Triple bottom line

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Triple bottom line

  1. 1. Triple bottom lineFrom Wikipedia, the free encyclopediaJump to: navigation, search This article appears to contain a large number of buzzwords. Specific concerns can befound on the talk page. Please help improve this article if you can. (February 2012)The triple bottom line (abbreviated as TBL or 3BL, and also known as people, planet, profit orthe three pillars[1]) captures an expanded spectrum[further explanation needed] of values andcriteria for measuring organizational (and societal) success: economic, ecological, and social.With the ratification of the United Nations and ICLEI TBL standard for urban and communityaccounting in early 2007,[2] this became the dominant approach to public sector full costaccounting. Similar UN standards apply to natural capital and human capital measurement toassist in measurements required by TBL, e.g. the EcoBudget standard for reporting ecologicalfootprint.In the private sector, a commitment to corporate social responsibility (CSR) implies acommitment to some form of TBL reporting. This is distinct from the more limited changesrequired to deal only with ecological issues.Contents 1 Definition 2 Bottom lines 3 Supporting arguments 4 Criticism 5 Legislation 6 See also 7 Notes 8 Further reading 9 External links
  2. 2. DefinitionFor reporting their efforts companies may demonstrate their commitment to CSR through thefollowing: Top-level involvement (CEO, Board of Directors) Policy Investments Programs Staffing resources Signatories to voluntary standards Principles (UN Global Compact-Ceres Principles) Reporting (Global Reporting Initiative)Triple bottom line (TBL) accounting expands the traditional reporting framework to take intoaccount social and environmental performance in addition to financial performance. In 1981Freer Spreckley first articulated the triple bottom line in a publication called Social Audit - AManagement Tool for Co-operative Working.[3] In this work, he argued that enterprises shouldmeasure and report on social, environmental and financial performance.The phrase was coined by John Elkington in his 1997 book Cannibals with Forks: the TripleBottom Line of 21st Century Business.[4][5] Sustainability, itself, was first defined by theBrundtland Commission of the United Nations in 1987.1988 also marked the foundation of the Triple Bottom Line Investing group by Robert J.Rubinstein, a group advocating and publicizing these principles.The concept of TBL demands that a companys responsibility lies with stakeholders rather thanshareholders. In this case, "stakeholders" refers to anyone who is influenced, either directly or
  3. 3. indirectly, by the actions of the firm. According to the stakeholder theory, the business entityshould be used as a vehicle for coordinating stakeholder interests, instead of maximizingshareholder (owner) profit.Bottom linesQuestion book-new.svg This section does not cite any references or sources. (June 2009)The triple bottom line is made up of "social, economic and environmental" factors.Graphic describing the bottom lines"People, planet and profit" succinctly describes the triple bottom lines and the goal ofsustainability. The phrase, "people, planet, profit", was coined by John Elkington in 1995 whileat SustainAbility, and was later adopted as the title of the Anglo-Dutch oil company Shells firstsustainability report in 1997. As a result, one country in which the 3P concept took deep root wasThe Netherlands."People" pertains to fair and beneficial business practices toward labour and the community andregion in which a corporation conducts its business. A TBL company conceives a reciprocalsocial structure in which the well-being of corporate, labour and other stakeholder interests areinterdependent.A triple bottom line enterprise seeks to benefit many constituencies, not exploit or endanger anygroup of them. The "upstreaming" of a portion of profit from the marketing of finished goodsback to the original producer of raw materials, for example, a farmer in fair trade agriculturalpractice, is a common feature. In concrete terms, a TBL business would not use child labour andmonitor all contracted companies for child labour exploitation, would pay fair salaries to itsworkers, would maintain a safe work environment and tolerable working hours, and would nototherwise exploit a community or its labour force. A TBL business also typically seeks to "giveback" by contributing to the strength and growth of its community with such things as healthcare and education. Quantifying this bottom line is relatively new, problematic and oftensubjective. The Global Reporting Initiative (GRI) has developed guidelines to enablecorporations and NGOs alike to comparably report on the social impact of a business.
  4. 4. "Planet" (natural capital) refers to sustainable environmental practices. A TBL companyendeavors to benefit the natural order as much as possible or at the least do no harm andminimise environmental impact. A TBL endeavour reduces its ecological footprint by, amongother things, carefully managing its consumption of energy and non-renewables and reducingmanufacturing waste as well as rendering waste less toxic before disposing of it in a safe andlegal manner. "Cradle to grave" is uppermost in the thoughts of TBL manufacturing businesses,which typically conduct a life cycle assessment of products to determine what the trueenvironmental cost is from the growth and harvesting of raw materials to manufacture todistribution to eventual disposal by the end user. A triple bottom line company does not produceharmful or destructive products such as weapons, toxic chemicals or batteries containingdangerous heavy metals, for example.Currently, the cost of disposing of non-degradable or toxic products is borne financially bygovernments and environmentally by the residents near the disposal site and elsewhere. In TBLthinking, an enterprise which produces and markets a product which will create a waste problemshould not be given a free ride by society. It would be more equitable for the business whichmanufactures and sells a problematic product to bear part of the cost of its ultimate disposal.Ecologically destructive practices, such as overfishing or other endangering depletions ofresources are avoided by TBL companies. Often environmental sustainability is the moreprofitable course for a business in the long run. Arguments that it costs more to beenvironmentally sound are often specious when the course of the business is analyzed over aperiod of time. Generally, sustainability reporting metrics are better quantified and standardizedfor environmental issues than for social ones. A number of respected reporting institutes andregistries exist including the Global Reporting Initiative, CERES, Institute 4 Sustainability andothers.The eco bottom line is akin to the concept of Eco-capitalism.[6]"Profit" is the economic value created by the organization after deducting the cost of all inputs,including the cost of the capital tied up. It therefore differs from traditional accountingdefinitions of profit. In the original concept, within a sustainability framework, the "profit"aspect needs to be seen as the real economic benefit enjoyed by the host society. It is the realeconomic impact the organization has on its economic environment. This is often confused to belimited to the internal profit made by a company or organization (which nevertheless remains an
  5. 5. essential starting point for the computation). Therefore, an original TBL approach cannot beinterpreted as simply traditional corporate accounting profit plus social and environmentalimpacts unless the "profits" of other entities are included as a social benefit.Supporting arguments This section needs additional citations for verification. (June 2009)The following business-based arguments support the concept of TBL: Reaching untapped market potential: TBL companies can find financially profitable nicheswhich were missed when money alone was the driving factor. Examples include: Adding ecotourism or geotourism to an already rich tourism market such as the DominicanRepublic Developing profitable methods to assist existing NGOs with their missions such asfundraising, reaching clients, or creating networking opportunities with multiple NGOs Providing products or services which benefit underserved populations and/or the environmentwhich are also financially profitable. Adapting to new business sectors: Since many business opportunities are developing in therealm of social entrepreneurialism,[7] businesses hoping to reach this expanding market mustdesign themselves to be financially profitable, socially beneficial and ecologically sustainable orfail to compete with those companies who do design themselves as such. For example, FairTrade and Ethical Trade companies require ethical and sustainable practices from all of theirsuppliers and service providers. A business which is planning to work with Fair Trade or EthicalTrade companies must design their business model to be TBL.Fiscal policy of governments usually claims to be concerned with identifying social and naturaldeficits on a less formal basis. However, such choices may be guided more by ideology than byeconomics. The primary benefit of embedding one approach to measurement of these deficitswould be first to direct monetary policy to reduce them, and eventually achieve a globalmonetary reform by which they could be systematically and globally reduced in some uniformway.
  6. 6. The argument is that the Earths carrying capacity is itself at risk, and that in order to avoidcatastrophic breakdown of climate or ecosystem, there is a need for a comprehensive reform inglobal financial institutions similar in scale to that undertaken at Bretton Woods in 1944.Marilyn Waring has been a major proponent of this reform.With the emergence of an externally consistent green economics and agreement on definitions ofpotentially contentious terms such as full-cost accounting, natural capital and social capital, theprospect of formal metrics for ecological and social loss or risk has grown less remote throughthe 1990s.In the United Kingdom in particular, the London Health Observatory has undertaken a formalprogramme to address social deficits via a fuller understanding of what "social capital" is, how itfunctions in a real community (that being the City of London), and how losses of it tend torequire both financial capital and significant political and social attention from volunteers andprofessionals to help resolve. The data they rely on is extensive, building on decades of statisticsof the Greater London Council since World War II. Similar studies have been undertaken inNorth America.Studies of the value of Earth have tried to determine what might constitute an ecological ornatural life deficit. The Kyoto Protocol relies on some measures of this sort, and actually relieson some value of life calculations that, among other things, are explicit about the ratio of theprice of a human life between developed and developing nations (about 15 to 1). While themotive of this number was to simply assign responsibility for a cleanup, such stark honestyopens not just an economic but political door to some kind of negotiation — presumably toreduce that ratio in time to something seen as more equitable. As it is, people in developednations can be said to benefit 15 times more from ecological devastation than in developingnations, in pure financial terms. According to the IPCC, they are thus obliged to pay 15 timesmore per life to avoid a loss of each such life to climate change — the Kyoto Protocol seeks toimplement exactly this formula, and is therefore sometimes cited as a first step towards gettingnations to accept formal liability for damage inflicted on ecosystems shared globally.Advocacy for triple bottom line reforms is common in Green Parties. Some of the measuresundertaken in the European Union towards the Euro currency integration standardize the
  7. 7. reporting of ecological and social losses in such a way as to seem to endorse in principle thenotion of unified accounts, or unit of account, for these deficits.CriticismQuestion book-new.svg This section does not cite any references or sources. (June 2009)While many people agree with the importance of good social conditions and preservation of theenvironment, there are also many who disagree with the triple bottom line as the way to enhancethese conditions. The main arguments against it are summarised below. Reductive method: In the triple bottom line, a corporate-oriented approach, the social—that is,the way in which humans live and relate to each other and the environment—is secondary. Theeconomic as a domain is given an independent status which is ideologically assumed rather thananalytically argued. In the most problematic versions, the economic is elevated to the mastercategory and defined in terms that assume the dominance of a singular, historically specific,economic configuration—modern globalizing capitalism. Concurrently the environment comesto be treated as an externality or background feature, an externality that tends not to have thehuman dimension build into its definition. Thus, in many writings, even in those critical of thetriple-bottom-line approach, the social becomes a congeries of miscellaneous considerations leftother from the other two prime categories. Alternative approaches that treat the economic as asocial domain, alongside and in relation to the ecological, the political and the cultural are nowbeing considered as more appropriate for understanding institutions, cities and regions.[8] Division of labour is characteristic of rich societies and a major contributor to their wealth.This leads to the view that organisations contribute most to the welfare of society in all respectswhen they focus on what they do best: the baker exchanges his loaves with the shoemaker ratherthan making his own shoes - to the benefit of both and by extension the whole of society. In thecase of business the expertise is in satisfying the needs of society and generating a value addedsurplus. Thus the triple bottom line is thought to be harmful by diverting business attention awayfrom its core competency. Just as charitable organizations like the Red Cross would not beexpected to attend to environmental issues or pay a cash dividend, and Greenpeace would not beexpected to make a profit or succor the homeless, business should not be expected to take onconcerns outside its core expertise, provided the business doesnt do obvious harm to people orthe planet.
  8. 8. Effectiveness: It is observed that concern for social and environmental matters is rare in poorsocieties (a hungry person would rather eat the whale than photograph it). As a society becomesricher its citizens develop an increasing desire for a clean environment and protected wildlife,and both the willingness and financial ability to contribute to this and to a compassionate society.Support for the concept of the triple bottom line itself is said to be an example of the choicesavailable to the citizens of a society made wealthy by businesses attending to business. Thus byunencumbered attention to business alone, Adam Smiths Invisible Hand will ensure thatbusiness contributes most effectively to the improvement of all areas of society, social andenvironmental as well as economic. Nationalism: Some countries adopt the view that they must look after their own citizens first.This view is not confined to one sector of society, having support from elements of business,labour unions, and politicians. Libertarian: As it is possible for a socially responsible person to sincerely believe that thetriple bottom line is harmful to society, the libertarian view is that it would be arrogant to forcethem to support a mechanism for the improvement of society that may, or may not, be the bestavailable. That is, those who would not force Greenpeace and the Salvation Army to generate aprofit should not force businesses to take responsibilities outside their area of expertise. At leastin areas where a business doesnt do obvious harm to people or the planet. Inertia: The difficulty of achieving global agreement on simultaneous policy may render suchmeasures at best advisory, and thus unenforceable. For example, people may be unwilling toundergo a depression or even sustained recession to replenish lost ecosystems. Application: According to Fred Robins The Challenge of TBL: A Responsibility to Whom?one of the major weaknesses of the TBL framework is its ability to be applied in a monetary-based economic system. Because there is no single way in monetary terms to measure thebenefits to the society and environment as there is with profit, it does not allow for businesses tosum across all three bottom lines. In this regard, it makes it difficult for businesses to recognizethe benefits of using TBL for the company, itself.
  9. 9. Criticism from the Left: TBL is viewed as an attempt by otherwise exploitative corporations toavoid legislation and taxation and generate a fictitious people-friendly & eco-friendly image forPR purposes.LegislationLegislation permitting corporations to adopt a triple bottom line is under consideration in somejurisdictions, including Minnesota and Oregon.[9]Some businesses have voluntarily adopted a triple bottom line as part of their articles ofincorporation or bylaws, and some have advocated for state laws creating a "SustainableCorporation" that would grant triple bottom line businesses benefits such as tax breaks.[10]The triple bottom line was adopted as a part of the State Sustainability Strategy,[11] andaccepted by the Government of Western Australia but its status was increasingly marginalised bysubsequent premiers Alan Carpenter and Colin Barnett and is in doubt.

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