It's important to evaluate more than just profits to measure a business's performance.
This accounting framework measures financial results, but also includes environmental and social factors to determine a business's ultimate value.
Most businesses are focused on profit; after all, that's the reason they exist, right? But a modern perspective on sustainability is starting to take root in many businesses, and it holds the potential to redefine success.
According to Cox Conserves' most recent Sustainability Survey, 62 percent of small and midsize businesses (SMBs) have implemented sustainable activities. But once these activities are adopted, how are they tracked? Many business, nonprofit and government entities have adopted a triple bottom line (TBL) approach.
Defining the triple bottom line
In the mid-1990s, serial entrepreneur John Elkington sought to measure the emerging concept of sustainability performance in corporate America. He used the triple bottom line as an accounting framework to go beyond the traditional measures of profits and shareholder value to include environmental and social dimensions. By focusing on comprehensive investment results along the intertwined dimensions of profits, people and the planet, TBL reporting can be a valuable tool in supporting sustainability goals.
According to Andrew Savitz, principal consultant at Sustainable Business Strategies, the triple bottom line "captures the essence of sustainability by both measuring the impact of an organization's activities on the world … including both its shareholder values and its social, human and environmental capital."
The triple bottom line differs from traditional reporting frameworks because it includes ecological and social aspects that are often difficult to measure. The idea is that by improving in any one sector, you'll improve the company overall. The pillars of TBL are also commonly called the three Ps: people, planet and profits.
"The triple bottom line can be envisioned as a three-legged stool, with one leg representing people, one leg representing the planet and one leg representing profit," said Josh Prigge, CEO of Sustridge.
Measuring environmental and social impact
Of the three legs of the triple bottom line, only one is easily measured, which is one of the leading complaints about this approach. Profits are measured in dollars, but how do you measure social capital? Or environmental and ecological health?
Some advocate for monetizing all dimensions of the triple bottom line, including social welfare or environmental damage. While a common unit would make things simple, there are objections to putting a dollar value on wetlands, endangered species and other valuable grounds.
Another solution would be to calculate the triple bottom line in terms of an index. According to the Indiana Business Review, this eliminates the incompatible units issue and allows for comparisons between entities.
There is no universal standard method for calculating the triple bottom line. Neither is there a universally accepted standard for the measures that comprise the three categories. Ultimately, TBL calculations will be driven by stakeholders, subject matter experts and data availability, which will vary from company to company.
The University of Scranton recommended evaluating a business's initial triple bottom line with the following measures:
- Average incomes
- Underemployment costs
- Employment distribution by sector
- Revenue by sector
- Greenhouse gas emissions
- Amount of waste generated
- Use of post-consumer, recycled material
- Water and electricity consumption
- Fossil fuel consumption
- Waste management
- Median household income
- Unemployment rate
- Crime per capita
- Average life expectancy
- Education levels
The triple bottom line can be used by businesses, nonprofits and governments, but the way they measure the three categories of outcomes differs, just as it will for businesses of different industries and sizes.
Putting the triple bottom line to work
Prigge recommends businesses use the free B Lab Impact Assessment as a framework for TBL evaluation. It's currently used by some big names, including Ben & Jerry's, Etsy, Patagonia and Kickstarter.
It essentially asks you a series of questions to evaluate your company and learn ways you can improve. It will also reveal how your company stacks up against the competition. The company says you can get a snapshot in around 30 minutes, but for a full evaluation, you'll need to set aside 2-3 hours.
"The assessment looks at every facet of your business, from your environmental impacts – including energy, water, waste and greenhouse gas emissions – to community impacts, health and wellness programs, employee benefits, employee diversity, equity, salary, and many other factors," Prigge said.
If you're not ready to jump head-on into the triple bottom line, you can simply start by asking if your organization is truly creating value from a holistic standpoint, said Kyle J. Brost, CEO of the Spark Policy Institute.
"With this consideration, you can truly maximize value," he said, "because, while the triple bottom line occasionally treats profit, people and planet distinctively, they are not mutually exclusive, and improving in the right way in one area will positively impact your efforts in another."