Why it’s time to rethink ‘triple bottom line’

I’m carrying out a strategic recall of the management concept ‘triple bottom line’ to do some fine tuning.

How often are management concepts recalled by the people who invented them? It is hard to think of a single case.

If an industrial product like a car fails, the manufacturer pulls it back, tests it, and if necessary, re-equips it. If manufacturers grow careless, governments run periodic road safety tests. Management concepts, by contrast, operate in poorly regulated environments where failures are often brushed under the boardroom carpet. Yet poor management systems can jeopardise lives. They can also put entire businesses and sectors at risk.

With this in mind, I’m carrying out a management concept recall: With 2019 marking the 25th anniversary of the “triple bottom line”, a term I coined in 1994, I propose a strategic recall to do some fine tuning. For those not familiar with it, the triple bottom line is a sustainability framework that examines a company’s social, environmental and economic impact.

So why recall it now? After all, since the 1990s, the sustainability sector has grown rapidly, though at around $US1 billion ($1.35bn) in annual revenues globally it is no giant. Still, market research suggests that future markets for sustainable products and services could be huge; the UN Sustainable Development Goals is expected to generate market opportunities of over $US12 trillion a year by 2030.

But the success of sustainability goals cannot be measured only in terms of profit and loss. Sustainability must also be measured in terms of the wellbeing of billions of people and the health of our planet, and the sector’s record in those areas has been decidedly mixed. While there have been successes, our climate, water resources, oceans, forests, land and biodiversity are all increasingly threatened. It is time for businesses to step it up.

To this end, if we reverse engineer today’s sustainability agenda, it is clear that a powerful element of its genetic code has been the “triple bottom line,” or TBL. A decade ago, The Economist was already signalling that the term had become part of the business lexicon. It said the approach “aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business”.

Well yes … but the original idea was wider still, encouraging businesses to track and manage economic (not just financial), social and environmental value added — or destroyed. This idea infused platforms like the Global Reporting Initiative and Dow Jones sustainability indexes, influencing corporate accounting, stakeholder engagement and increasingly, strategy.

But the TBL wasn’t designed to be just an accounting tool. 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.

Changing the system

Exactly 500 years ago Luca Paccioli published the world’s first treatise on double-entry bookkeeping, the cornerstone for single bottom-line thinking. Looking back, it is clear that the advent of the TBL proved to be a branching point. It was followed rapidly by double and quadruple bottom lines, social return on investment, multiple capital models, among other frameworks focusing on society and the environment. And then there are next-generation concepts like carbon productivity and biomimicry.

Such experimentation is clearly vital and typically sparks a proliferation of potential solutions. But the range of options can provide business with an alibi for inaction. Worse, we have failed to track the progress of these options based on their real-world impact.

Together with its subsequent variants, the TBL concept has been captured and diluted by accountants and reporting consultants. Thousands of TBL reports are now produced annually, though it is far from clear that the resulting data are being analysed in ways that genuinely help decision-makers and policymakers to understand the systemic effects of human activity.

Fundamentally, we have a hardwired cultural problem in business, finance and markets. Whereas CEOs, chief financial officers and other corporate leaders move heaven and earth to ensure they hit their profit targets, the same is very rarely true of their sustainability targets. Clearly, the triple bottom line has failed to bury the single bottom line paradigm.

First recall

Critically, the TBL’s stated goal from the outset was system change: the transformation of capitalism. It was never supposed to be just an accounting system. It was intended to focus on disruption, asymmetric growth and the scaling of next-generation market solutions.

I see a bright ray of hope coming from the high-energy world of B corporations. There’s a lot of momentum there; around 2500 businesses worldwide are now certified as B corps. All are configured around the TBL. Major companies like Brazil’s Natura and Danone’s North American operation are now B corps, with other multinationals considering how to follow suit.

Hence the need for a “recall”. I hope that in another 25 years we can look back and point to this as the moment we started working towards a new genetic code for tomorrow’s capitalism, towards spurring the regeneration of our economies, societies and biosphere.

John Elkington is chairman and chief pollinator at Volans.

Copyright 2018 Harvard Business School Publishing Corp. Distributed by the New York Times Syndicate.