Kezia Farnham

Senior Manager

What is the triple bottom line and why is it important to your organization?

The triple bottom line concept moves ESG and CSR considerations into the spotlight. When organizations adopt a triple bottom line, evaluating corporate performance becomes not just about finances but also about your impact on the planet and its inhabitants.

As important as this shift is, it can be challenging to make a business case for what can feel like a drastic shift in operations. To help prepare you and your organization for the triple bottom line, this article will explain:

• A comprehensive triple bottom line definition
• Why the triple bottom line is important
• Benefits of the triple bottom line
• Companies that use the triple bottom line
• How to implement and measure your triple bottom line

What is the triple bottom line?

The triple bottom line (TBL) approach is the belief that companies should focus on social and environmental concerns as much as they do on profit.

The term triple bottom line was coined in 1994 by corporate responsibility strategist John Elkington. Explaining its origins, Elkington commented that there was no ‘eureka moment,’ but instead, the term came out of a search for a ‘new language to express what we saw as an inevitable expansion of the environmental agenda.’

In the late 1990s, as the need for corporate social responsibility grew more widely recognized and environmental, social and governance (ESG) considerations became more deeply embedded in corporate strategy, the use of triple bottom line to describe organizations' obligation to consider social and environmental issues really took off. The triple bottom line and corporate social responsibility are closely interlinked, as is ESG.

3 p's of the triple bottom line

The triple bottom line framework is also commonly referred to as the 3Ps, TBL, or 3BL because it advocates that instead of one bottom line focusing on profit, companies should have three:

• Profit
• People
• Planet

It’s important to note that the triple bottom line doesn’t prioritize environmental and social concerns over profit. In fact, it suggests that all three ‘p’s of people, the planet and profit are interwoven. It has been shown that a focus on sustainability, ethics and business integrity can enhance corporate performance rather than coming at its expense.

Profit

The first P, profit, refers to the traditional bottom line: how much money an organization makes. In the triple bottom line, though, profit is understood in the context of the other two Ps. This challenges organizations to ask themselves: How can I maximize profit without compromising people or planet?

People

When organizations think of people, they often think of their employees. While the triple bottom line framework does concern itself with workplace health, safety and diversity, it also looks at the impact organizations have on the communities in which they operate.

Planet

The third P, planet, holds organizations accountable for their environmental impact. This includes everything from the water and power they use at their corporate offices to the greenhouse gas emissions (GHG) and waste generated at their factories.

Why is the triple bottom line important?

Today’s business landscape increasingly values non-financial metrics. Climate change is imperative, with reporting frameworks like the TCFD making businesses and their directors more publicly accountable.

The triple bottom line concept dovetails this trend, capturing the need to recognize, measure and report on business performance beyond the purely financial.

“It’s essential for all organizations to address ESG. Net zero isn’t some far-off concept; it is something companies of all sizes need to start working toward — today,” says Diligent Corporation Chief Executive Officer Brian Stafford.

This importance is underscored as ESG reporting moves into the mainstream and potential shareholders increasingly using ESG ratings to assess possible investments.

Benefits of the triple bottom line

Putting people and the planet at the heart of your business, on par with profits, isn’t just the right thing to do from a business integrity perspective. There are also sound business benefits to the triple-bottom-line approach. Focusing on people and the planet can:

• Improve your corporate culture — In turn, making employee attraction and retention easier, increasing employee engagement and loyalty and enabling you to tap into the benefits of a more diverse and inclusive workforce.
• Enhance customer relationships — A company's ethical performance is a purchasing consideration for 64% of US consumers. Create an organization where integrity, society and the environment genuinely matter, and you will build a reputation that attracts clients and customers.
• Improve business performance — Profits are just one aspect of the triple bottom line. Still, if you attend to the other two elements, profitability should follow. Financial performance among ethical businesses consistently outranks that for other organizations.
• Minimize regulatory compliance and governance risk — Reporting on ESG issues isn’t mandated. Still, it is increasingly becoming best practice, with penalties for noncompliance. And at a more fundamental level, failings in areas like pollution and employee relations can incur hefty fines, remediation costs and reputational damage.
• Strengthen your supply chain — Sustainable supply chains aren't just good practices; they can increase the robustness of your operations and make your company less vulnerable to the effects of business interruption.
• Make you a better investment proposition — With ESG performance increasingly transparent and ESG scores a core consideration for potential investors, paying attention to your impact on people and the planet makes sound business sense.

Companies using triple bottom line

Some of the world's biggest companies, including Apple, General Electric and Procter & Gamble, have embraced the concept of aligning their CSR and ESG efforts with their profit. It’s both proof of the importance of the triple bottom line and that high profits are still possible when you balance your impact with your revenue.

Is it time to rethink the triple bottom line?

In recent years, John Elkington has expressed a desire to “recall” the 3BL concept. Not because he believes it is no longer relevant, but quite the opposite — because the issues it covers are more important than ever, but the concept has shifted away from its original intentions.

While the triple bottom line model has arguably been the basis for many accounting and reporting frameworks, such as Social Return on Investment (SROI), Elkington designed it to be more than an accounting tool. In his words, “it was supposed to provoke deeper thinking about capitalism and its future, but many early adopters understood the concept as a balancing act, adopting a trade-off mentality.”

Regarding the triple bottom line, Elkington says, "It is time to either step up — or to get out of the way.” In other words, organizations need to commit to ESG leadership or abandon the concept.

While the debate regarding the future of the concept continues, many businesses will continue to give priority to the triple bottom line. So, what are the practical steps companies can take to operationalize 3BL?

Implement the triple-bottom-line framework

Triple bottom line doesn’t happen overnight. Even if another similar organization uses a 3BL approach, it’s important to remember that every business is unique — so how you approach 3BL should be, too.

“The framework or pillars your organization decides to set as the foundation for its ESG program will be based on what is most important to you,” says Diligent Director of ESG & Sustainability, Faiza Asifuddin. “These key focal points will allow you not only to define your ESG strategy but to set actions on the pathway to achieving your goals.”

With that in mind, here are some critical steps Asifuddin recommends for organizations who want to adopt a triple-bottom-line approach:

1. Audit existing corporate initiatives — What has your organization said and done regarding ESG to date? Asifuddin says, “Think about what your company is doing right when it comes to sustainability policies, social impact giving, or data collection and what it would look like to operationalize or formalize those procedures to help stand up your ESG program.”
2. Analyze your competitors — Determine what ESG-related initiatives your competitors already have underway. “This will not only help define your own steps,” Asifuddin says, “but will provide you with the opportunity to move ahead of the competition if the steps they’re taking aren’t clearly delineated.”
3. Build buy-in — What does ESG mean to your organization? Talk to employees at all levels so you can establish the importance of ESG — and build consensus around how your organization will approach ESG moving forward. Asifudden says, “Your focus on ESG will permeate all areas of the business, and actions need to be cross-functional.”
4. Establish your ESG framework — All the work you’ve done to this point should play into how you define your triple-bottom-line approach. “[At Diligent,] we outlined a recommended framework, put together roadmaps for strategic pillars and focus areas that helped bridge operational and organizational gaps, and identified quick wins to enhance and amplify current sustainability and social impact initiatives,” Asifudden says.
5. Create a reporting process — Part of an effective triple-bottom-line framework is walking the walk, not just talking the talk. Collecting and reporting on your ESG data will help affirm your commitment to people and the planet and provide the visibility shareholders are looking for. This also means using the right reporting solution. Asifudden says, “The mistake I’ve seen a lot of companies make is that they wait until they have a critical mass of data and information that’s completely unwieldly and badly stored in systems that aren’t designed for ESG tracking.They then find themselves in a scramble to find a solution.”
6. Create a feedback loop — Your triple bottom line approach will reach across your organization and even all the way down your value change. Asifudden recommends creating a way to get feedback on your processes, whether that’s a town hall, a monthly email, or a more comprehensive ESG report. “Creating a feedback loop…can help to provide features and products that evolve with you as your ESG program matures,” Asifudden says.

Remember, implementing triple bottom line is a marathon, not a sprint. It might take a year or longer for your program to run effectively, but that time will be well spent securing your organization’s future. “ESG is becoming increasingly more visible and important not just to investors but to all stakeholders — from communities to employees to consumers,” Asifudden says. “It can seem overwhelming at first but starting early and starting small is critical to success and having the right tools at your disposal make it that much easier.”

Challenges for triple-bottom-line reporting

There’s no shortage of books, articles and other resources on corporate social responsibility and related topics. And yet, many businesses struggle to build an ESG strategy based on agreed metrics and consistent triple bottom line reporting. Here’s why:

• A historical lack of frameworks for ESG reporting — Organizations have struggled to get their arms around the entirety of the issue — to identify the areas they should measure and capture data within their own business. Often, a lack of visibility of their entire organization has been a barrier; many businesses do not have full oversight of all their subsidiaries and entities, particularly when it comes to ESG matters.
• Lack of benchmark ESG data — This gives business leaders a headache when identifying best practices and comparing their performance to others. As a result, while it can be relatively easy to identify high-level objectives and aspirations on ESG, putting them into practice, understanding your starting point and measuring progress towards your goals can be challenging.

This is where Diligent's ESG solutions can help. Users have access to up-to-date information on ESG standards and expectations across geographies, expediting your understanding of your baseline and making it easier to set measurable objectives. 

Access to unparalleled governance data enables you to identify discrepancies in your own performance on issues like diversity, governance and executive pay. Meanwhile, built-in governance intelligence allows users to keep track of ESG trends, regulations and stakeholder sentiment to inform goal-setting and drive strategic decisions.

Secure your sustainability with ESG technology

ESG is more important than ever. Yet far too few organizations have explored how integrating technology with their ESG efforts can help meet shareholder and consumer expectations.

Technology unlocks new possibilities for ESG. It makes sustainability not only easier to achieve but easier to defend. After all, what’s a good ESG program if you can’t report on your success to the stakeholders that matter?

Learn more about what good ESG technology looks like and how it can help you leverage the triple bottom line.

_________________________

Frequently asked questions (FAQs)

What factors make up the triple bottom line?

There are three factors that make up the triple bottom line: profits, people and planet. These factors encourage businesses to equally weigh their financial, social and environmental impacts when evaluating their performance.

What are the advantages of triple bottom line?

There are many advantages to the triple-bottom-line approach, including:

• Stronger company culture
• Better customer relationships
• Improve financial performance
• Reduce the risk of regulatory penalties
• Strengthen your supply chain
• Create value for shareholders

How does CSR relate to triple bottom line?

CSR is central to the triple bottom line. CSR, or corporate social responsibility, holds organizations accountable for the social impacts of their actions. This aligns well with triple-bottom-line priorities, which call for organizations to measure their performance in light of their impacts on people and planet. Companies that take CSR seriously usually have a solid approach to triple bottom line.