Business

Published on May 4th, 2017 | by Guest Contributor

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What is a Triple Bottom Line Business?

Triple bottom line business line is a term which describes a business that focuses on three main things: people, profits, and the planet. The first use of it was credited to John Elkington, who founded a consulting firm called SustainAbility. Before the term became known, the bottom line in a business was focused mostly on the financial side – profit and loss.

Triple Bottom Line Business

In other words, the planet — or environmental concerns — were left out. Similarly, people were also not part of the equation.

By adding two more lines to the single profit-oriented bottom line, you can have a triple bottom line business model. The first is for profits, and the others for people and planet.

The first bottom line is obviously about money, and the second is a measure of how socially responsible a business is. For example, does the organization take care of its employees by offering to pay for health insurance fully or partially? What is the quality of the coverage and what is covered? Does the organization offer a retirement program? What is the company culture like? Are there educational benefits for employees or family members?

These are just some of the topics a socially responsible business must address. In the triple bottom line, the People category does not only refer to the employees. Sometimes, it also means customers and members of the community where the business operates. An agricultural equipment company in India helped its customers, “Most small farmers could not afford to purchase Jain Irrigation’s systems without financing, however, and banks were reluctant to grant credit to illiterate villagers with no credit report repair done to them previously. So the company helped its customers apply for government subsidies using advance systems. It also made a daring move into the wholesale agricultural commodities trade—promising to buy some of the crops its customers grew with its equipment at a set price and then reselling the produce. The guarantees in turn persuaded the banks to lend to the company’s customers.”

Triple Bottom Line Business

The company did this because some of the farmers were going bankrupt, but that did not need to happen. They simply need some support to be able to invest in the technology that helped them expand their farming operations and make money for themselves and their families. Before this assistance was offered, a number of farmers wound up in very difficult financial situations, and some even committed suicide.

When a company can help customers in need while still maintaining their own business, this practice is called a ‘win-win’ situation. If a business has a singular focus on profits and little to no emphasis on people, it would not devise an approach to help customers like the Indian company did.

Triple Bottom Line Business Advantages

Harvard Business School Professor Rosabeth Moss Kanter explained the crux of business success using an expanded view of the bottom line, “Rather than viewing organizational processes as ways of extracting more economic value, great companies create frameworks that use societal value and human values as decision-making criteria. They believe that corporations have a purpose and meet stakeholders’ needs in many ways: by producing goods and services that improve the lives of users; by providing jobs and enhancing workers’ quality of life; by developing a strong network of suppliers and business partners; and by ensuring financial viability, which provides resources for improvements, innovations, and returns to investors.”

Defining values that go beyond economics creates a mindset that includes aspects of the world that historically have been ignored.

This is just an anecdote, but an MBA student once told me that in a class one day a business professor asked everyone what they would do if they were running a factory that was profitable, but it was also creating toxic waste. Would they choose to store the waste on site in sealed containers at some cost, pay to have it hauled away and disposed of legally, or dump it in a nearby river and avoid all handling costs.

The student told me all his classmates said they would dump the toxic waste in the river illegally and run the risk of getting caught and having to pay fines. That kind of mentality focuses only on profits, not on the people whose health might be negatively impacted by the toxic dumping or on the damage to the river and associated plants and wildlife.

Choosing to dump the waste doesn’t make sense financially because the chances of getting caught are fairly good and the negative hit to the company’s public image could be disastrous for sales. The fines alone might threaten the company’s longevity.

So, using a triple bottom line is much likely to generate decisions that do not violate laws or society’s sense of morality.

If you knew a company had illegally dumped toxic waste in a river or other wild area, would you ever buy anything from them again?

A research study found that the cost of damage done to the environment by several thousand businesses around the world in 2008 was over $2 trillion.

In 2014, Australian bank customers said they would collectively pull out about $120 million from their accounts if the banks continued lending money to coal and natural gas companies.

There are established ways of measuring profits, but assessing the people (social) and planet (ecological) aspects of the triple bottom line is more difficult.

For the People or social component, you would probably want to examine how much your staff makes in relation to the cost of living in the places or places where you do business. Do you pay at, below, or above the market rate? The same would be true for employee benefits like health insurance, paid time off, and so on.

Another more recent development is the regard one might have for employee happiness, which might be difficult to measure, but it also could be beneficial, “[Happy employees] have higher levels of productivity, produce higher sales, perform better in leadership positions, and receive higher performance ratings and higher pay. They also enjoy more job security and are less likely to take sick days, to quit, or become burned out. Happy CEO’s are more likely to lead teams of employees who are both happy and healthy, and who find their work climate conducive to high performance.” (2011, p.41 –  Shawn Achor, the author of The Happiness Advantage, summarizing those benefits.)

So, trying to mind employee happiness is just one people measure, but we see clearly that it may have some benefits. Such an approach probably seems like common sense – happy people probably have more energy, but the triple bottom line is about measuring and cultivating a respect for people, not just trying to get them to be more productive.

The Planet

The Planet part of the TBL might be easier to measure. It might not take that much to estimate the amount of CO2 a business produces each year, or other emissions like sulphur-dioxide or nitrous oxide. It certainly would be fairly simple to look at utility bills and see how much electricity is consumed each month and to connect that to how the local utility generates it. If burning coal is the method, you would know that when you consume that electricity, there is a climate change emissions output associated with it.

Also, if you have any vehicles for your company, what kind of fuel they use, what their fuel efficiency is, and how many miles they are driven each year, are all questions that need to be asked for the triple bottom line equation.

Does your company reimburse employees when they use public transportation? Such a program helps People, because they save a little money, and also help the Planet by using less gasoline and therefore producing less CO2.

Emphasizing sustainability can have some benefits for businesses, “According to research by Deutsche Bank, which evaluated 56 academic studies, companies with high ratings for environmental, social, and governance (ESG) factors have a lower cost of debt and equity; 89 percent of the studies they reviewed show that companies with high ESG ratings outperform the market in the medium (three to five years) and long (five to ten years) term.”

The triple bottom line business model has been written about extensively, but hopefully this article has given you some sense of what it is and why it matters. If you are a business person, ignoring the People and Planet aspects of your organization makes no sense, both in terms of human values and your success.

Sustainability also is growing trend – as we are seeing with increasing amounts of renewable energy (solar and wind power) and energy storage coming online. Also, the visibility of sustainability has been raised considerably by the electric vehicle manufacturer Tesla and its leader Elon Musk. The Tesla Model S produces no harmful tailpipe emissions and it has a high safety rating. Electric vehicles are also better for the planet.

So, it would probably be beneficial for any business to be aware of sustainability issues, and to incorporate them into its practices.

Originally published on Inspired Economist by Jake Richardson

Image Credit: Triplebotline, Creative Commons-BY-SA-3.0

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