People Planet & Profit : The Triple Bottom Line
In traditional business accounting, the "bottom line" refers
to the sum of revenue minus expenses, which is either "loss" if
negative, or "profit" if positive. The term originated because profit
is always shown as the very "bottom line" on a statement of revenue
and expenses. Over the last 50 years, environmentalists and social justice
advocates have struggled to bring a broader definition of "bottom
line" into public consciousness, by introducing full cost accounting.
For example, if a corporation shows a monetary profit, but their asbestos mine
causes thousands of deaths from asbestosis, and their copper mine pollutes a
river, and the government ends up spending taxpayer money on health care and
river clean-up, how do we perform a full societal cost benefit analysis?
The concept of a triple bottom line (TBL) adds two
more "bottom lines"; social and environmental concerns. The three
together are often paraphrased as "Profit,
People, Planet".
The phrase, Triple
Bottom Line, was coined by John
Elkington in his 1997 book Cannibals
with Forks: the Triple Bottom Line of 21st Century Business . Sustainability,
itself, was first defined by the Brundtland
Commission of the United Nations
in 1987.
The concept of TBL
demands that a company's responsibility lies with stakeholders rather than shareholders. This seems to be in line
with Adam Smith’s Theory of Moral Sentiments where he mentions something
called ‘prudence’. And he stresses that
‘justice’ – not harming others – is fundamental to a healthy human society. Not
harming others can also be viewed as “not harming other generations” as well. In this case, "stakeholders" refers
to anyone who is influenced, either directly or indirectly, by the actions of
the firm.
According to the stakeholder theory, the business
entity should be used as a vehicle for coordinating stakeholder interests,
instead of maximizing shareholder (owner) profit.
Sustainability
The approach of "People,
planet and profit" succinctly describes the triple bottom lines and the
goal of sustainability.
"People" pertains to fair and beneficial business practices toward labour
and the community and region in which a corporation conducts its business. A
TBL company conceives a reciprocal social
structure in which the well-being
of corporate, labor and other stakeholder interests are interdependent.
"Planet" (natural capital) refers to sustainable environmental practices. A
TBL company endeavors to benefit the natural order as much as possible or at
the least do no harm and minimize environmental impact by, among other things,
carefully managing its consumption of energy and non-renewable resources and
reducing manufacturing waste as well as rendering waste less toxic before disposing of it in a safe and
legal manner. Thi sis called the "Cradle to grave" approach and can
be measured by the use of the life cycle assessment of products ( of which I talked about in m earlier post) to determine what the true environmental cost
is from the growth and harvesting of raw materials to manufacture to
distribution to eventual disposal by the end user
"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 accounting definitions 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
real economic impact the organization has on its economic environment. This
is often confused to be limited to the internal profit made by a company or
organization (which nevertheless remains an essential starting point for the
computation
An example of an organization seeking a triple bottom line would be
a social enterprise run as a non-profit, but earning income by
offering opportunities for handicapped people who have been labeled
"unemployable", to earn a living recycling. The organization earns a
profit, which is controlled by a volunteer Board, and ploughed back into the
community. The social benefit is the meaningful employment of disadvantaged
citizens, and the reduction in the society's welfare or disability costs. The
environmental benefit comes from the recycling accomplished.
“Only when companies measure their social and environmental
impact will we have socially and environmentally responsible organizations.”
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