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.
- 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.
- The triple bottom line aims to measure the financial, social, and environmental performance of a company over time.
- TBL theory holds that if a firm looks at profits only, ignoring people and the planet, it cannot account for the full cost of doing business.
Understanding the Triple Bottom Line
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.
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.
Profits do matter in the triple bottom line—just not at the expense of social and environmental concerns.
Challenges of Applying the Triple Bottom Line
The following are challenges that companies can face when applying the triple bottom line.
Measuring the TBL
A key challenge of the TBL, according to Elkington, is the difficulty of measuring the social and environmental bottom lines. Profitability is inherently quantitative, so it is easy to measure. What constitutes social and environmental responsibility, however, is somewhat subjective. How do you put a dollar value on an oil spill—or on preventing one—for example?
Mixing inverse elements
It can 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.
Ignoring the TBL framework
There can be dire repercussions when companies ignore the TBL in the name of profits. Three well-known examples of this are:
- Destruction of the rainforest
- Exploitation of labor
- Damage to the ozone layer
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.
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.” 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.
In 2000 Ben & Jerry’s became a wholly-owned subsidiary of Unilever PLC, the British-Dutch multinational corporation. Part of the deal was that Unilever agreed to encourage and fund Ben & Jerry’s social missions, and, in turn, Ben & Jerry’s would help to strengthen Unilever’s social practices worldwide.
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 reduce its carbon footprint and is working towards 100% renewable energy capacity by 2030.
Mars Incorporated (privately held; Mc Lean, 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.
Starbucks Corporation (SBUX), which has been socially and environmentally focused since its inception in 1971, has hired more than 25,000 veterans since 2013 and is committed to hiring 5,000 more per year going forward.
Frequently Asked Questions
What are the three facets of the triple bottom line?
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.”
Why is TBL a better metric than just 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.
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 was later incorporated into the oil company Shell’s first sustainability report in 1997.
View more information: https://www.investopedia.com/terms/t/triple-bottom-line.asp