Every businessman understands the term “bottom line”. A black bottom line brings cheers, while red brings worried looks! The result - profit or loss – was all that mattered. With increased social awareness, the bottom line alone is no longer sufficient. Two other factors have started exerting their influence on business decisions. This is where the Triple Bottom Line comes in.
Did You Know? The Triple Bottom Line is perhaps the pioneer in bringing a meaningful, rather powerful, impact on businesses and Governments alike.
What is Triple Bottom Line (TBL)?
The Triple Bottom Line is the principle of providing three dimensions to any business or industry. Apart from the traditional bottom line of profit, two more dimensions have been added. These pertain to our society and the environment that sustains us. The principle behind TBL is that no business or industry can afford to ignore the effects of their actions on people and the planet.
Definition of Triple Bottom Line
The Triple Bottom Line is a concept that considers three parameters in reporting a company’s results – financial, people and environment. Some experts call it 3Ps – Profit, People, and Planet. It aims to present information on the company’s financial performance and its impact on society and the environment. The term Triple Bottom Line was coined in 1994 by British Writer and Consultant John Elkington.
Need for Triple Bottom Line
Let us go back several decades into history to see an example from the city of Hyderabad, South India. Hussain Sagar, a huge manmade lake, was a reservoir of water that provided an ample supply of water to the public. It also offered an opportunity for flora and fauna to flourish. The lake was loved, and people would converge to breathe fresh air.
Fast forward a few decades. Industrial development picked up. Several factories were set up, and the city started prospering. Everyone was delighted that their city was an industrial hub providing employment and creating prosperity.
Then, a few years later, people observed that the fish and bird life had disappeared. Tests showed that the water was no longer safe for drinking. Further investigations revealed that the factories were spewing their effluents into adjoining rainwater drains which flowed into the lake.
Thus here is an example of how single bottom-line thinking can cause immense damage to people and the environment – the other two Ps.
Due to increased data and awareness, the world has woken up to the damage caused to Nature. Through education, regulations and active effort, modern-day industries start on the premise that the Triple Bottom Line approach is not a philanthropic option but an essential way of conducting business.
What Does Triple Bottom Line Cover?
The Triple Bottom Line covers three aspects of the business – Profit, People and Planet.
The primary purpose of any business is to generate a profit. Otherwise, it cannot exist. Profit is a fundamental requirement so that shareholders receive their due reward for risking their investment.
An organization cannot exist without the people who work for it. Unlike in the dark past, business leaders today have realized that fair pay, a positive work environment and a series of welfare measures must attract and retain people.
But the definition of “People'' does not stop here. It expands to everyone who has any link with the business. Examples are vendors, sub-contractors, selling agents, distributors, dealers, service providers and customers. Every member contributing to the business's operations is a stakeholder. Ensuring that they are also taken care of in a fair manner is a precondition to reaching a win-win situation.
The next factor in “People” is the society we live in. Businesses and factories do not operate in isolation. Anything they do has some impact on the community. For example, if a factory emits toxic smoke through its chimney, it creates a direct health hazard to those in the vicinity. (Remember, The Bhopal Gas Tragedy of 1984). Hence, including society in the “P” is a must.
It refers to everything that is part of Nature. We know that Nature maintains a delicate balance. If disturbed, it can cause havoc and devastation to all life forms. Learning to respect Nature is an act of self-preservation. Mankind, in its ignorance, has always ignored this aspect. Reckless actions have caused severe, sometimes irreparable, damage to Nature. It is time the world is awakened to this situation, and every possible attempt is made to restore Nature to Her original glory.
Measurement of Triple Bottom Line
This is the toughest challenge of the Triple Bottom Line concept. Businesses are used to measurable data and clarity. But how does one assess the influence of a company’s activities on society? Or, for that matter, on Nature and Environment? There are no easy answers.
Socio-Economics has developed some metrics to identify these parameters at a macro level. It will be quite a while before the company-wise measurement of Triple Bottom Line becomes a reality. Companies do their best to report the steps they have taken to promote social and environmental protection.
As part of an attempt to make it somewhat measurable, some of the following indicators are often used:
- Reduction of greenhouse gas emissions
- The volume of waste generated and steps taken to reduce it
- Plans for recycling of waste to reach near zero waste levels
- Reduction in the amount of fossil fuels used
- Control of energy consumption
- Control of water consumption
- Sourcing materials from those who aligned with the philosophy of the Triple Bottom Line concepts.
Advantages of Triple Bottom Line
- While the Triple Bottom Line approach was initially envisaged more as an automated measure, time has shown that it offers much greater scope for business growth than the traditional profit-centric approach.
- Following the TBL approach results in benefits much larger than money because of the higher value addition to all stakeholders. The company’s image is enhanced, making its brand much more valuable.
- The higher level of welfare thinking attracts better people to join for employment. It also improves employee retention and reduces attrition. This gives stability to organizations that invest heavily in training and development.
- A recent survey has shown that today’s customers are conscious of whom they buy from rather than rushing to the lowest price. Customer loyalty and support increase if the seller is welfare-oriented towards their employees and cares for society and the environment.
Challenges in Implementing Triple Bottom Line
Like any emerging concept, TBL faces several challenges in its acceptance and implementation.
The biggest challenge is measurability. While limited macro-level indicators exist, clear, quantified data on the results of the current action is not possible. This is particularly where the results are not financial but are very subjective elements.
Often, employees seek to draw the attention of their Management through good performance. When these are quantifiable, results and rewards are easily correlated. But this is difficult in areas that are subjective (as in TBL). Hence, there is a constant clash of interests in employees' minds. Mature Managements make their policies clear and transparent to minimize the effect of this dilemma.
Are Companies Following Triple Bottom Line?
It is encouraging to observe that companies worldwide are committed to adopting the Triple Bottom Line policy. As leaders of large corporations take the lead, the movement has gathered unprecedented momentum and is slowly becoming the industry standard.
How Widespread is Triple Bottom Line in India?
India has seen both extremes. While there have been exploitative companies, several companies did great work in the areas of social welfare. This was much before the term Triple Bottom Line was even coined. Ingrained in India’s philosophy and culture, further bolstered by visionaries like Gandhi and Rabindranath Tagore, many Indian industrialists adopted noble causes like child education, poverty alleviation, and healthcare for the poor.
Today’s business leaders are highly receptive to the Triple Bottom Line concept, as evident from their keen involvement in seminars and programmes often conducted by NGOs. The active collaboration between Industry and NGOs is a clear pointer to this phenomenon.
The Triple Bottom Line is a compelling concept that has now come of age. Understanding it well is a must not only for Finance professionals. Every business leader, manager and employee must understand the concept and make it a part of their thinking process. If followed well, it will reap immense benefits for businesses, society and the environment.
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