Triple Bottom Line: what is it and how does it work?
As environmental issues like climate change become more pressing, many businesses are finding ways to build a more sustainable future. From sourcing raw goods locally to minimizing the use of extraneous packaging materials, there are a lot of ways to make a company’s operations more eco-conscious.
Sustainability is also a savvy business move that can help your organization thrive in a competitive marketplace. According to research from McKinsey & Company, consumers care increasingly about sustainability and are willing to support businesses with sustainable practices.
But how can you know how sustainable your business really is — and how can you communicate that to consumers in a meaningful way? The triple bottom line (TBL) is one solution. This article explains what the TBL is and how it’s used to measure an organization’s sustainability performance.
What is the triple bottom line?
The TBL is a type of sustainability framework that assesses business performance based not only on economic impact but also on societal and environmental impact.
In the past, the “bottom line” referred to one thing: profits. However, the TBL refers to three things, also known as the three P’s: profits, people, and planet.
The triple bottom line concept is credited to John Elkington who coined the term in research published in 1994. According to Elkington’s framework, businesses should measure success based on three pillars: financial, social, and environmental.
By taking a more comprehensive view of success, businesses should consider not only their bank accounts but also their broader impact on the world.
What are the three P’s of triple bottom line?
The three P’s are pretty general terms. Discussing what they mean in the context of the TBL can be helpful. Here’s a quick definition of each “P” and an example for each term:
This is the “P” most commonly associated with business success. Traditionally, it refers to a business’s financial success. However, in the context of TBL, profit refers to the economic aspect of sustainability.
Ideally, a business will achieve financial success while still adhering to socially ethical and environmentally responsible business practices. At the same time, profits need to be sustained to ensure long-term growth and financial viability.
Companies that embrace a TBL approach can only make a positive difference if they can maintain their impact in the long term. For example, if a business cuts back on packaging for its products, then this can save money in the long run.
People refers to the social/societal impact of sustainability. This means giving attention to how business practices impact stakeholders like employees and customers, as well as communities as a whole.
Ideally, a business will promote social well-being, address social issues, and improve equity. For example, say a business wants to move all its manufacturing overseas for cost-saving purposes. While this might benefit the business’s financial bottom line (profit), it might hurt communities that rely on those manufacturing jobs to fuel their local economy (people).
Planet refers to environmental sustainability. Ideally, a business will minimize any negative impact of its activities. For example, by sourcing raw goods locally, businesses can reduce their carbon footprint (whereas if they source goods from afar, there are carbon emissions associated with airplane and truck delivery).
Other ecological-friendly practices could include using renewable energy or conserving resources. For example, a business switching to solar power can make a positive difference for the planet.
Importance of sustainability in business practices
Sustainability can be critical to long-term business success. The TBL approach encourages businesses to take a big-picture view of how their strategic decisions impact society and the environment, which also translates to an impact on profits.
By adopting sustainable practices — like creating local jobs and reducing greenhouse gas emissions — businesses can make a positive impact that helps nurture social well-being and a healthy environment. This can also result in financial rewards.
Consumers appreciate businesses with positive sustainability practices, which can translate to a more loyal customer base and boost profits.
What are some benefits of the triple bottom line approach?
A business strategy that implements TBL initiatives offers various benefits. Some of the most significant advantages include:
- Boosting customer loyalty. Consumers are eager to support sustainable brands; they’re even willing to pay more for them. Implementing a TBL strategy and communicating about it can help attract new customers and improve the retention of existing customers.
- Improving employee recruitment. People aren’t just considering corporate sustainability when deciding what businesses to support. It’s also a factor when deciding who they want to work for. Approximately 71% of employees prefer to work for sustainable companies.
- Enhancing employee morale. Employees may also be more engaged when working for a company that aligns with their values, like eco-friendliness. Employees who feel that a company’s mission, vision, and values align with their own outlook are more likely to recommend their employer to others.
- Reducing risk. Inattention to sustainability can open companies up to risks from environmental lawsuits to consumer boycotts. For instance, one survey shows that consumers would be willing to boycott a brand for environmental reasons.
- Better innovation. According to the Harvard Business Review, sustainability can be a key driver of innovation. For example, a company is more likely to practice disruptive innovation and develop new services and products that meet consumers’ sustainability demands — which can grow market share. A sustainable innovation strategy can translate to a competitive edge.
Challenges of TBL
While TBL is beneficial for businesses, it isn’t always easy to adopt. Here are some of the challenges that may arise when implementing sustainable business practices:
- Lack of standardized metrics. It’s not always easy to measure societal or environmental impacts — you can’t rely on hard and fast figures like profits and losses. You’ll have to figure out what quantitative and qualitative benchmarks you want to use, such as employee engagement surveys and energy consumption values.
- Cost barriers. Adopting TBL measures isn’t always cheap. For example, say you want to switch to solar power. Installing solar panels on your business is a big and pricey endeavor. However, when looking at costs, consider the short- versus long-term outcomes — often, an upfront investment saves you money in the big picture.
- Risk of greenwashing. Greenwashing occurs when businesses purport to be sustainable or eco-conscious, but they’re essentially just “talking the talk” instead of “walking the walk.” The term originated in the 1960s when hotels started asking guests to reuse towels in the interest of saving the environment. In reality, this saved hotels money on doing laundry.
What is the difference between ESG and TBL?
Environmental, social, and governance (ESG) shouldn’t be confused with TBL. ESG refers to investing strategies that businesses use, taking into account environmental, social, and governance factors.
ESG and TBL differ in terms of:
- Scope of focus. TBL doesn’t include the “governance” element of ESG. Some experts suggest that TBL is essentially ESG minus the G.
- Reporting, measurement, and stakeholder engagement. ESG is often assessed largely by the “G.” Companies may incorporate sustainability values into their governance by outlining responsibilities for stakeholder engagement.
- Purpose and perspective. The TBL framework expands on traditional governance-based approaches to sustainability. The point of TBL is to look at how people and the planet can impact financial performance. It’s making a business case for giving attention to sustainability instead of just touting sustainability for image purposes.
7 tips for implementing TBL
Despite the challenges, TBL can be beneficial for businesses in many ways. Here’s how you can harness TBL for your own operations.
Set clear sustainability goals
Following the TBL principles, set sustainability goals that are SMART: Specific, Measurable, Achievable, Relevant, and Time-Bound. You want your goals to be ambitious but realistic. They should also reflect your unique business model.
Align with the business strategy
Incorporate your sustainable development goals into your overall business strategy. Outline a roadmap for how you’ll achieve each goal and integrate its achievement into your core functions. As you do this, consider the potential impact on your business objectives as a whole.
To achieve success, you need buy-in from all stakeholders. Get employees and executives involved in the implementation process. Leaders may need to address concerns and questions from employees and foster collaboration between the organization and suppliers, investors, communities, and other outside parties.
Collaborate with partners
TBL is easier to achieve in collaboration. Seek out like-minded industry associations, businesses, and nonprofit organizations that share your commitment to corporate social responsibility (CSR). Prioritize partnerships with those wanting to make a positive social impact — for example, you might pick vendors who use recycled materials.
TBL is always evolving. Continuously assess your progress using the metrics you’ve established and find ways to improve. Stay on top of developments in the sustainability field so that you can get inspiration from other business leaders for ways to improve TBL.
As you implement TBL measures, communicate them internally and externally. You might consider releasing an annual sustainability report, similar to an annual financial report. This can outline your performance, goals, and progress — keeping all involved accountable.
Seek external validation
Affirm your TBL efforts with external validation, such as outside certifications or accreditations. For example, you could explore becoming a B corp or apply for industry-specific sustainability recognitions to boost your credibility.