| Evolution to a Triple Bottom Line September 12, 2008 |
Evolution from the Single to the Triple Bottom Line
The number of large companies that have become focused on a
triple bottom line has been growing over the past couple years. A
single bottom line was always the most important aspect to
these large companies, but there has been an evolution to this
thinking.
The single bottom line was just the bottom line, or the net income
on the income statement, which is also referred to as profit.
The triple bottom line also includes people and planet in addition
to profit. People, planet and profit is also referred to as social,
environmental and economic.
People, Planet & Profit
"People" (Human Capital) pertains to fair and beneficial business
practices toward labor and the community in which a corporation
conducts its business. Quantifying this bottom line is relatively
new, problematic and often subjective. The Global Reporting
Initiative (GRI) has developed guidelines to enable corporations
to comparably report on the social impact of a business.
"Planet" (Natural Capital) refers to sustainable environmental
practices. The company endeavors to benefit the natural order as
much as possible or at the least do no harm and curtail
environmental impact. Generally, sustainability reporting metrics
are better quantified and standardized for environmental issues
than for social ones. A number of respected reporting institutes
and registries exist including the Global Reporting Initiative,
CERES, Institute 4 Sustainability and others.
"Profit" is the bottom line (net income line) on the income
statement. The profit can be distributed among holders of
common stock as a dividend or held by the firm as retained
earnings which may be reinvested into the company.
Sustainability
For corporations that believe in the triple bottom line, people,
planet and profit are the three pillars to sustainability for the
company. This has mainly been stressed by the groups that
have the biggest interest in planet (environmentalists) and
people (unions). But history has shown us something different.
The number of large companies that have become focused on a
triple bottom line has been growing over the past couple years. A
single bottom line was always the most important aspect to
these large companies, but there has been an evolution to this
thinking.
The single bottom line was just the bottom line, or the net income
on the income statement, which is also referred to as profit.
The triple bottom line also includes people and planet in addition
to profit. People, planet and profit is also referred to as social,
environmental and economic.
People, Planet & Profit
"People" (Human Capital) pertains to fair and beneficial business
practices toward labor and the community in which a corporation
conducts its business. Quantifying this bottom line is relatively
new, problematic and often subjective. The Global Reporting
Initiative (GRI) has developed guidelines to enable corporations
to comparably report on the social impact of a business.
"Planet" (Natural Capital) refers to sustainable environmental
practices. The company endeavors to benefit the natural order as
much as possible or at the least do no harm and curtail
environmental impact. Generally, sustainability reporting metrics
are better quantified and standardized for environmental issues
than for social ones. A number of respected reporting institutes
and registries exist including the Global Reporting Initiative,
CERES, Institute 4 Sustainability and others.
"Profit" is the bottom line (net income line) on the income
statement. The profit can be distributed among holders of
common stock as a dividend or held by the firm as retained
earnings which may be reinvested into the company.
Sustainability
For corporations that believe in the triple bottom line, people,
planet and profit are the three pillars to sustainability for the
company. This has mainly been stressed by the groups that
have the biggest interest in planet (environmentalists) and
people (unions). But history has shown us something different.
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In theory, only profit is needed for sustainability, that has been proven by US capitalism. We have seen a move from corporations
that deal directly with consumers to look more socially conscious and make an attempt to care about the environment and the
social impact on people.
Cost of Implementing the Triple Bottom Line
As we mentioned, it is tough to quantify all three aspects of the triple bottom line. When a company makes the shift to the triple
bottom line, we know one thing, it negatively impacts profit. There should not be a lasting impact to the profit, it should just be a hit
in the first year of the implementation due to the costs associated with manufacturing changes or investments into the people.
It is easier for a large company that has been around to slowly implement the triple bottom line and show small improvements
each year as opposed to a small company to have the triple bottom line as its initial goal. Small companies will not be able to
sustain with the costs associated with people and planet. This is especially true of start-ups.
Nau, an apparel company based in Portland, Oregon, attempted to manufacture and sell outdoor clothes and sportswear made
from recycled materials using environmentally friendly business methods. Based in Portland, they were going up against industry
giant Nike. If Nike wanted to truely adopt the triple bottom line, they could with minimal impact on their income statement.
However, a start-up like Nau can't as we learned when it went out of business.
Future of the Triple Bottom Line
I do not believe start-ups have the ability to succeed if they are focused on the triple bottom line. The only companies that can
succeed are those large companies that have been successful for years. So in the future, we will see large companies slowly
implement the triple bottom line. They will grow their triple bottom line in accordance with not taking to large of a hit on their profits.
Since it is tough to measure the other two pillars in the triple bottom line, it will only take small improvements to make the public
happy with the triple bottom line.
that deal directly with consumers to look more socially conscious and make an attempt to care about the environment and the
social impact on people.
Cost of Implementing the Triple Bottom Line
As we mentioned, it is tough to quantify all three aspects of the triple bottom line. When a company makes the shift to the triple
bottom line, we know one thing, it negatively impacts profit. There should not be a lasting impact to the profit, it should just be a hit
in the first year of the implementation due to the costs associated with manufacturing changes or investments into the people.
It is easier for a large company that has been around to slowly implement the triple bottom line and show small improvements
each year as opposed to a small company to have the triple bottom line as its initial goal. Small companies will not be able to
sustain with the costs associated with people and planet. This is especially true of start-ups.
Nau, an apparel company based in Portland, Oregon, attempted to manufacture and sell outdoor clothes and sportswear made
from recycled materials using environmentally friendly business methods. Based in Portland, they were going up against industry
giant Nike. If Nike wanted to truely adopt the triple bottom line, they could with minimal impact on their income statement.
However, a start-up like Nau can't as we learned when it went out of business.
Future of the Triple Bottom Line
I do not believe start-ups have the ability to succeed if they are focused on the triple bottom line. The only companies that can
succeed are those large companies that have been successful for years. So in the future, we will see large companies slowly
implement the triple bottom line. They will grow their triple bottom line in accordance with not taking to large of a hit on their profits.
Since it is tough to measure the other two pillars in the triple bottom line, it will only take small improvements to make the public
happy with the triple bottom line.