Triple Bottom Line – A Simple Explanation

When it comes to doing business, the primary concern of many companies tends to be profit. Yet, in today’s world, businesses are becoming increasingly socially involved and environmentally concerned. This idea of the triple bottom line is changing the way that organizations function.

Let’s take a look at what the triple bottom line means and why it matters.

Photo by Jon Tyson on Unsplash

What Is The Triple Bottom Line?

The triple bottom line (TBL) is a business and accounting framework that believes companies should care about social and environmental concerns just as they do their profits. The bottom line has always been a reference to financial statements ending with a company’s profit or losses. The triple bottom line definition brings people and the planet into the equation.

The Three Ps

The easiest way to think of the triple bottom line is to remember the three Ps, namely: people, planet, and profit. Here’s how they each play a role in how businesses function.

1. People

The measurement of social responsibility that a company shows. In this case, people are not only a company’s employees, but they are also the wider community in which a company operates its business. A simple way to see how a business affects people is to ask, “How does this company benefit society?” A company that is invested in TBL will pay fair wages and ensure that its employees work under humane conditions. These companies also care about giving back to the community in the form of philanthropy.

2. Profit

Profit is the traditional measurement of a company’s success. TBL companies recognize that their impact on people and the planet are just as important as their profit. In fact, caring about society and the environment isn’t in opposition to being profitable. In many instances, the companies that care about more than just their bottom line end up being more profitable because people like supporting companies that care!

3. Planet

The measurement of how environmentally friendly a company is in their operations and production. To depict, TBL businesses often invest in renewable energy, focus on improving logistics to reduce waste, and leverage natural resources efficiently.

The Full Cost Of Business

The accounting framework of the triple bottom line was first coined by business writer John Elkington in 1994. When a business operates, it has to take into account its expenses and impact on people and the planet.

For example, imagine a business that operates with a profit, but doesn’t take into account safety measures. In turn, its employees get sick and have to go into the hospital. In this case, the business may be profitable financially, but the cost of doing business is actually too high in a broader sense.

Many companies focus on shareholders and profits to gage their business’ success. But the TBL model relies on a business that cares more about stakeholders than shareholders. A stakeholder is anyone affected by the business, whether it be internal or external.

Benefits Of The Triple Bottom Line

As time progresses and people become more involved and vocal about caring about societal concerns and the environment, businesses are leading causes and/or following suit. In fact, a few examples of when things started to turn in this direction was after the 2008 financial crisis and BP oil spill. Corporate social responsibility is increasingly relevant.

To make TBL viable for corporations, you have to have people who care and are willing to do the right thing to ensure feasibility. This is why it pays to employ someone who has specialized knowledge about environmental science, economics, business administration, and accounting. An overall sense of business paired with leadership skills can greatly increase a business’ triple bottom line.

Challenges Of The Triple Bottom Line

Of course the TBL framework is incredible in theory. But it relies on practical measures to make it a reality.

The measurement of “planet” and “people” is not as straightforward as the measurement for financial profit (or loss). Profit and losses are based on currency. But how do you measure social capital or environmental health? One way it could be done is in the term of using an index, but this requires that there’s a universally accepted accounting method.

However, if TBL is ignored, repercussions can be serious and detrimental on the world. It could result in hazardous waste management or excessive pollution. Business can negatively impact unemployment rates or help contribute to wage gaps if they don’t take into account the TBL framework.

Photo by quan le on Unsplash

Why The Triple Bottom Line Matters

The triple bottom line matters because everything is connected. When a company shows they care about all aspects of life that their functions affect, then the world benefits.

Consumers also care about companies that do the right thing. In fact, some people are even willing to pay more for the same product if it’s from a company that is socially responsible.

Here’s a look at some companies that show in their actions how they care about TBL:

1. Tom’s

Tom’s is a socially responsible shoe company that donates one pair of shoes for every pair they sell. They’ve worked giving back into their business model and made charity a founding principle of their business.

2. Axion Structural Innovations LLC

As a railroad builder, Axion cares about sustainability and uses recycled plastic bottles and industrial waste to build railroad ties and pilings.

3. The LEGO Group

LEGO is one of the most famous toy companies, but their commitment to people’s joy and creativity equally rivals their commitment to the planet. As such, they’ve made a promise to work towards 100% renewable energy by 2030 and they pair up with NGOs like the World Wildlife Fund to give back.

4. Mars, Incorporated

As one of the world’s largest chocolatier and candy manufacturers, Mars ensures that their cocoa farmers follow a code of fair treatment for their laborers. Mars is willing to buy cocoa at a premium cost in order to ensure that people are treated fairly.

5. Starbucks Corporation

The ubiquitous coffee company takes really good care of their employees and offers tuition assistance. The company is also committed to hiring veterans.

6. Ben & Jerry’s

The only thing better than ice cream is an ice cream company that does good for the world. Even after Ben & Jerry’s became a subsidiary of the massive corporation Unilever, the deal involved a promise that Univerlever would continue to fund the social missions of Ben & Jerry’s. Furthermore, Ben & Jerry’s would return the favor and spread the good by helping Unilever improve its social practices globally.

The (Triple) Bottom Line

Well, the triple bottom line here is clear — companies that care about the people, planet, and profits tend to be liked and respected because they are doing what’s right. At the hands of globalization and an increasingly connected world, the way a business functions matters greatly.

While a company can be financially profitable, it can have detrimental effects on people and the planet if it isn’t taking into account TBL. However, companies like Tom’s, LEGO, and Starbucks, for example, have shown how subscribing to the triple bottom line accounting framework can truly pay off, in more ways than one!