A triple bottom line business is a business that incorporates into its business model social, environmental, and financial sustainability, in other words, people, planet, and profit.
Definition of the Triple Bottom Line in Business
John Elkington coined the phrase ‘triple bottom line’ in 1998. The triple bottom line, also called ‘TBL’ or ’3BL,’ is a philosophy of business management and accounting that suggests that the traditional accounting and performance reporting framework of a company should be expanded to include its ecological and social impact in addition to its financial performance.
Human lives and livelihoods lost in industrial accidents have served as repeated reminders that companies need to codify their social and environmental impact strategies along with their financial goals, and experience has taught us that companies are likely to be better off if they focus on sustainable business strategies.
Indeed, new companies like e3 bank with a TBL focused business model are now becoming increasingly common. The idea behind B corp certification, now available as an official corporate status in Maryland, also shares some of its underpinnings with the TBL concept.
The concept of triple bottom line reporting implies that companies are answerable not only to their shareholders but to their ‘stakeholders,’ with a stakeholder being defined as anyone or anything affected by the operations of a company.
The Triple Bottom Line and Corporate Social Responsibility
The triple bottom line is also closely related to the concept of Corporate Social Responsibility (CSR). Also known as ‘sustainable responsible business’ or ‘corporate social performance,’ Corporate Social Responsibility is a popular term in modern business parlance. However, it is not an empty phrase. CSR requires a company to ensure that its financial, human and resource capital are conserved and developed in the best interests of everyone concerned.
CSR is distinct from simply donating money to non-profits or other organizations, and it is sometimes criticized as a set of activities that distract businesses from their primary economic goals. The evidence, however, suggests otherwise. An analysis of the link between firm performance and CSR has demonstrated a positive relationship between CSR and shareholder returns.
For example, CSR activities focused on improving educational opportunities and facilities in a local region not only help build the brand image of the business, but may ultimately help improve the quality of the human resource pool available for hire, ensuring the long-term success of the business.
Compliance CSR vs. Conviction CSR
Some experts opine that companies use CSR as a tool to conform to expectations and regulations imposed by governments and society at large. This is known as “compliance CSR.”
So-called “conviction CSR,” on the other hand, is based on the vision and integrity of the organization and its desire to assume a leadership role in positively influencing the development of the society. CSR in this case becomes a relationship-building tool that inspires trust in the statements and intentions of the company.
There is a fine line of difference between CSR and the triple bottom line. Corporate CSR measures typically employ some types of TBL reporting. For example a company that reports that its CSR activities helped reduce water pollution in a lake, thereby resulting in reduced incidence of water borne illness among the people living nearby, is talking about the two ‘Ps’ – People and Planet – of the TBL concept. Not surprisingly, CSR and TBL are often used synonymously. To put it succinctly – CSR activities enable corporations to adhere to triple bottom line accounting.
Main image credit: The Sierra Club