pushing a ball up a hill, representing the effort it takes to employ ESG strategies

What are the 3 components of the triple bottom line approach?

The triple bottom line is a system of evaluating the social, environmental and fiscal impacts of businesses, projects or organizations. The term “triple bottom line” was coined by John Elkington in 1994 and has since been adopted by a range of business leaders and sustainability experts.

Economic, Social and Environmental Sustainability

The three components of the TBL are:

1. Economic performance – how well an organization uses its available resources to achieve financial success, generate revenue and create economic value for all stakeholders

2. Environmental performance – the level of impact an organization has on the environment through factors such as carbon footprint, air and water pollution, waste production and recycling, responsible sourcing of materials, biodiversity conservation etc.

3. Social performance – an organization’s impact on the people it interacts with directly or indirectly including its own employees, customers, suppliers and other stakeholders in the local community and environment more broadly.

Triple-bottom-line analysis

A poll conducted by GlobeScan for PwC and Barrow Cadbury shows that the majority of people believe businesses should be doing more to improve their social and environmental impact while maintaining their business objectives. While it’s widely accepted that organizations should assess their financials, triple-bottom-line analysis is becoming more important as it enables companies to track their progress on all three factors affecting an organization’s success.

TBL analyses is a way of assessing organizations’ performance by taking into account the economic, environmental and social impacts. This type of analysis is used by businesses, policymakers and other stakeholders in order to assess how an organization is working towards its mission.

What is the difference between TBL and social return on investment (SROI)?

Social Return on Investment (SROI) uses a financial ratio to assess whether an investment has achieved its social objectives – measuring whether the benefits outweigh the costs of delivering those benefits. For example, organisations may calculate the ratio of benefits to costs by factoring in additional investment funds as well as the economic, environmental and social impacts resulting from those investments.

Triple-bottom-line analysis calculates fiscal performance as one factor but also includes environmental and social factors to create a more comprehensive assessment of an organization’s success or failure at fulfilling its strategic objectives.

List examples of businesses, organizations or projects using TBL analyses

Many companies and NGOs are increasingly using triple-bottom-line analysis to assess their impact on the economy, society and the environment. A few notable examples include:

  1. Banana Link , which works with smallholder farmers in West Africa to improve economic and social conditions for them and their communities.
  2. The World Bank , which uses SROI to measure projects’ impacts on the Millennium Development Goals (MDGs) – a list of eight development goals with clear targets established by the United Nations in 2000, which includes eradicating extreme hunger and poverty, making sure all children receive an education and achieving gender equality.
  3. The World Business Council for Sustainable Development (WBCSD) , which works with its members to develop and implement strategies that balance economic prosperity, environmental protection and social progress.
  4. RobecoSAM, a Swiss investment management firm that uses Triple-bottom-line analysis to identify and invest in companies with strong performance across all three areas.

Advantages of using triple-bottom-line analysis include:

  • It enables businesses to make more informed decisions about their resource allocation (such as capital, time and energy) by providing a holistic view of the benefits and drawbacks of different strategies.
  • Gives business, policymakers and other stakeholders a more complete picture of the positive impacts that an organization is making towards achieving its mission.
  • Allows businesses to demonstrate their impact in these 3 areas for both internal and external stakeholders through reporting on their performance across all three components of ‘triple bottom line’.

Disadvantages of using triple-bottom-line analysis include:

  • The calculation of triple-bottom line is complex and resource intensive making it difficult for smaller organizations.
  • It can be overly burdensome on small businesses that lack the resources to do so thoroughly.
  • Some stakeholders focus too much on financial performance only – thereby overlooking environmental and social factors which are equally important.
  • It can be difficult to measure impact for certain policy areas that have less concrete goals and/or a more intangible outcome .

Although triple bottom line analyses are gaining traction, they are still used by only a select few organizations worldwide. There remain some challenges including how to effectively measure impact for certain policy areas that have less concrete goals and/or a more intangible outcome.

What is a triple bottom line example?

There are many examples of triple bottom line analyses including, for example, organizations including the World Bank use SROI to measure project impacts on the Millennium Development Goals. Other examples include Bananalink which works with smallholder farmers in West Africa to improve economic and social conditions for them and their communities. The World Business Council for Sustainable Development (WBCSD) also uses triple bottom line analysis to identify and invest in companies with strong performance across all three areas.

Banana Link’s mission is to improve the economic, social and environmental conditions for small-holders (small-scale farmers) in West Africa. Through their holistic approach, they use SROI to measure projects’ benefits against their mission and the Millennium Development Goals. Banana Link is a UK-based non-governmental organization (NGO) that was established in 1988.

Who uses the triple bottom line?

The 3BL is used by multiple different types of organizations including for-profit organizations and non-profit and governmental agencies. The World Bank, which uses SROI to measure projects’ impacts on the Millennium Development Goals (MDGs) – a list of eight development goals with clear targets established by the United Nations in 2000, which includes eradicating extreme poverty and hunger, achieving universal primary education, promoting gender equality and empowering women, reducing child mortality rates, improving maternal health, combating HIV/AIDS, malaria and other diseases, ensuring environmental sustainability, and developing a global partnership for development.

What is meant by their double bottom line focus?

Many organizations have a mission that has a double BL focus which refers to an organization’s mission or vision statement that aims to achieve more than one result. In the context of triple bottom line analysis, this is when organizations not only meet their financial targets but also have a positive impact on society and/or the environment in addition to being financially sustainable.

How does the triple bottom line process work?

Organizations have long used financial indicators to measure their success, which includes making decisions on how best to allocate resources. The triple bottom line is a more holistic approach that offers organizations improved reporting abilities to demonstrate their impact in 3 areas – these are economic, environmental and social. The method

What is a double BL in the nonprofit sector?

A double BL refers to a nonprofit organization that has a mission that has a double BL focus. This is when the organization meets their financial targets, but also have a positive impact on society and/or the environment in addition to being financially sustainable.

What is meant by environmental performance?

Environmental performance refers to an organization’s practices that measure their impact on nature. It is a way for organizations to demonstrate how their actions support the triple bottom line and environmental protection by having good environmental management. Environmental performance can be defined as an organization using their resources to achieve environmental protection and meet societal needs.

How does TBL contribute to sustainability?

The 3BL contributes to sustainability in a number of ways. First, it demonstrates that an organization is sustainable if they do not just meet their financial targets but have a positive impact on society and/or the environment in addition to being financially sustainable. Second, organizations can use TBL reporting to quantify their performance against other organizations across many industries and use this as a benchmarking tool. Third, it provides transparency and enables stakeholders to make informed decisions about organizations’ activities and how they can best support them.

What is meant by sustainable development?

Sustainable development refers to the idea of meeting the needs of the present without compromising the future. In order to achieve sustainable development, organizations are encouraged to focus on society’s well-being and the environment.

Not just an accounting tool

The International Accounting Standards Board (IASB) issued the following standards on the topic of triple bottom line reporting:

• “IFRS for SMEs” (2013) – Requires small entities within the scope of IFRS for SMEs to disclose information about their social or environmental performance in either the notes or separate statement

• “European Union (EU) Accounting Standards Implementation Board Technical Standard on Environmental Reporting” (2011) – Established to improve the transparency around the financial performance of an organization by improving the quality of environmental reporting

• “International Financial Reporting Standard for Small and Medium-Sized Entities” (2015) – For entities that are within the scope of IFRS for SMEs, this standard contains disclosure requirements about the entity’s social or environmental performance in either the notes to the financial statements or in a separate statement.

• “International Financial Reporting Standard for Micro and Small Entities” (2016) – This standard provides small business entities with additional guidance on how they should present information about their social or environmental performance in the financial statements.

They also include International Financial Reporting Standard 7, Disclosures about Not-for-Profit entities, International Accounting Standard 31, Non-current Assets Held for Sale and Discontinued Operations, IFRS 15 Revenue from Contracts with Customers. IAS 1, Presentation of Financial Statements, IAS 8, Operating Segments, IAS 36, Impairment of Assets and IFRIC 13, Customer Loyalty Programmes to name a few of the 26 issued by IASB. You can find a listing of all standards on their website at ifrs.org.

Why does an organization need to be sustainable?

Through the implementation of TBL reporting, organizations have a greater ability to understand their impact on society and the environment. This transparency enables stakeholders to make informed decisions about which organizations they want to support based on what they value or believe in. By having multiple stakeholders or supporters, it becomes more likely that organizations will continue to be sustainable. Companies who cannot demonstrate their sustainability are destined to become extinct.

Why is it important for leadership to lead the behaviors of change?

Leadership plays a crucial role in implementing new strategies, practices and processes within an organization. By setting the tone from the top, leaders send signals about what kinds of behavior are acceptable or desired. By demonstrating the types of behavior that they expect their employees to follow, leaders are modeling desired TBL behaviors.

By setting the tone from the top, leaders send signals about what kinds of behavior are acceptable or desired. By demonstrating the types of behavior that they expect their employees to follow, leaders are modeling desired TBL behaviors.

Where to start with TBL initiatives

The 3 P’s of sustainability may seem like overwhelming concepts to manage; however, if organizations start simple by focusing on one P at a time, it can help them become more sustainable overall. In terms of people, an organization could focus on hiring from a more diverse pool of candidates. In terms of the planet, they could reduce their energy consumption by turning off lights and computers when people leave for the day.

People: what kind of people is an organization impacting? By having a diverse workforce and stable employment practices, they are likely creating opportunities for many different types of individuals and communities

Planet: how is the organization impacting the environment? Are they using sustainable resources? Are they reducing their carbon footprint?

Profit: what is the financial benefit for this organization to be sustainable? Can they gain a competitive advantage by being sustainable or do they increase revenue as a result of their sustainability practices?

How do you comply with the triple bottom line?

To comply with the triple bottom line, organizations need to ensure that their business behaviors reflect the three aspects of sustainability. Organizations should start by understanding what is important to their stakeholders and then shape their business practices around these values. If an organization finds that they are unable to implement any TBL practices, it means that there are some underlying issues which need to be addressed.

How does triple bottom line improve performance?

By incorporating a triple bottom line into their business practices, an organization can benefit from increased efficiency and profitability. Organizations who have sustainable practices have been shown to have lower turnover, lower absenteeism and higher productivity compared to organizations which do not focus on sustainability. In addition, when employees are engaged with the work that they are doing, there is a positive impact on the bottom line. Studies have shown that there is a strong link between organizational performance and employee engagement. By implementing TBL practices, organizations are more likely to see an increase in individual, team and organizational performance.

Challenges of leading organizational change with TBL

Organizations who are looking to implement TBL practices need to ensure that they have the support of their senior-level leadership. It can be challenging for senior executives to develop a new perspective on business priorities when they may have spent years working toward different goals. In addition, as people from all walks of life become more interested in implementing sustainable practices, there is a growing need for skilled professionals who can navigate these new processes.

What is the global reporting initiative to TBL?

The global reporting initiative (GRI) is an organization that produces sustainability reporting guidelines for businesses, governments and other organizations. The GRI focuses on the triple bottom line by encouraging organizations to work toward sustainable practices in their business decisions.

Caveats and Disclaimers

We have covered many topics in this article and want to be clear that any reference to, or mention of economic growth, accounting and reporting tool, accounting tool, next generation market solutions, future generations, line approach, supply chain, local economy, environmental capital, natural resources, shareholder value, financial bottom line, sustainability goals, renewable energy, corporate America, triple bottom line model, economic environment, own business, dollar value, corporate social responsibility, sustainable future, measure sustainability, environmental bottom line, ecological health, traditional reporting frameworks, minimize environmental impact, triple bottom line theory, economic measures, economic impact, local economy, sector revenue, nonprofit organizations, human capital, deeper thinking, social capital, local suppliers, positively impact, comprehensive investment results, supply chain, bottom lines, generating innovation, government entities, global scale, provoke deeper thinking, carbon dioxide emissions, reporting tool or renewable energy sources in the context of this article is purely for informational purposes and not to be misconstrued with investment advice or personal opinion. Thank you for reading.