In the past decade, sustainability has been one of the most mentioned goals of several industries, nonprofit organizations, and government institutions. Yet, measuring the extent to which an institution is sustainable can be challenging.
Companies have been relying on the concept of ‘triple bottom line accounting’ to have a better understanding of how they are promoting sustainability within their business. To this date, the triple bottom line framework is one of the most accurate ways to assess how sustainability goals are being pursued.
What is the Triple Bottom Line?
The world is constantly changing and evolving. Enormous challenges involving climate change, poverty, and hunger are becoming more and more severe. As a result, sustainability in business has become the need of the hour.
A sustainable business strategy’s fundamental objective is to positively impact the environment and society while profiting shareholders. One general way to measure a business’s sustainability actions is utilizing the triple bottom line framework.
The phrase ‘triple bottom line’ was first used in the mid-1990s by John Elkington. Elkington was a famous business writer from London, England who started extolling the importance of sustainable development. Elkington asserted the need for corporate responsibility, claiming that businesses should be held liable for how their activities impact the environment.
Since Elkington proposed the idea of holding companies accountable for their actions, the business world began seeing the need to merge social and ecological initiatives within their business model. As it turns out, companies can generate profits and still positively influence the ecosystems around them.
The 3 P’s
The triple bottom line comprises the 3 pillars of sustainability: social, environmental, and financial. These are often referred to as ‘the 3 p’s:’ people, planet, and profits.
Businesses should always prioritize their profitability. Without profits, they’ll no longer be able to conduct their business activities. Therefore, generating consistent profits should be businesses’ primary goal.
Yet, that doesn’t mean that they can neglect their social and environmental impact.
Due to the capitalistic nature we live in, we tend to judge a company’s success on its financial performance. Business executives have the goal of building and sustaining a business model that mitigates risks and minimizes costs to maximize the organization’s capacity to make profits.
Up until recently, businesses focused their objectives on the famous theories posed by Milton Friedman. Tom Friedman, businesses had the responsibility to make as much money as possible while ‘obeying the law.’ In Friedman’s world, as long as businesses avoided any legal issues, making profits was considered ‘ethical,’ regardless of the damage that could make to the environment or communities as a whole.
According to Milton Friedman, businesses had to avoid any activity that hindered their ability to generate profits. To him, conducting social and environmental activities meant that businesses couldn’t emphasize their focus on maximizing profits. Therefore, they had to be avoided.
Well… Milton Friedman couldn’t be more wrong.
Today, we are seeing how businesses are flourishing financially when the purpose is integrated into their business models. Patagonia, for instance, could easily become a public company. They keep their business private for their focus not to divert from their sustainability goals. Yet, they keep increasing their profits year after year.
The second of the 3 pillars of sustainability focuses on how a company is impacting people.
When discussing people, stakeholders are highlighted over and above shareholders. While maximizing shareholder value has for too long become a business imperative, people refer to the social impact of a company. Stakeholders can include employees, customers, partners, the community, and even the planet as a whole.
There are strong methods that businesses can implement to promote their social impact. By making sure their workforce represents the diverse backgrounds, ethnicities, and cultures of the community, for instance, organizations can become more inclusive.
Businesses can also improve their social impact by making sure their leadership positions are heterogeneous. Often, and even without noticing, a company’s leadership position is filled by white men. Having women and minorities in leadership, as research is constantly proven, businesses can enhance their financial performance.
The goal should be for businesses’ workforce to be diverse and inclusive. It’s also about businesses being actively involved with their surrounding ecosystems. Through volunteering, donations, and other forms of giving back, companies can become agile agents of change within their communities.
The final of the 3 pillars of sustainability refers to how businesses’ operations are impacting Mother Earth. Taking care of the planet has never been more important.
Kristalina Georgieva, the CEO of the World Bank, said in 2018 during a Summit from the United Nations: “We are clearly the last generation that can change the course of climate change, but we are also the first generation with its consequences.”
Warming global temperatures, biodiversity loss, and alarmingly increasing levels of waste, the future of mankind is currently in jeopardy. For way too long, it was the greed of businesses that have placed profits over purpose that have led us to the position we are in.
A recent report by Harvard Business Review revealed that 100 energy companies are causing more than 71% of the world’s greenhouse gas emissions. Just as businesses have fueled climate change, they have the power and influence to lead the change towards sustainability.
By transitioning to renewable energy sources, going paperless, recycling their waste, reducing water consumption, and other initiatives businesses can drive positive change while making profits. There’s so much that can be done to help make the world greener. Businesses have the opportunity to lead by example and inspire the right practices.
Why is the Triple Bottom Line Important?
The triple bottom line framework doesn’t necessarily mean that companies ought to sacrifice profits to conduct social and environmental initiatives. It’s actually the whole opposite. There’s a ton of research that shows that there is an ocean of financial opportunities in solving the world’s most pressing problems.
It’s not only that customers are opting for companies that are promoting green practices. It’s also the fact that promoting sustainability is actually good for business. Sustainable practices reduce energy consumption, encourage recycling, reduces waste, and ultimately decrease expenses.
The following are just some of the many ways that the 3 pillars of sustainability can help businesses flourish for the long term:
Financial Performance. Integrating the triple bottom line framework into their business models can empower companies’ financial performance. By curtailing operating costs, boosting brand image, enhancing sales, building consumer loyalty, and increasing employee productivity companies can increase their profit margins.
Management. By making a stronger commitment to the people involved with their operations, businesses will lower employee turnover, boost employees’ morale, attract strong candidates, and retain their top talent.
Brand Image. Customers today are voting with their dollars spent. We’ve seen time and time again that those businesses neglecting their environmental and social will suffer from boycotts. Implementing the triple bottom line can heavily influence customers’ perception of a brand.
Companies Doing Well By Doing Good
Today, consumers are demanding transparency, empathy, and compassion in businesses. It’s no longer enough for companies to simply donate to social and environmental causes. Consumers want ethical and sustainable practices to be implemented within supply chains, products, packaging, and company cultures.
Here are just some companies that are flourishing by being considerate of all stakeholders.
Starbucks. The coffee giant has a strong commitment to its people, their communities, and the environment. They focusing on using sustainable raised coffee beans and supporting farmers that encourage sustainability within their operations. Starbucks has also a strong commitment to hiring veterans, who are often disregarded in the hiring process.
LEGO. LEGO has recently announced its plans to reduce its carbon emissions by focusing on 100% renewable energy sources. LEGO is also known for its strong commitment and partnerships with NGOs to propel social and environmental causes forward.
Ben & Jerry’s. You simply cannot speak about social and environmental impact and not mention Ben & Jerry’s. The beloved ice cream company from Vermont is known for its strong activism. They are constantly speaking up about social and environmental issues that are important to them. From promoting sustainable farming and packaging to supporting social movements such as Black Lives Matter, Ben & Jerry’s is always leading the way.
Patagonia. The outwear clothing company is perhaps the most committed clothing company ever existed when it comes to protecting the environment. They make sure that they partner with sustainable companies to make their supply chain eco-friendly end-to-end. Patagonia also inspires its loyal customers to reuse and recycle to reduce waste and is constantly investing in environmental initiatives.
Salesforce. The CRM giant is known for its 1-1-1 model. Through it, Salesforce makes sure that they are donating 1% of their resources, employees’ time, and profits to social and environmental causes. Their Ohana culture shows not only a strong commitment to all stakeholders but also to Mother Earth.
It’s time for companies to reap the benefits of integrating the triple bottom line into their business models. By doing so, they’ll empower their people, nurture our sick environment, and boost their profits.