The Triple Bottom Line, or TBL, is an economic concept. This concept came into existence due to increasing awareness of social and environmental issues. This concept suggests that a company and its business have to sustain themselves for a longer time. Hence, the firm should not just be guided by the idea of profit maximization. Or it should not only look and care about profits. Instead, it should also be equally concerned and take care of the society and environment. Specifically, the TBL states that a company must focus on three Ps – profit, people, and the planet.
We can say that TBL wants to ensure that a company is as committed to society and the environment as it is to profits.
The famous British Management Guru Mr. John Elkington came up with this idea and coined the phrase and concept of “Triple Bottom Line” in 1994. Mr. John came up with this term to measure the performance of corporate America on these social and environmental issues. Elkington’s idea behind the concept was that a firm must not only work to make money rather also work towards improving people’s lives, as well as the planet.
3Ps of Triple Bottom Line
Now let us understand in some more detail the 3 critical ingredients -3Ps of the triple bottom line concept:
Earning profit is the primary and age-old objective of every commercial activity. Every company needs to earn profits so that it can pay its lenders, creditors, and employees, as well as continue with its operations smoothly. Most companies’ strategic planning and key business decisions revolve around maximizing profits. Hence, traditionally the main motto and benchmark for performance review of any business organization and management team.
Focusing on people means how socially responsible a company is. This should be the second most important objective of a company. A point to note is that people here include all the stakeholders (not just shareholders), such as employees, customers, supply chain partners, and the community as a whole. A company can work towards this objective by supporting human rights and supporting diversity, race, and gender equity. Making donations, engaging in fair labor practices, creating a safe work environment as well as ensuring fair hiring practices also assists companies in meeting this objective.
This shows how environmentally responsible a company is. A company must ensure that at least its surrounding vicinity is clean. Moreover, a company could extend similar efforts to other locations where the company has its offices and manufacturing facilities. A company can also impact the environment by keeping a check on the air quality and pollution. Additionally, a firm could also work towards reducing its environmental footprint. It can do so by reducing energy consumption, usage of alternative sources of energy, improving waste management, lowering dependence on fossil fuels as well as using ethically sourced materials, recycling and waste disposal, etc.
Importance of Triple Bottom Line
Basically, the TBL concept is important because it impacts everyone. Other points that help to bring out the importance of TBL are:
- It helps to create a sustainable future that focuses on social and environmental sustainability as well. For the long-term survival of the business and for its growth, it is also equally important that this ecosystem also remain healthy and conducive to business activity.
- It gives businesses new opportunities to generate profits. For instance, customers who also care about the planet would feel a connection with such companies.
- This concept results in a stronger work environment.
- Focusing on people and the planet along with profits helps to improve business performance. Several studies show that the financial performance of TBL firms is consistently better than other companies.
- Since TBL companies meet all regulations and standards, they do not have to spend anything extra to meet and follow the government regulations. All this eventually helps to minimize the regulatory compliance and governance risk.
- TBL companies care about their supply chain partners as well. This ensures a healthy relationship and eventually minimizes supply chain disruptions.
- Investors are also more likely to trust companies that are not just making profits but also making a difference to society and the planet.
- It encourages companies to lower their energy consumption, as well as carbon footprint.
- Employee retention and longevity get a shot in such companies as employees requirement, and handling is well taken care of in a healthy work environment.
- The TBL helps to better brand perception.
- Practicing the TBL concept helps to increase transparency and accountability of operations.
Limitations of Triple Bottom Line
Though TBL is gaining importance among the corporates, it suffers from a few drawbacks as well:
- There is no proper way to measure the TBL. Also, it is not easy to quantify the TBL.
- It gets very difficult for companies to focus on all three objectives as all three are different in approach. Thus, many companies prefer to make separate entities to focus on each objective. Moreover, sometimes somewhere, there may be contradictions also in following all three. Hence, sometimes one aspect has to be ignored to fulfill the other two objectives.
- Instead of working on all three objectives, some companies may be able to focus on just one or two objectives. Otherwise, in the long run, it may also turn out that to achieve secondary objectives, a company has overlooked its primary objective.
- A company may want to follow TBL, but it may not be easy to get executives who share the same commitment toward people and the planet.
Real World Examples
Below are some of the most popular companies that practice the Triple Bottom Line approach:
Ben & Jerry’s ice cream company donates to charities and offers living wages to employees. The company even rejected an acquisition offer over concerns that the new management would go back to profit as the only objective. Ben & Jerry has set the target to reduce its carbon emissions by 2030, which is almost by 45% against its current levels.
Better World Books, which sells second-hand books, gives a portion of its earnings towards literacy programs. This way, over the years, millions of dollars have been contributed by the company for literacy programs.
Lego is working to lower its carbon footprint. It has set an objective to hit 100% renewable energy resources by 2030. Lego also works with social organizations, including the World Wildlife Fund. The company also donates its toys to kids via the Build to Give charity campaign.
Unilever has set a goal to reuse, recycle or compost all its plastic packaging by 2025. Similarly, Coca-Cola has a goal to recycle every bottle by 2030.
DHL continues to work to make its delivery vehicles more fuel-efficient or run on alternative energy. The shipping giant gets 62% of its electricity from renewable energy. Also, the company uses bicycles for delivery in several European countries. This would help DHL lower its carbon dioxide emissions by 152 metric tons annually. DHL also supports U.N. disaster management efforts, works towards education, and practices a host of many other social initiatives.
Glassybaby deals in hand-blown votives and drinking glasses. A three-time cancer survivor started this company to help other cancer patients who are not financially stable. Glassybaby donates a specific portion of its revenue. Moreover, the company uses 100% recycled materials for packaging. Also, the company takes good care of the artisans.
Measuring of Triple Bottom Line
There is no proper method to measure the Triple Bottom Line. But many believe it is possible to measure the TBL using the following measures:
This includes measuring the cost of unemployment, average income, employment distribution by sector, and more.
This includes measuring fossil fuel consumption, amount of waste generation, use of recycled material, spending on waste management, and more.
This includes education level, unemployment rate, median household income, crime per capita, etc.
The Triple Bottom Line approach is gaining importance globally. Most companies want to follow this approach. But the pressure from shareholders, as well as budget limitations, restricts many companies from limiting their TBL involvement. The budget limitation is one reason why usually big and rich companies are able to implement TBL. However, with increased awareness and global pressure, slowly, this is going to be the practice in years to come. Hence, businesses should start preparing themselves to meet these changes in advance. There is all the likelihood that this may gradually become a regulation and compliance part.