Triple Bottom Line https://www.investopedia.com/terms/t/triple-bottom-line.asp
By WILL KENTON Updated December 17, 2023
Reviewed by MICHAEL J BOYLE
Fact checked by SUZANNE KVILHAUG
Triple Bottom Line (TBL)
Investopedia / Mira Norian
What Is the Triple Bottom Line? Understanding the TBL The 3 Ps Measuring the TBL Pros and Cons Examples Triple
Bottom Line FAQs The Bottom Line
What Is the Triple Bottom Line (TBL)?
In economics, the triple bottom line (TBL) maintains that companies should commit to focusing as much on social and
environmental concerns as they do on profits. TBL theory posits that instead of one bottom line, there should be three:
profit, people, and the planet. A TBL seeks to gauge a corporation's level of commitment to corporate social
responsibility and its impact on the environment over time.
In 1994, John Elkington—the famed British management consultant and sustainability guru—coined the phrase "triple
bottom line" as his way of measuring performance in corporate America. The idea was that a company can be managed
in a way that not only makes money but which also improves people's lives and the well-being of the planet.1
Harvard Business Review. "25 Years Ago I Coined the Phrase 'Triple Bottom Line.' Here's Why It's Time to Rethink It."
KEY TAKEAWAYS
The concept behind the triple bottom line is that companies should focus as much on social and environmental issues as
they do on profits.
The TBL consists of three elements: profit, people, and the planet.2
The triple bottom line aims to measure the financial, social, and environmental performance of a company over time.
TBL may result in retaining employees, increasing external investments, boosting sales from ESG-interested customers,
and gaining long-term operational efficiencies.
TBL may also be difficult to measure, costly to implement, and cause competing strategies across triple bottom line
components.
Understanding the Triple Bottom Line (TBL)
In finance, when speaking of a company's bottom line, we usually mean its profits. Elkington's TBL framework advances
the goal of sustainability in business practices, in which companies look beyond profits to include social and
environmental issues to measure the full cost of doing business. Triple-bottom-line theory says that companies should
focus as much attention on social and environmental issues as they do on financial issues.
TBL theory also says that if a company focuses on finances only and does not examine how it interacts socially, it is not
able to see the whole picture and therefore cannot account for the full cost of doing business.
The 3 Ps of the Triple Bottom Line
According to TBL theory, companies should be working simultaneously on these three bottom lines:
Profit: This is the traditional measure of corporate profit—the profit and loss (P&L) account.
People: This measures how socially responsible an organization has been throughout its history.
Planet: This measures how environmentally responsible a firm has been.2
Profit
In the context of the triple bottom line, profit can mean more than just how much money a company makes. A company
must ensure it earns its income in ethical, fair manners. This includes soliciting business partners and vendors with
which it aligns philanthropically. It also defines how a company develops its strategy or financial operating plan. For
instance, profit also ties to a company's responsibility to pay its lenders, creditors, and employees what is due to them
and to have a sense of financial responsibility for these obligations.
Some users of the triple bottom line may also say profit refers to not only a company's profit but the profit of those
around the company. This specifically refers to the community in which the business operates. This may include:
Ensuring the company is paying its fair share of local, state, or federal income taxes on a timely basis
Making sure the company is fostering economic wealth within its community by shopping local or utilizing small
businesses.
Committing to financially investing in the community through partnerships, developments, or corporate sponsorships.
People
In the context of triple bottom line, people refers to every individual that is in touch with a company. This includes but is
not limited to:
Employees. This means ensuring workers receive a fair wage in a safe environment that encourages professional
development.
Vendors. This means ensuring a diverse set of suppliers are used and prioritizing small businesses or minority-owners
when appropriate.
Customers. This means ensuring customers have fair access to products and their feedback regarding equity or safety
are considered.
Traditionally, a company would prioritize investors or shareholders. Triple bottom line shifts the focus to individuals
potentially not financially invested in the company but still tangentially involved with its operations. Now, instead of
attempting to create value by only increasing investor returns, triple bottom line strives to create value by encouraging
volunteerism of its employees or support or business success of small suppliers, for example.
Planet
The largest deviation from purely financial reporting relates to reporting on environmental impacts. Often, a company
must be forced between a lower-cost option or a more environmentally-friendly alternative. A company may also
choose between a less favorable alternative; for example, eco-friendly transit will likely be slower than aircraft.
Instead of reporting a company's positive changes to the planet, it is often much easier to assess the impacts of the
alternatives elected by the company. Imagine a company that redesigned its distribution channels to reduce its energy
use; such an activity would be reported as saving a certain amount of greenhouse gas emissions.
Some users of triple bottom line may replace 'profit' with 'prosperity'; both terms are meant to be interchangeable and
refer to the long-term health of the company and its programs.
How to Measure the Triple Bottom Line
Companies may need to get creative when measuring the triple bottom line. Traditional accounting rules provide very
strong guidance on how a company must record its accounting profit. Alternatively, there may be minimal to no
structure in place on how a company must measure its triple bottom line, especially considering there may be no
external reporting requirement to do so.
Measuring Profit
A company will still usually report company-wide net income as part of its triple bottom line. For this reason, profit is
the easiest component of triple bottom line to report as it already has strong guidance. However, it may also report or
call out several other profitability or financial metrics such as:
Gross margin by geographical region to demonstrate consistent or equitable pricing across different demographic
groups.
Historical federal income tax payments, demonstrating its effective rate.
Historical information (or lack of) late payments or penalties as a demonstration of financial responsibility.
Measuring People
Also referred to as social measures or social metrics, the people component of triple bottom line may contain financial
or non-financial measurements. Again, some may be stipulated by generally accepted accounting principles (GAAP) or
other reporting rules, while others may be internally-sourced data. Examples of measurements of people include:
Average employee payroll to demonstrate livable wages that exceed local expectations for pay.
Average employee benefits per employee beyond pay to demonstrate the full benefit package per worker.
Average number of vacation hours earned and used per employee to ensure workers can and have been stepping away
from work.
Employment demographics such as proportion of employees in different age, race, sexual orientation, or religious
groups. Note that some of this information may be sensitive and must be provided voluntarily by employees (as
employers are not entitled to some demographic information.
Vendor demographics such as businesses identifying as small businesses, LGBTQ-owned, Veteran-owned, or minorityowned.
Number of product returns by geographical regions to ensure certain demographics are still receiving quality products.
Measuring Planet
Perhaps the most difficult triple bottom line component to measure is planet. As a company may need to know its
existing impact as well as its "eco-friendly" impact, measuring impacts to the planet may require the most expertise or
effort. However, there are very common environmental measurements such as:
Reductions in greenhouse gas emissions based on the difference between former processes and forecasted changes in
new processes.
Amount of waste generated in pounds; this may also include amount of recycled product over a period of time.
Amount of energy consumption, adjusted for seasonality.
Amount of fossil fuel consumption (may be adjusted for per-employee or per-sales lead should the company be
growing).
Proportion of raw materials sourced ethically.
To promote each category as being equally important to one another, a true triple bottom report will have a consistent
number of measurements for profit, people, and planet.
Advantages and Disadvantages of the Triple Bottom Line
Advantages of Applying the Triple Bottom Line
The obvious reason to apply the triple bottom line is to have a greater positive impact on the world. Instead of focusing
on paper profit, companies can quantifiably determine how the business is favorably changing the world and the people
it engages with.
Having a greater philanthropic presence may encourage employee retention and decrease attrition. Workers may be
more likely to commit to a company if its environmental impacts are communicated. In addition, favorable working
conditions including competitive wages, training, and time off to volunteer may keep employees around; this may
reduce recruiting, training, onboarding, and general costs of new employees.
A greater triple bottom line plan may also entice customers and consciously capitalistic investors interested in
prioritizing certain non-financial metrics over financial metrics. Some customers may be torn between two similar
products; the deciding factor may be the ESG prioritization of the companies. In addition, investors may actively seek to
put their money into a company that has social and environmental plans.
Last, triple bottom-line strategies may result in increased long-term profitability. Though short-term costs may increase,
a company may become more efficient in the long run. Consider a company converting its fleet to electric vehicles.
Short-term, this will be a massive capital investment. In the long term, the company may reap the benefit of lower
energy costs, less maintenance, or better equipment durability.
Disadvantages of Applying the Triple Bottom Line
A key challenge of the triple bottom line is the difficulty of measuring certain social and environmental bottom lines.2
Profitability is inherently quantitative, so it is easy to measure. However, consider the example of attempting to
evaluate the economic impact of preventing an oil spill. A company may easily be able identify the input costs, but it
may be more difficult to pinpoint non-financial inputs or outcomes.
It can also be difficult to switch gears between priorities that are seemingly antithetical—such as maximizing individual
financial returns while also doing the greatest good for society. Some companies might struggle to balance deploying
money and other resources, such as human capital, to all three bottom lines without favoring one at the expense of
another.
In addition, electing to prioritize the triple bottom line will likely be more expensive. Consider a clothing manufacturer
whose best way to maximize profits might be to hire the least expensive labor possible and to dispose of manufacturing
waste in the cheapest way possible. These practices might well result in the greatest possible profits for the company
but at the expense of miserable working and living conditions for laborers, and harm to the natural environment and
the people who live in that environment.
Pros
Aims to have positive impact on the world
May boost employee retention as workers may appreciate favorable working conditions
May result in greater external funds from investors seeking ESG investments
May result in greater sales from customers seeking to support ESG companies
May result in long-term efficiencies that reduce costs in the long-run
Cons
May be more difficult to assess non-financial inputs or outputs
Lack of comparability across impact groups (i.e. companies may need to choose one bottom line over the other)
May result in competing strategies, making it difficult to easily pivot from one plan to another
Will likely increase the cost of operations due to needing to find alternative products or processes
Examples of Companies That Subscribe to TBL or Similar Concepts
Today, the corporate world is more conscious than ever of its social and environmental responsibility. Companies are
increasingly adopting or ramping up their social programs. Consumers want companies to be transparent about their
practices and to be considerate of all stakeholders. Many consumers are willing to pay more for clothing and other
products if it means that workers are paid a living wage and the environment is being respected in the production
process.
The number of firms—of all types and sizes, both publicly and privately held—that subscribe to the triple-bottom-line
concept, or something similar, is staggering. Here are a handful of these companies:
Ben & Jerry's
Ben & Jerry's is the ice cream company that made conscious capitalism central to its strategy. As stated on its website,
"Ben & Jerry's is founded on and dedicated to a sustainable corporate concept of linked prosperity."3 The company
opposes the use of recombinant bovine growth hormone (rBGH) and genetically modified organisms (GMOs) and fosters
myriad values such as fair trade and climate justice.4
LEGO
The LEGO Group (privately held; Billund, Denmark) has formed partnerships with organizations like the
nongovernmental organization (NGO) World Wildlife Fund. In addition, LEGO has made a commitment to reducing its
carbon footprint and is working towards 100% renewable energy capacity by 2030.5
In addition to partnering with the World Wildlife Fund, the LEGO Group has also pledged to transition to renewable
bioplastics. The first plant-derived set of LEGO toys was launched in 2019.6
Mars
Mars Incorporated (privately held; McLean, Va.) has a sustainable cocoa initiative called Cocoa for Generations. It
requires cocoa farmers to be fair trade certified to ensure they follow a code of fair treatment to workers providing
labor. In exchange for certification, Mars provides productivity technology and buys cocoa at premium prices.7
Starbucks
Starbucks Corporation (SBUX), has been socially and environmentally focused since its inception in 1971. The company
has hired more than 30,000 veterans since 2013 and is committed to hiring 5,000 more per year going forward.89
What Are the 3 Elements of the Triple Bottom Line (TBL)?
The triple bottom line is an accounting framework that incorporates three dimensions of performance: social,
environmental, and financial. These three facets can be summarized as "people, planet, and profit."2
How Is TBL Different From the Financial Bottom Line?
Including social, human, and environmental capital along with a company's financial capital makes it possible to get a
more accurate picture of a company's impact on society. While a company's financial line is helpful in knowing the
profitability of the company, a company's triple bottom line is used to evaluate non-financial, philanthrophic
performance.
Who Came Up With the Triple Bottom Line?
The triple bottom line was conceived by entrepreneur and business writer John Elkington in 1994 while at the think tank
SustainAbility, and it was later incorporated into the oil company Shell's first sustainability report in 1997.10 As interest
in sustainable investing has grown, the need for a transparent and consistent measurement framework led to the
creation of the non-profit Sustainability Accounting Standards Board (SASB).
Why Is the Triple Bottom Line Important?
A company's triple bottom line is important because it de-prioritizes the importance of financial performance. This
alternative reporting metric encourages companies to set social, environmental, philanthropic, and non-financial goals
instead of purely making decisions on what will maximize profit. In addition, triple bottom line is important for investors
considering what companies invest in. Some may elect to invest in companies that may be reporting less financial profit
but yielding stronger philanthropic results.
The Bottom Line
As companies commit more resources to social and environmental impacts instead of prioritizing profit, the company
can report their achievements using the triple bottom line. This reporting structure demonstrates successes relating to
profit, people, and the plant and quantifies results beyond a company's net income. Management, regulators, and
investors may be interested in knowing how a company has performed not just selling product but making the world a
better place.
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