The Baseline of Corporate Citizenship

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TBL: The Baseline of Corporate Citizenship

Published: May 3, 2017

Author: Courtney Null

The Triple Bottom Line and Sustainability. CC: Johann Dréo, Wikimedia Commons. <https://creativecommons.org/licenses/by-sa/3.0/deed.en>

Topic Editor: Andy Jorgensen

Topics: Triple Bottom Line

Economic

Social

Sustainable

Introduction to the Triple Bottom Line

Sustainability in Corporate America has always been a challenging factor to measure. Even when a method was discovered, it never proved to be useful in its means of transfer and comparison between organizations. It was not until 1994 when John Elkington developed a new means of measuring corporate citizenship through sustainable development and incorporated it in his 1998 book, Cannibals with Forks: the Triple Bottom Line of 21st Century Business, that a nontraditional approach was taken to measure corporate sustainability referred to as the triple bottom line.

Traditional business accounting practices commonly refer to the profit section (whether it be positive or negative profit) of the income statement as the "bottom line." However, this bottom line fails to take into account any effects outside of financial profit that the company may have left an impact on during the time frame in which the income statement was developed. These external factors to financial profit could lead to a large increase in social and environmental costs that would otherwise remain unaccounted for.

Elkington discovered that the measuring of performance in terms of not only profit, but also of people and of the planet, would allow for a well-rounded indicator of successes and/or failures that organizations may be facing in regards to becoming fully sustainable. He indicated that the measures that would compile the triple bottom line include economic measures, social measures, and environmental measures. Each of these measures will be explored in further detail below.

In order to provide a measure that can be transferred and compared to other organizations and projects, he determined that the triple bottom line would have to be calculated in terms of an index. The index requires organizations to consider what it is that they are looking to consider under each measure and customize a quantifiable index accordingly. This eliminated any form of incompatible units and created a universally accepted method of calculation. The developed index mirrors what is referred to as a company's balanced scorecard. The lack of a standard method also allows for adaptation to fit the specific needs of varying projects, policies, and/or geographic boundaries.

Economic Measures

Economic measures of the triple bottom line include those that deal with the flow of money within the organization or project such as income and/or expenditures; it is otherwise known as the "profit" component of the triple bottom line. Financial performance of an organization or project is essential to its life expectancy in order to grow and prosper both on a labor and on a production basis. These economic measures taken into account under the triple bottom line differ from those taken into account to form the traditional profit on an income statement in that it represents the true economic impact that the organization or project can have on the surrounding economic environment.  

Social Measures

Social measures of the triple bottom line refer to the social dimensions of the surrounding community in which the organization is located or the project is taking place. It is the surrounding belief that the interests of the organization, the employees, and all other stakeholders are interdependent on a number of social dimensions in the community such as education, health and well-being, and quality of life. Focus on these aspects would be considered a means of "giving back" to the community by the organization or project. An organization or project that utilizes a triple bottom line would also monitor its processes to ensure that all contributors are compensated legally and fairly, would maintain a safe working environment, and would not work individuals beyond a tolerable number of hours. The true challenge comes into play when an organization tries to quantify the social measures of the triple bottom line which is one of the primary reasons why the adaptable index was created. In consideration of the social measure of the triple bottom line, an organization may, for example, take into account local unemployment rates, educational levels, and median household income as their quantifiable means. This helps organizations to compare their triple bottom line to other organizations alike.    

Environmental Measures

Environmental measures of the triple bottom line refer to an organization's or project's influence on the viability of natural resources. The interaction of organizations with natural resources is inevitable. However, the determination of the cost to the surrounding environment by an organization or project can help organizations to better utilize their materials in production. Typically, environmental measures are built into an organization's or project's strategy to maximize the longevity and productivity of the resources that are used for such. This primarily covers the minimization of waste and toxic emissions, but other elements constitute the environmental measures under the triple bottom line including preservation of natural resources, innovation of low impact production methods, and overall investment in sustainable products and production methods.    

Who Uses the Triple Bottom Line?

There is more to making money than simple monetary profit. Those who utilize the triple bottom line in their organizational strategy prove their understanding in this concept and are considered forward thinking organizations. The practice of the triple bottom line can be found across a variety of businesses and organizations. Businesses practice the triple bottom line as a part of their corporate responsibility for a focus on the triple bottom line leads to greater long-term profitability. Nonprofit organizations incorporate the triple bottom line into their work in order to address sustainability issues that affect their mutual stakeholders with their partner firms and private companies. It is a common occurrence that nonprofits establish their relationships with big businesses based on their focus on the triple bottom line concepts of economic prosperity, social well-being, and environmental preservation. The government utilizes the triple bottom line as a means to make well-informed decisions as well and to track performance. The bottom line is that all organizations who use the triple bottom line do so in order to protect those that create value in their work through the making of a more sustainable society.

Further Reading

  • Elkington, John. Cannibals with Forks: Triple Bottom Line of 21st Century Business. N.p.: Capstone, 1999. Print.

References

Citation

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