Sustainable Profit Management
Triple Bottom Line Reporting
Dr. Ravi Edirisinghe
Over Reliance on Financial Information
Top management of many companies tend to focus on short
term financial results based on P&L prepared by financial
reporting procedures.
Stakeholders are judgmental on short term profit indicators and
share price is sensitive to short term results
Balanced Scorecard Model
Financial
Perspective
Customer
Perspective
Long Term
Direction and
Strategy
Internal Business
Perspective
Innovation &
Learning
Perspective
Kaplan and Nortan 1990
Modified Balanced Scorecard Model to Promote Sustainable Trading
Financial Perspective
Customer Perspective
Innovation & Learning
Perspective
Set Long Term
Direction and
Strategy
Internal Business
Perspective
Sustainable Trading
Perspective
Source – Author
What is sustainable trading ?
It is not only about trading green goods and services, sustainable
trade is about ensuring that trade positively contributes to a more
leveled valuation among economic, social, and environmental
development objectives
Lucas Assunção
Head of Branch, Trade, Environment, Climate Change and Sustainable Development
UNCTAD
Triple Bottom Line Accounting
companies should be preparing three different (and quite separate)
bottom lines.
1.The corporate profit “economic account”
The traditional measure of corporate financial health
2. The bottom line of company's “people account”
A measure in some shape or form of how socially responsible an
organization has been.
3.The bottom line of the company's “planet/environment account”
A measure of how environmentally responsible the company has been
The triple bottom line aims to measure the financial, social and
environmental performance of the corporation over a period.
Source – John Elkington, 1994, Cannibals with Forks
Triple Bottom Line Accounting
Sustainability Accounting is used in decision making to discover the
impact of business decisions on the community, the environment,
and subsequently the financial stability of the company.
A company may appear to be extremely profitable for several years,
but if their ethical decision making is below par and truths about the
company’s unethical operations begin to circulate in the community,
it is highly likely that the company will lose costumer support and
subsequently financial stability.
Source - Economist Nov 2009
Triple Bottom Line Accounting
Source - Economist Nov 2009
The People Bottom Line
This is called the social equity or human capital bottom line and is
concerned with a company’s stakeholders other than shareholders.
They include employees' contractors, customers suppliers, and the
wider community in which the business operates.
This bottom line is interested in the welfare of these stakeholders.
That includes whether employees, contractors and other suppliers
receive fair payment for their work and/or goods and whether their
working conditions are good.
This bottom line is also concerned with the company’s impact,
directly and indirectly, on the general public.
The Planet Bottom Line
This is also called the environmental bottom line or natural capital
and is concerned with the size of a company’s ecological footprint
and how to keep it as small as possible.
This is done by controlling energy consumption, reducing
manufacturing waste (especially the toxic kind) and disposing of It
safely. In addition, It means managing the life cycle of a company’s
products from start to finish.
That Includes lessening the environmental Impact from the raw
material sourcing stage, to the end-of-life disposal stage. Sometimes
aspects of the environment and “people” bottom lines overlap.
The Planet Bottom Line – Case Study 01
The Planet Bottom Line – Case Study 01
The Planet Bottom Line – Case Study 02
The Free Range eggs
The Planet Bottom Line – Case Study 02
The Triple Bottom Line – Eco System
Conventional Approach to Measure Profit
Dr. Frank Figge
Sustainability Research Institute, School of Earth & Environment, University of Leeds, UK
Sustainable Approach to Measure Profit
Dr. Frank Figge
Sustainability Research Institute, School of Earth & Environment, University of Leeds, UK
The Planet Bottom Line – Case Study 03
Dr. Frank Figge
Sustainability Research Institute, School of Earth & Environment, University of Leeds, UK
The Planet Bottom Line – Case Study 03
Dr. Frank Figge
Sustainability Research Institute, School of Earth & Environment, University of Leeds, UK
Sustainable Trading Principles – Study by Daniela Cohen
•Strong ethical policies that go beyond upholding the law can add
great value to a brand.
•Failure to do the right thing can cause social, economic and
environmental damage, undermining a company’s long-term
reputation and prospects.
•Once an ethical approach is adopted , companies will often find
there are bottom line benefits from demonstrating high ethical
standards.
•The ethical tone should come from the top.
Source : Discussion Paper for CIMA – Daniela Cohen 2010
Sustainable Trading Principles – Study by Daniela Cohen contd….
•High quality management information on social, environmental
and ethical performance is vital for monitoring the environmental
and social impacts of a company showing how effective its
governance arrangements are.
•Managers have a particular ethical responsibility to promote an
ethics-based culture that doesn’t permit practices such as bribery
Source - Discussion Paper for CIMA – Daniela Cohen 2010
Challenges of Sustainable Trading
•Three aspects are difficult to be measured with similar matrixes
•Difficult to set up a standard or accepted procedures
•Lack of understanding of the concepts
•High initial cost to setup and align the culture
•Need to allocate extra resources to report TBL performance
•Difficulties of performance measurements in
other companies and industry
comparison with
Source: Schulz & Flanigan, (2016)
Reporting Triple Bottom Line
Global Sustainability Standards Board
The GSSB has sole responsibility for setting the world's first globally
accepted standards for sustainability reporting – the GRI Standards.
Established as an independent operating entity under the auspices
of GRI, GSSB members represent a range of expertise and multistakeholder perspectives on sustainability reporting.
Source : https://www.globalreporting.org/standards/global-sustainability-standards-board/
Case Study of of Innocent
Case Study of Innocent
Innocent Drinks founders, L-R: Adam Balon, Jon Wright and Richard Reed
Case Study of DHL
Case Study of P&G
Case Study of Ford Pinto
Ford Pinto – Cost Benefit Analysis
Source : Ford Motor Company internal memorandum: "Fatalities Associated with Crash-Induced Fuel Leakage and Fires.":
Case Study of BP Oil Spill
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104 oil spills between 1997-1998
Accusations of oil price manipulation in 2008
Fatal accidents due to poor safety standards
Oil rig explosion in the Gulf of Mexico in 2010
source:www.bbc.com
Failures on Sustainable Trading at BP
• Cause of the explosion – Poor safety standards of BP
• BP’s response to damage control after the incident was very slow
source:www.bbc.com
Financial costs of failures in Sustainable Trading for BP
• Cost to rectify the problem is gulf of Mexico $40 Bn
• More than 100,000 claims for compensation
• Drop in market share.
• Drop in sales (40%)
• Q2 2010 loss of $17 Billion in 2010. The first loss in 18 years
• Share prices fell by 54%
• Estimate cost of failure $105 Bn
Share Price Movement - BP
Source: Yahoo Finance (2012)
Volkswagen Case Study
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Equipped with "defeat device"- improve performance in
laboratory conditions - cheating emissions tests in the US in
September 2015
Investigated by Environmental Protection Agency,US followed by
UK, Italy, France, South Korea, Canada and Germany.
Emitted Nitrogen Oxide pollutants up to 40 times above US
standards and irregularities in Carbon Dioxide emission levels
11 million cars worldwide, including 08 million in Europe, are fitted
with "defeat device".
Group's chief executive Martin Winterkorn resigned saying
"broken the trust of our customers and the public"
source:www.bbc.com