Historically, most companies have focused their time, energy and resources on their bottom lines and securing the best financial performance for their shareholders. But times are changing and people increasingly want to do business with socially conscious companies. They want to work for and support businesses that are both profitable and contribute positively to society, working for the greater good.
In response, companies of all sizes and in multiple industries have adopted standards of sustainability and social responsibility — embracing what’s known as the “triple bottom line.” We’ll explain the triple bottom line, its benefits and drawbacks and how to move your business toward this framework.
Defining the triple bottom line
The triple bottom line (TBL) is an accounting and business concept that expands the traditional accounting framework beyond measuring profits and shareholder value to include an organization’s environmental and social impact. It focuses on comprehensive investment results along the intertwined dimensions of profits, people and planet. Serial entrepreneur and Volans co-founder John Elkington coined the phrase in the mid-1990s to measure the emerging concept of sustainability performance in corporate America.
The triple bottom line is a valuable marker of how well a business is meeting its sustainable business model goals. While this concept is an accounting and reporting tool, according to Elkington, it is also a framework for thinking about the future of capitalism and next-generation market solutions.
Avinash Chandra, founder and CEO of BrandLoom, emphasized that sustainability is at the core of the triple bottom line concept. “[It] can be defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs,” Chandra explained.
The 3 Ps of the triple bottom line
As mentioned, the TBL focuses on people, profit and planet — the “three Ps.”
“The triple bottom line can be envisioned as a three-legged stool, with one leg representing people, one leg representing the planet and one leg representing profit,” explained Josh Prigge, principal and senior sustainability consultant at Sustridge. The idea is that improving in any one sector will improve the company overall.
Here’s a more in-depth look at the three Ps:
- People: This bottom line measures a business’s impact on human capital. A company using TBL standards is responsible to shareholders, employees, vendors, customers, its community and anyone impacted by the organization — directly or indirectly. This sector recognizes the interdependency of all the human relationships and interactions that enable operations. Focusing on people can translate into actions like providing quality employee benefits and flexible work schedules, offering professional development opportunities, creating a safe work environment and engaging in fair labor practices.
- Planet: Companies following the TBL model recognize that the smaller a company’s environmental impact, the longer it can operate. Focusing on this sector means producing safe, healthy products. It also entails reducing your business’s carbon footprint by using green energy, reducing energy use, disposing of toxic materials safely and adopting a host of green corporate policies.
- Profits: Businesses committed to the triple bottom line don’t just look at profits in terms of what they can do for shareholders — they focus on how profits can help the broader community. In this model, a company helps stimulate economic growth and create wealth by compensating employees fairly, supporting local suppliers, generating innovation and paying its fair share of taxes. It also makes financially prudent but ethically driven decisions about how and where to source materials, products and labor.
The
best accounting software supports TBL reporting by tracking a business's financial performance, integrating with sustainability metrics and streamlining compliance with corporate social responsibility and sustainability reporting standards.
Benefits of the triple bottom line
Here are some benefits of adopting the triple-bottom-line framework in your business:
- TBL practices can reduce employee turnover: The more you prioritize “people” as part of your bottom line, the more satisfied and happier your employees will be. Creating such an employee-centric company culture will help you attract high-level talent and reduce turnover rates. “Managing a business to a triple bottom line approach makes good sense,” noted Samuel Adams, CEO and co-founder of Vert Asset Management. “If you look after your people, including employees, customers, suppliers, neighbors and communities, you are likely to have less employee turnover, more repeat customers, [fewer] disputes and more goodwill.”
- Adopting TBL tenets can make the world a better place: When a company adopts a socially responsible model, people and the planet benefit. The TBL framework promotes sustainability and ethical business practices that can improve the world. Integrating environmental responsibility, fair labor practices and community engagement into business operations reduces a business’s ecological footprint while supporting social equity and contributing to long-term economic stability.
- A TBL approach can improve financial performance: Adhering to TBL tenets can help improve financial performance by reducing operational costs, enhancing your brand image and reputation and increasing sales, customer loyalty and productivity. “If you look after the planet, you are likely to use [fewer] resources, which can save you money and create less pollution, which will reduce regulatory problems,” Adams explained.
Drawbacks of the triple bottom line
Implementing a triple-bottom-line approach can present some challenges, including the following:
- The TBL approach requires an investment: While you might see financial gains eventually, the initial costs of implementing the TBL approach can be significant. Sustainability initiatives like adopting renewable energy, sourcing ethical materials and improving labor will likely require upfront investments. However, these efforts can lead to long-term savings, operational efficiencies and brand loyalty, making them a worthwhile commitment for many businesses.
- TBL successes can be difficult to quantify: Certain TBL metrics and key performance indicators can be difficult to measure — especially social and environmental ones. As a result, you might struggle with predicting success or making necessary shifts to improve your performance.
- Prioritizing TBL practices can be challenging: Some aspects of your bottom lines might contradict one another, leading to confusion when deciding which to prioritize. For example, you might want to demonstrate how much you value your employees by giving raises, but this could reduce available funds for potential sustainability initiatives you’ve been working toward.
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eco-friendly packaging that is reusable, compostable or recyclable to minimize environmental impact and support sustainability initiatives.
Examples of companies using the triple bottom line
Consider the following businesses that have successfully incorporated TBL principles into their structures:
- Better World Books: This organization sells used books and donates a portion of its profits to help fund literacy programs and libraries. It has raised more than $33 million for literacy programs and kept millions of used books out of landfills while creating jobs in the process.
- DHL: This shipping giant has upgraded its delivery trucks to hybrid, fuel-efficient or alternative-energy-powered vehicles. Additionally, its GoGreen initiative streamlines logistical operations and requires trucks to take the shortest route. Other TBL practices include supporting United Nations disaster management efforts, helping airports prepare for natural disasters and partnering with international organizations to improve the education of children and young people.
- Glassybaby: This company, which sells hand-blown votives and drinking glasses, was founded by Lee Rhodes, a three-time cancer survivor, to support other cancer patients. The company donates a percentage of each sale to charities through the Glassybaby White Light Fund, its charitable giving program. Since its establishment, it has donated over $14 million to help people, animals and the planet.
- Patagonia: This outdoor clothing and gear manufacturer encourages customers to reduce their environmental footprint. It pledges 1 percent of sales to environmental preservation, operates North America’s largest clothing repair facility and promotes recycling and repurposing worn-out clothing. Patagonia avoids harmful chemicals in production and prioritizes recycled, organic and sustainable materials. It also supports employees with in-office child care, flexible work schedules and a day off on Election Day. Additionally, Patagonia’s corporate venture capital fund invests in environmentally and socially responsible startups.
- South Mountain Company: This employee-owned architecture, engineering and renewable energy firm is committed to progressive business practices. It hires locally, provides living wages and offers quality benefits. The company prioritizes environmentally friendly building practices, specializes in zero-energy buildings and is a leading solar power integrator on Martha’s Vineyard. It donates 10 percent of profits to charity and another 10 percent to pro bono work. Focused on becoming a zero-net-energy and zero-waste business, South Mountain has developed a methodology to measure its carbon footprint, leading to new reduction initiatives.
How to measure your business’s TBL
Here are a few metrics for measuring your business’s TBL performance.
Economic measures
- Average incomes
- Underemployment costs
- Employment distribution by sector
- Revenue by sector
Environmental measures
- Greenhouse gas emissions
- Amount of waste generated
- Use of post-consumer or recycled materials
- Water and electricity consumption
- Fossil fuel consumption
- Waste management practices
Social measures
- Median household income
- Unemployment rate
- Crime per capita
- Average life expectancy
- Education levels
Challenges of measuring environmental and social impact
While profit is fairly easy to measure, quantifying environmental and social impact is more complex.
Some advocate for monetizing all TBL dimensions, including social welfare and environmental damage. A common unit of measurement would simplify comparisons, but critics argue that placing a dollar value on wetlands, endangered species and other environmental assets is problematic.
“Part of the challenge of managing to the triple bottom line is that it can be hard to put specific dollar figures on all the benefits of your efforts,” Adams explained. “What is the value of reducing your CO2 emissions? How much employee well-being will that flexible work policy create and what is its worth?”
Adams emphasized that people and planet benefits accrue over the long term. “They might pencil out over a five-year timeframe but would be hard to justify over a shorter reporting cycle,” Adams noted. “Will your company board get behind that? Will your investors?”
One alternative is to calculate the triple bottom line using an index, which eliminates the issue of incompatible units and enables comparisons between companies and industries.
There is no universal standard for calculating the triple bottom line or measuring economic, environmental and social results. Ultimately, TBL calculations depend on stakeholder priorities, subject matter expertise and data availability, which vary by company.
Moving your business toward the triple bottom line
If you’re not ready to complete the rigorous B Corp certification or jump headfirst into the triple bottom line, here are some ideas you can try.
Evaluate your business.
According to Kyle J. Brost, principal consultant at Spark Insight Partners, businesses should start by assessing whether they create value from a holistic standpoint.
“With this consideration, you can truly maximize value,” Brost explained, “because while the triple bottom line occasionally treats profit, people and planet distinctively, they are not mutually exclusive and improving in the right way in one area will positively impact your efforts in another.”
Get your staff on board.
Next, take small, visible steps that provide quick wins. Even minor initiatives can spark momentum and shift your company toward a TBL mindset.
“The best way to apply the triple bottom line is to get everyone on board,” Adams advised. “Take on some easy projects early to prove the concept. Good examples of these include retrofitting with LED light bulbs — easy, fast and saves money quickly.”
Find opportunities to help others.
Helping others is a great way to get started on the TBL approach. Here are a few ideas for making a positive difference:
- Offer employee volunteer opportunities — on paid company time — for causes that align with personal or company values.
- Donate your products or services to nonprofit organizations or underserved communities.
- Make financial contributions to nonprofits that support issues your company supports.
- Ensure employee policies and benefits — including salaries, health insurance, flexibility and time off — adequately support your workforce.
- Identify areas where your business can reduce consumption or waste and implement green initiatives.
Regardless of what actions a business takes to adopt a triple-bottom-line approach, what matters most is that its employees and management team are motivated by more than just profit.
“The triple bottom line needs to be a part of a company’s culture and values to be most successful,” said Rizzo. “Everyone wants to be a part of something that makes a larger impact in the world.”
Sammi Caramela contributed to this article.