Triple Bottom Line Reporting: What It Is & How Does It Work?
Businesses focus mostly on profit, right? That’s not entirely true. While many refer to profit as the bottom line of a business, there’s another theory in play. This theory, the triple bottom line, focuses on more than just profit. If you’re looking for sustainable business strategies, this might be for you. Keep reading to learn more about the triple bottom line.
Here’s What We’ll Cover:
What Is the Triple Bottom Line?
The triple bottom line is one of many sustainable business practices that says a business needs to focus on more than money. It pushes businesses to take into account environmental impact and social responsibility. Both of these areas should be reviewed alongside financial performance. The profit a business makes is the standard bottom line. The triple bottom line wants businesses to focus on 3 p’s: profit, people, and the planet.
Economic performance has been the sole focus of many businesses for centuries. The way a business performs economically says a lot about its success. The more success a business sees, the larger its economic impact. This has been the only thing many businesses have cared about in the past. However, in modern society, economic measures are no longer the only thing that people care about.
In recent years, societal impact has become a necessary component of a business’s success. The way they a business affects people has become a hot topic. Social impact affects an entire society, so of course, social performance matters now. The more a company serves its community, the more social capital they have. Corporate social responsibility is determined by the community that they serve. As such, business reputations are largely dependent upon people.
When taking people into account, businesses do a number of things. They adopt fair hiring practices, and stop excluding individuals from working. They also encourage volunteerism. Many companies have a Habitats for Humanity commitment. When looking to make impacts on a larger scale, many companies pair with non-profit organizations. The bottom line is investing in people. That’s what the triple bottom line looks to teach companies.
As we study the planet, we understand more deeply that all actions taken affect the natural environment. While individual actions matter, the actions of companies matter far more. The way a company sources its products can play a large part on environmental impact. Environmental sustainability has become more important than ever. Companies are making more decisions based on environmental performance. Saving the planet is an arduous task, and companies have to accept responsibility for the negative impacts they may make.
The biggest impact that companies have had on the planet has been negative. Practices that businesses have employed in the past are largely responsible for climate change. Now that we are at a crucial point in time, many companies are looking to remedy this. They’re looking to become carbon neutral. They’re also donating to organizations that preserve the planet.
Why Is Triple Bottom Line Important?
Corporate performance in the past has focused on profit, and profit alone. However, as people begin to hold companies responsible for their impacts, the triple bottom line has become crucial. People hold companies accountable for their negative impacts and their positive impacts.
What Are Negative Impacts?
Negative impacts are any impacts that damage a company’s capital. This can relate to any of the 3 p’s. An example of this would be making decisions that lead to environmental destruction. Another would be a business decision that doesn’t foster a safe work environment. Both show the company in a negative light, which will lead to an impact on profit.
What Are Positive Impacts?
A positive impact is any decision that leads to a boost in company capital. If a company changes a production process that improves its sustainability goals, it is considered positive. Any improvement to human capital, environmental capital, or financial capital has a positive impact.
Doing Good Means Doing Well
Most of the time, a decision that is considered good leads to financial gain for a company. Companies are expected to employ leaders that want to make a positive impact on the world. Positive change in companies leads to a better world to live in. However, making those decisions is a gradual process.
Many businesses have been led by people who have focused on the bottom dollar. That’s all. As such, many decisions have been made that haven’t helped people or the planet. In an ideal world, all of those decisions would be undone quickly. However, we live in a world where that won’t happen. Many of the decisions that need to be made to save people and the planet would lead to financial peril. As such, the leaders of those companies have to change practices gradually.
Many times, a business will announce a plan that will help people and the planet. They provide a period of time that they plan on accomplishing the feat within. Then, they’ll report on their progress throughout the time period. A great example of this is emissions goals. Many companies have pledged to become carbon neutral as time goes on. This means that they emit less carbon dioxide. Overall, this saves people and the planet. It takes time to accomplish this, though.
Is Triple Bottom Line Reporting Realistic?
If you were to ask the person who introduced the concept, he’d tell you that it isn’t realistic.
In 2018, the Harvard Business Review published an article written by John Elkington. John Elkington is the person responsible for coining the phrase “Triple Bottom Line.” Over nearly 3 decades, he’s watched the phrase become diluted.
Triple Bottom Line was Supposed to Be Radical
Elkington wrote that he anticipated the triple bottom line to be a radical way of rethinking capitalism. That’s not what happened, though. The intent of the triple bottom line was to teach businesses to focus on more important issues than profit. Elkington believes that this was lost over the years.
So what’s become of the triple bottom line? Well, Elkington notes that it’s become little more than an accounting tool. This tool is being used to balance tradeoffs. It hasn’t changed actual business practices. Businesses are adopting environmental or social practices solely to increase profits. As such, the practices they’re employing aren’t actually making an impact.
Where Do You Stand?
It comes down to what you believe, especially as a business owner. Is the sacrifice of profit worth it if you gain social or environmental capital? Money doesn’t make the world go around. It also doesn’t impress your clients or your community. If you’re looking to grow in the modern world, a lot of that growth is going to come from the decisions you make. Clients and customers want to know that you’re invested in the good of the planet.
Thanks to social media and technology, all businesses are under a microscope. Major companies aren’t immune to criticism, and small companies rely on fair practices to maintain a positive image. In the modern world, reputation matters far more to people than a profit margin. Keep that in mind when you consider business decisions.
In 1994, John Elkington introduced the triple bottom line. As of today, he isn’t convinced that business leaders understand it. As a small business owner, you can make a difference. Focus on profits, sure, but also invest in the planet and people. This is a recipe for success. The triple bottom line is an excellent concept, not only an accounting method. Do good, and do well. Be sure to check out our resource hub for more articles like this one.