Sustainability—Understanding the Triple Bottom Line

In my last article, I discussed sustainability in generic terms, focusing mostly on environmental issues. This month, we’re going to look at how sustainability is reported externally. 

Why do we care about how sustainability is being reported? It’s a hot topic! In The New York Times, Sept. 14, David Jolly reports in the article “G.D.P. Seen as Inadequate Measure of Economic Health,” French president, Nicolas Sarkozy, accepted the report of an economic panel that feels that the gross domestic product (GDP) is inadequate in describing the true national “health” of the economy. The article states that “The panel, chaired by two Nobel economists, Joseph E. Stiglitz, of Columbia University, and Amartya Sen, of Harvard University, concluded that GDP was insufficient and that measures of sustainability and human well-being should be included. An ‘excessive focus on GDP metrics’ also contributed to the onset of the current financial crisis, according to the report."

The current indicator of financial health, the GDP only looks at financial aspects, and does not take other factors into consideration, such as worker health, the environment, and quality of life. We’ve known that for a while. But it also is one of the bellweathers for economic health. What are some other indicators of economic health that may take a broader view of our progress?

There are two basic methods, very similar in their approach—the triple bottom line, or TBL, and the integrated bottom line, or IBL. More people are familiar with TBL—a term coined by John Elkington in 1994 and expanded upon in his 1998 book Cannibals with Forks: The Triple Bottom Line of 21st Century Business (New Society Publishers, 1998). The phrase “People, Planet, Profit” is shorthand to help remember the three prongs of this approach—ensure that we are conducting business in a responsible manner, by not harming our workers and neighbors, our environment, and our economic viability. TBL seeks to strike a balance between these three (sometimes competing) priorities in a manner that ensures that the approach is sustainable for the long term.

TBL has been most widely adopted by the public sector to provide full accounting of their actions; in the private sector, privately held organizations who subscribe to corporate social responsibility (CSR) are embracing TBL as a methodology to demonstrate this commitment.  

Triple bottom line thinking is based upon the awareness that an organization has many stakeholders—those influenced by the actions of the organization, either directly or indirectly—rather than the narrower shareholder view—that it is the job of the organization to maximize profit for the stakeholders at any cost. Therefore, TBL seeks to strike a balance between people, planet, and profit without endangering, or exploiting any one group for the benefit of the other(s). 

Examples include “fair trade” agricultural practices, where a portion of the profit from the finished goods is sent upstream back to the original producer; or cradle-to-grave (life cycle) assessment—done for materials that are consumed—to help understand the true environmental cost of using that material through end of life and disposal. TBL thinking is that an organization that manufactures a toxic or hazardous substance should also be responsible for its ultimate disposal.

Integrated bottom line has had less focus, and therefore is a bit less recognized—less folks interviewed were aware of IBL than of TBL.  

Integrated bottom line is defined by the Sustainability Dictionary (http://www.sustainabilitydictionary.com/i/integrated_bottom_line.php) as:

“A process, described by Theo Furgusson, for integrating financial, environmental, and social costs and benefits into a unified measure of business activity. Conventional objectives of profitability, competitive advantage, efficiency, and economic growth are judged successful by their compatibility with biodiversity, ecological sustainability, equity, community support, and maximized well-being for a variety of stakeholders.

An integrated bottom line differs from a triple bottom line in that all measures are combined into one balance sheet and income statement (instead of separated in three different ones).”

OK, so we now know that IBL uses one balance sheet, but how does that work, exactly? The definition goes on to provide some additional clarification:

“For example, short-term, sustainable resource use is encouraged to maximize efficiency because it is factored into accounts payable. Ecosystem restoration is entered as long-term debt. Market forces are tempered by distribution equity and social forces are elevated through premiums placed on human capital. Business plans can be redesigned so that qualitative outcomes have equal or greater measure to quantitative goals.”

The IBL provides an alternative method for looking at how our enterprises affect the 3P’s—it is no less powerful than TBL reporting, and in fact may be more intuitive for chief financial officers who can take definitions similar to the above and make determinations of effect accordingly. 

As this process develops over time, we may see new ways to determine an organization’s commitment to sustainability, but the bottom line is: No matter which method you prefer (TBL or IBL), focusing on people, planet, and profit is a responsible method of doing business in today’s global economy.

As more and more leaders in the Group of 20 (G20) realize and push for “better” metrics for understanding their economy, IBL and TBL may become as commonplace as GDP.

About The Author

Mary F. McDonald

Mary F. McDonald is CEO and CTO of the McDonald Consulting Group Inc. (www.mcdcg.com)  and blogs about process improvement at www.improvemybusinessnow.com. She’s been helping companies streamline their businesses and implement management systems since 1995. She’s the author of five books, a member of the U.S. TAG for both ISO 9001 and ISO 14001, and a frequent speaker at conferences and seminars. She may be contacted at marymcd@mcdcg.com.