of operating overseas. Business leaders started to understand how using natural resources hurt the environment and how unfair labor practices exploited people.
Consumers also began to note these practices. The growing awareness of how companies were hurting people and the planet forced many to reconsider their policies. Footwear giant Nike is an example of one of these companies. In the 1990s, a report on Nike's overseas factories revealed that the company used child labor, paid low wages, and maintained poor working conditions for its employees. The media also emphasized the fact that the company paid celebrity athletes like Michael Jordan an enormous amount of money to endorse its products while children working in Nike factories received just pennies a day. The articles about Nike angered many people, and the company faced backlash and boycotts. This forced leaders to reexamine their environmental and social bottom lines. Nike eventually reformed its ways. It required overseas employees to be a certain age, paid them better wages, and provided better working conditions. Today, Nike is one of the most sustainable companies in the world.
Over the years, consumers have spoken out against other companies that have not factored people and the environment into their bottom lines. People began to blame fast-food chains such as McDonald's and Burger King for contributing to the growing obesity epidemic. In response, the restaurants introduced healthier menu items and provided customers with nutritional information on their products. Consumers also demanded that corporations consider their environmental impact. Companies such as Starbucks addressed these concerns by instituting recycling programs and introducing environmentally conscious items such as reusable cups.
Bibliography
"Recycling and Reducing Waste." Starbucks. Starbucks Corporation, n.d. Web. 7 Apr. 2015. http://www.starbucks.com/responsibility/environment/recycling
Savitz, Andrew. "Chapter 8: Sustainability Jiu-Jitsu: Turning Short-Term Challenges into Opportunities—Turn Crises into Opportunities." The Triple Bottom Line: How Today's Best-Run Companies Are Achieving Economic, Social, and Environmental Success—and How You Can Too. San Francisco: John Wiley & Sons. 2014. Print.
Slaper, Timothy F., and Tanya J. Hall. "The Triple Bottom Line: What Is It and How Does It Work?" Indiana Business Review. Indiana Business Research Center at Indiana University's Kelley School of Business, 2011. Web. 7 Apr. 2015. http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html
"Triple Bottom Line." Investopedia. Investopedia, n.d. Web. 7 Apr. 2015. http://www.investopedia.com/terms/t/triple-bottom-line.asp
"Triple Bottom Line: It Consists of Three Ps: Profit, People and Planet." Economist. Economist Newspaper, 17 Nov. 2009. Web. 7 Apr. 2015. http://www.economist.com/node/14301663
"Understanding Sustainability and the Triple Bottom Line." University of Wisconsin Sustainable Management. Board of Regents, University of Wisconsin System, n.d. Web. 7 Apr. 2015. http://sustain.wisconsin.edu/about-sustainable-management