What Is the Triple Bottom Line (TBL)?

What Is the Triple Bottom Line (TBL)?

Let me explain the triple bottom line, or TBL, directly to you. This concept holds that you should measure a company's performance equally on social issues, environmental sustainability, and profits. TBL theory argues for three bottom lines instead of one: profit, people, and the planet.

John Elkington, a British management consultant and sustainability expert, developed TBL in 1994. You judge a company not just by its earnings but by how it enhances people's lives and the planet's health.

Key Takeaways

TBL focuses on tracking a company's financial, social, and environmental performance over time. You might see measures like employee retention rates, increased investments from outside, or higher sales from customers who value social and environmental commitments. Critics point out that TBL can be hard to measure, expensive to apply, and may lead to conflicting strategies among its parts.

Understanding the Triple Bottom Line (TBL)

In finance, the bottom line typically means profits, but Elkington's TBL pushes for sustainability in business by including social and environmental factors to capture the true cost of operations. I want you to see that companies should give as much weight to social and environmental matters as to finances.

TBL theory warns that focusing only on finances blinds a company to its full social interactions, preventing a complete view of business costs.

The 3 Ps of the Triple Bottom Line

Under TBL, companies work on three bottom lines at once: profit, which is the standard profit and loss measure; people, which assesses social responsibility over the company's history; and planet, which evaluates environmental responsibility.

Profit

Profit in TBL goes beyond mere earnings; you ensure income comes ethically and fairly, including aligning with philanthropic partners. It shapes your strategy and financial plans, covering responsibilities to lenders, creditors, and employees.

Some interpret profit as benefiting the surrounding community too, such as paying taxes on time, supporting local businesses, or investing in community partnerships.

People

People in TBL covers everyone connected to the company, from employees getting fair wages in safe settings with development opportunities, to diverse vendors prioritizing small or minority-owned businesses, and customers with equitable access and considered feedback.

TBL shifts focus from just investors to broader stakeholders, creating value through employee volunteerism or supporting small suppliers, rather than solely boosting returns.

Planet

The planet aspect marks the biggest shift from financial reporting, often forcing choices between cost savings and eco-friendly options, like slower but greener transit over flying.

You often measure impacts by alternatives chosen, such as reporting greenhouse gas savings from redesigned distribution. Note that some replace 'profit' with 'prosperity' to emphasize long-term health.

How to Measure the Triple Bottom Line

Measuring TBL requires creativity since traditional rules guide profit reporting, but social and environmental metrics lack structure, especially without external requirements.

Measuring Profit

You report net income as usual, but also highlight metrics like gross margins by region for equitable pricing, tax payment history, or avoidance of late penalties to show responsibility.

Measuring People

Social metrics can be financial or non-financial, including average payroll for livable wages, benefits packages, vacation usage, employee demographics (voluntarily shared), vendor diversity, or product return rates by region.

Measuring Planet

Planet is toughest to measure, needing expertise for impacts; common metrics include greenhouse gas reductions, waste amounts, energy consumption, fossil fuel use, or ethically sourced materials. A true TBL report balances measurements across all three areas equally.

Advantages and Disadvantages of the Triple Bottom Line

Applying TBL lets you quantify positive world impacts beyond profits, potentially boosting employee retention through better conditions and attracting customers or investors focused on ESG. It may also lead to long-term efficiencies reducing costs, like switching to electric vehicles.

Disadvantages of Applying the Triple Bottom Line

Challenges include measuring non-financial aspects, like valuing oil spill prevention, balancing conflicting priorities, and higher costs from ethical choices over cheap labor or waste disposal.

Examples of Companies That Subscribe to TBL or Similar Concepts

Many companies now embrace social and environmental responsibility, with consumers favoring transparent practices. Examples include Ben & Jerry's, focused on conscious capitalism and opposing GMOs; LEGO, partnering with WWF for renewable energy; Mars, with fair trade cocoa initiatives; and Starbucks, hiring veterans and committing to social goals.

What Are the 3 Elements of the Triple Bottom Line (TBL)?

The three elements are social, environmental, and financial performance, summed up as people, planet, and profit.

How Is TBL Different From the Financial Bottom Line?

TBL includes social, human, and environmental capital for a fuller societal impact view, evaluating philanthropic performance beyond just profitability.

Who Came Up With the Triple Bottom Line?

John Elkington conceived TBL in 1994 at SustainAbility, later used in Shell's 1997 report; it influenced groups like SASB for sustainable investing standards.

Why Is the Triple Bottom Line Important?

TBL downplays pure financial focus, pushing companies toward social and environmental goals, which appeals to investors valuing philanthropic results over maximum profits.

The Bottom Line

As companies allocate more to social and environmental efforts, TBL reporting showcases achievements in profit, people, and planet, quantifying impacts beyond net income for management, regulators, and investors interested in broader improvements.