Triple bottom line and its significance

03:45 Amoeba Technologies 0 Comments

The triple bottom line refers to an extension of the criteria used to measure organizational success. Traditionally, business success (or failure) is measured in terms of its economic performance. A business is considered to be successful if it has generated a sufficient financial return from its investments, financing activities and operating activities. The triple bottom line takes into account three criteria for assessing organizational performance; economic, social and environmental.

The economic criteria can then be used to determine how much an organisation generates in monetary value. It can also be used to determine the net worth of the business at a given point in time.

The social performance of an organisation is somewhat more difficult to define and measure. The social criterion of the triple bottom line takes into account the impact that a business has on people within the business (employees) and people outside of the business (the community). 

Triple bottom line organizations aim to improve the environment where feasible, or at the very least, reduce and limit their negative impact on the environment. Organizations need to look at more than just obvious environmental issues (like pollution) and should consider the total life cycle impact of their products and services.

Triple bottom line reporting is becoming more widespread amongst both large and small organizations. Triple bottom line reporting makes business decisions and actions more transparent and allows people to gain a thorough understanding of a business' level of corporate social responsibility. The triple bottom line report also helps manager to assess and compare their performance across all three criteria against the business objectives and long term goals.

The conventional way to measure the success of a business is the bottom line. But the concept of a triple bottom line, where social and environmental factors are considered along with economic ones, is also getting a lot of attention.

Is this another business fad? Is it a new management technique like total quality management?

I see the triple bottom line as a way to think about yourself, your career, and your company. The essential challenge it poses to business leaders is to find a way to simultaneously please your investors and impress your grandchildren.

Triple bottom line thinking holds that a company should combine standard metrics of financial success with those that measure environmental stewardship and social justice. It is sometimes called the 3P approach -- People, Planet and Profits. In each case it requires thinking in three dimensions, not one.

Today, quantifiable environmental impacts include consumption of finite resources, water quality and availability, and pollution emitted. Social impacts include community health, worker safety, education quality, and diversity.

Why think this way? Why adopt such an approach?

It is argued by many that companies that factoring these impacts into their overall corporate balance sheets will be more successful because it delivers greater efficiency, makes them more competitive and sparks innovation -- all drivers of profitability over time.

We certainly don't measure the success of our families by how much money we have saved. Our family's health, our kid's education, and the amount of love and caring in our family, count as much, if not more, than our financial security. So why do we have to measure the success of our companies with only one metric?

Another concept often linked to triple bottom line is that of sustainability. We sometimes speak of adopting sustainable business practices or building sustainable businesses. But what does that really mean?

There is a strong argument that triple bottom line or building sustainable businesses creates more profitable and successful business. Pursuing environmental and social objectives doesn't have to be at the expense of financial objectives and often is reinforcing.

Take the desire to reduce the environmental impact of a building for example. You could just lower the thermostat and make everyone a little more uncomfortable. Or you could do something better and install more efficient lighting. Or you could do something even better and rethink the entire building and design an integrated building that has better ventilation, better lighting, uses much less energy, and is more comfortable.

This is just the beginning. Businesses pursuing sustainability are becoming more efficient, more innovative, more connected, more profitable, and more competitive.

But as in most things, companies go through phases.

At first they tend to be defensive and focus on complying with regulations. When they move beyond that, they become tactical -- looking for ways to reduce waste and become more efficient in the way they do things.

In the next stage they start to think systematically. Here, a company begins to identify its position in the value chain and explore how their customers use their products and how they dispose of them. They will also explore their supply chain and find out where their raw materials come from and how much energy is used to make them. They will start thinking about their own factories and find ways of using new manufacturing process that use less energy.

We can start to make our companies more efficient or wait until costs rise. We can redesign our products for a more sustainable world or we can try to catch up later. We can wait until our customers or the government ask us to report our carbon footprint or we can volunteer it now.

Calculating the TBL

The 3Ps do not have a common unit of measure. Profits are measured in dollars. What is social capital measured in? What about environmental or ecological health? Finding a common unit of measurement is one challenge.

Some advocate monetizing all the dimensions of the TBL, including social welfare or environmental damage. While that would have the benefit of having a common unit—dollars—many object to putting a dollar value on wetlands or endangered species on strictly philosophical grounds. Others question the method of finding the right price for lost wetlands or endangered species.

Another solution would be to calculate the TBL in terms of an index. In this way, one eliminates the incompatible units issue and, as long as there is a universally accepted accounting method, allows for comparisons between entities, e.g., comparing performance between companies, cities, development projects or some other benchmark.

Who Uses the Triple Bottom Line?

Businesses, nonprofits and government entities alike can all use the TBL.


The Triple Bottom Line concept developed by John Elkington has changed the way businesses, nonprofits and governments measure sustainability and the performance of projects or policies. Beyond the foundation of measuring sustainability on three fronts—people, planet and profits—the flexibility of the TBL allows organizations to apply the concept in a manner suitable to their specific needs.

There are challenges to putting the TBL into practice. These challenges include measuring each of the three categories, finding applicable data and calculating a project or policy's contribution to sustainability. These challenges aside, the TBL framework allows organizations to evaluate the ramifications of their decisions from a truly long-run perspective.

It’s no secret our world and business environments are always changing. More than ever, sustainability is key to giving you a competitive edge in today’s economy—financially, environmentally, and socially.


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