The triple bottom line (TBL) or 3BL is a framework that aims to bring the people and planet aspects along with the conventional one of profit.
The TBL theory suggests that businesses must adopt better social and economic policies that bring benefits in all three aspects rather than focusing on profits only.
Let us discuss what is triple bottom line concept, its key components, and its implementation challenges.
What is Triple Bottom Line?
The triple bottom line (3BL) or TBL is an economic concept that says businesses should focus on the social and environmental impact along with the financial performance.
The concept was introduced by John Elkington in 1994 by arguing that a business produces three bottom lines: Profit, People, and Planet.
These three Ps are the pillars of the triple bottom line theory. It stresses that businesses should report their financial, social, and environmental impacts.
The triple bottom line theory suggests that the sustainability goals of a business should not be judged on the profit or loss of a business only. A sustainable business should also be appraised for its performance on the social and environmental scopes.
John Elkington’s theory has various versions adopted by modern businesses around the world. However, the concept remains the same with a renewed focus on a business’s impact on the planet overall.
Three Ps of the Triple Bottom Line
John Elkington took the traditional approach of a single bottom line to a new level by including the social and environmental factors into consideration.
Let us briefly discuss these three components or three Ps of the triple bottom line.
It is the traditional concept of the profitability of a business. It aligns with the conventional notion that a business exists to maximize the shareholders’ wealth.
This pillar of the John Elkington theory implies that a business should work to maximize its return for its shareholders.
A business can achieve this by increasing sales, reducing costs, investing in positive NPS projects, and other possible means.
However, when considered under the TBL banner, a business should generate profits without damaging impacts. It means developing resources that generate profit with sustainable measures and without negative impacts on the planet and people.
TBL states that a business should focus on its social impact as well. Every business has positive and negative effects on its stakeholders.
Important stakeholders of a business are employees, families, suppliers, customers, the local community, and the international community.
A business’s actions will have an impact on the people around it. If the positive impacts outweigh the negative impacts, a business is supposed to be socially responsible.
Modern businesses have adopted this concept as their corporate social responsibility. For instance, a business implementing fair wages, allowing employees a work-life balance, and creating more job opportunities for the local community are all examples of this social responsibility.
Overall, this segment of the TLB focuses on differentiating shareholders and other stakeholders of a business. It means investing in people rather than only expecting profits from the people.
The third component of the TLB theory is measuring the impact of a business on the planet.
Large companies in particular have had a devastating impact on nature since the industrial revolution began. John Elkington is of the view that businesses must adopt policies to reduce negative impacts on the planet earth.
Large businesses are responsible for their share of polluting the earth and the devastating effects in the form of climate change we witness today.
Therefore, TLB argues that these businesses must make conscious and active efforts to reduce their negative impact on the planet.
One step ahead, these entities must work to put a positive impact on the planet to preserve its nature for our future generations.
Benefits of Adopting the Triple Bottom Line Approach
The triple bottom line approach has been adopted by businesses around the world with and without some variations of the original model.
Although it is difficult to quantify the social and environmental impacts, more businesses are harnessing the benefits.
Impact on the Business
Unlike the common notion, businesses benefit by investing in people and the planet.
For example, when a business invests money in its human capital, it pays off manifold in the long term. Similarly, choosing better suppliers reduces the input costs and improves the quality of the products.
In short, the profits of a business can go hand in hand with its corporate social responsibility at any level.
Impact on the Shareholders
A business investing in social and environmental factors boosts goodwill, reduces costs, increases profits, and attracts new investors.
It means the total impact on the shareholders of adopting the TLB model is positive. Modern businesses have successfully adopted CSR policies and their profits have been affected positively.
However, the true essence of the TLB model argues that businesses should not adopt this approach to generate more profits only. It is a vision that changes the business activities or the way these activities are conducted.
Impact on Other Stakeholders
The biggest beneficiaries of the TLB model are stakeholders of a business including employees, suppliers, communities, and the planet.
For example, when airlines commit to reducing their carbon emission to zero, they’re reducing their negative impact on the planet.
Similarly, a business adopting better pay rates is helping its employees as well as the community at large.
However, it can only be achieved when the model is implemented in its true letter and spirit. The true value of the TLB is non-financial and qualitative in nature.
Real-World Example of Triple Bottom Line Adoption
IKEA is a leading furniture brand and is responsible for around 1% of the total wood and cotton consumption of the world.
So, if a large company like IKEA pledges to boost its social and environmental impact positively, it will have a big impact on the world overall.
IKEA follows its vision 2030 which comes with the title of “planet and people positive”.
Here are a few keynotes of IKEA’s vision 2030.
- IKEA aims to offer sustainable living products to 1 billion on the planet earth. They aim to produce sustainable product ranges to achieve this milestone.
- IKEA aims to follow the international wages standards for its direct and indirect work throughout its global locations.
- IKEA has started recycling its used products and aims to increase its recycling and reusability of products.
- It has pledged to use its cotton from more sustainable resources.
- IKEA has pledged to use 100% recyclable and reusable material by 2030.
- It aims to be powered by 100% clean energy.
- IKEA has been a profitable entity and is a leading global brand. However, it has incorporated the “Planet and People” pillars of the TLB model in its philosophy.
- It has pledged to reinvest its profits in social and environmental commitments.
Challenges in the Implementation of Triple Bottom Line
Although more businesses are showing concerns about social and environmental issues there are challenges in the implementation of the TBL model.
The triple bottom line model is widely used with variations. Businesses have adopted corporate social responsibility (CSR) in different ways.
One business would adopt the social impact as its CSR (the people factor) agenda, and the other would go for reducing waste material (the planet factor).
So, adopting all three Ps of the TBL at the same time seems difficult for businesses around the world.
Implementation of the TBL framework requires upfront investment and often results in a reduction in profits in the early years.
Therefore, businesses face implementation challenges due to the lack of financial and technical resources. Also, businesses would need to rethink their strategic vision to adjust the people and planet factors.
The yield from corporate social responsibility and its components like waste reduction, low carbon emission, recycling, and offering sustainable products is difficult to quantify.
Shareholders and managers are reluctant to adopt any policy that does not offer quantifiable returns. As a result, the adoption of TBL has seen low participation overall since its inception.
Businesses need to be more adaptive and responsive in calculating increased benefits received from investing in social and environmental aspects of a business strategy.
The regulatory framework for social corporate responsibility (CSR) has remained unbound largely throughout the world.
Most public entities are required to publish their CSR policies and their strategic actions taken in this regard.
However, until there are legislative changes and businesses are bound to report on their social and environmental impact strictly, we cannot achieve the objectives of TBL effectively.
The increasing popularity of social media and the pressure on mainstream media to report on such issues has helped the cause by keeping large companies under pressure to perform well in this segment.
Conflicting Interests at Stake
Investing in social and global causes remains at odds with the basic objective of profit-maximization of any commercial entity.
Managers and shareholders do not perceive any materialistic benefits from investing in social and environmental causes. However, more researchers have shown that businesses performing well under their CSR tend to increase sales and profits subsequently.