Why the Triple Bottom Line Matters More Than Ever

Why the Triple Bottom Line Matters More Than Ever

The conventional way to measure the success of a business is the bottom line. But the concept of a triple bottom line, where social and environmental factors are considered along with economic ones, is also getting a lot of attention.

Is this another business fad? Is it a new management technique like total quality management?

I don't think so. I see the triple bottom line as a way to think about yourself, your career, and your company. The essential challenge it poses to business leaders is to find a way to simultaneously please your investors and impress your grandchildren.

Triple bottom line thinking holds that a company should combine standard metrics of financial success with those that measure environmental stewardship and social justice. It is sometimes called the 3P approach -- People, Planet and Profits. In each case it requires thinking in three dimensions, not one.

{related_content}Triple bottom line isn't new. When John Elkington first mentioned it in the mid 1990's, he also laid the groundwork for defining environmental and social impacts of a company's activities.

Today, quantifiable environmental impacts include consumption of finite resources, water quality and availability, and pollution emitted. Social impacts include community health, worker safety, education quality, and diversity.

Why think this way? Why adopt such an approach?

It is argued by many that companies that factoring these impacts into their overall corporate balance sheets will be more successful because it delivers greater efficiency, makes them more competitive and sparks innovation -- all drivers of profitability over time.

But intuitively, doesn't it also just make sense? Don't you want to leave the planet a little better than you found it? Don't you want to work for a company that operates ethically and acts with integrity and cares about the people it employs and serves? Don't you want to make products that really enhance people's lives? Don't you want to help our country become less vulnerable to oil supply disruptions?

We certainly don't measure the success of our families by how much money we have saved. Our family's health, our kid's education, and the amount of love and caring in our family, count as much, if not more, than our financial security. So why do we have to measure the success of our companies with only one metric?

Another concept often linked to triple bottom line is that of sustainability. We sometimes speak of adopting sustainable business practices or building sustainable businesses. But what does that really mean?

The best definition I've heard was created in 1987 by the United Nations Bruntland Commission, which defined sustainability as "Meeting the needs of the present generation without compromising the ability of future generations to meet their own needs." It's a simple, powerful statement. Make sure our decisions today take future costs into account. By adding time it asks us to think in four dimensions and not one.

There is a strong argument that triple bottom line or building sustainable businesses creates more profitable and successful business. Pursuing environmental and social objectives doesn't have to be at the expense of financial objectives and often is reinforcing.

Take the desire to reduce the environmental impact of a building for example. You could just lower the thermostat and make everyone a little more uncomfortable. Or you could do something better and install more efficient lighting. Or you could do something even better and rethink the entire building and design an integrated building that has better ventilation, better lighting, uses much less energy, and is more comfortable.

People who work in LEED-certified buildings typically show 6 percent to 16 percent improved productivity, roughly 10 times the initial energy savings. That becomes a measurable benefit that can ultimately be linked to profitability and shareholder value. What's more, employees feel better about their work environment and their employer, creating stronger employee relationships and company loyalty. One investment in building efficiency yields benefits across multiple dimensions.

This is just the beginning. Businesses pursuing sustainability are becoming more efficient, more innovative, more connected, more profitable, and more competitive.

But as in most things, companies go through phases.

At first they tend to be defensive and focus on complying with regulations. When they move beyond that, they become tactical -- looking for ways to reduce waste and become more efficient in the way they do things.

In the next stage they start to think systematically. Here, a company begins to identify its position in the value chain and explore how their customers use their products and how they dispose of them. They will also explore their supply chain and find out where their raw materials come from and how much energy is used to make them. They will start thinking about their own factories and find ways of using new manufacturing process that use less energy.

At AEB, we manufacture an energy efficient, pollution-free technology that allows traditional manufacturing industries to replace antiquated process technologies like thermal ovens.

For example, a large food package printing operation could replace its drying ovens with our electron beams and save millions of BTUs of energy annually, avoid tons of CO2 and VOC pollution. This kind of technology is both more sustainable and more profitable. In driving the adoption of our technology, we've realized it's critical to talk to brand owners and retailers to help them understand how the manufacturing processes of their supply chains impact their own environmental footprint.

Ultimately, progressive business leaders start thinking strategically and see sustainability as a catalyst for new business models.

Recently FedEx Kinko's, which has been in the business of delivering packages, started accepting documents electronically and printing them near where they need to be delivered thus meeting their customer's needs with significantly less energy.

Rosabeth Moss Kantor writes in her recent book about SuperCorps, which embedded the idea of serving society into their business definition and strategy. She cites companies like GE, which focused its mission on helping the world transition to a more sustainable energy infrastructure.

I believe that triple bottom line thinking and sustainability are inevitable. To business leaders, these are choices.

We can start to make our companies more efficient or wait until costs rise. We can redesign our products for a more sustainable world or we can try to catch up later. We can wait until our customers or the government ask us to report our carbon footprint or we can volunteer it now.

A recent Sloan Business Review survey found that 92 percent of 1,500 executives said that their companies are addressing sustainability, but most said not aggressively. Clearly the door is wide open for leaders to emerge.

Business leaders do not need to check their values at the door. Despite media coverage of ethical business lapses and shortsighted business practices, all the CEOs I know want to do the right thing.

They want employees to be healthy because they care about them not just because it lowers premiums. They want to reduce pollution from their plants because they live in the community and breathe the air not just because they want to avoid fines. They treat their customers and suppliers fairly because that's the way they want to be treated. They create value for their investors because that's what they were hired to do and that's what they committed to do, not just because they want their share. They are motivated by their core values.

You can rationalize that the triple bottom line will make your company more successful, which it will, or you could pursue it because it reflects your values as a person. But in some sense to those that will be most impacted it doesn't matter why we do it as long as we do it.

Jim Rogers, CEO of Duke Energy, uses something he calls the "Grandparent Test." He runs one of the biggest utilities in the country and has a lot of people counting on him. His customers expect there to be power at the flick of a switch and his investors expect profits every quarter.

But he's focused on what his grandchildren will say to their grandchildren 50 years from now. Will they say he ran the dirtiest utility in the world or that he was the first utility executive to commit to going carbon free?

For Rogers, doing well and generating profits aren't mutually exclusive goals; the two are inexorably linked. And in fact many of the Fortune 1000 executives who have started embracing triple bottom line thinking cite their grandchildren when asked why they are doing it. Future generations aren't an abstraction to them any more than revenues or earnings are.

The triple bottom line and sustainability aren't new management techniques. They aren't the latest management fads. They are concepts that challenge each of us to balance the way we successfully run our business and the world that our children's children will inherit from us. And we need to start now.

Mitch Tyson is Chief Executive Officer of Advanced Electron Beams based in Wilmington, Mass.

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