Triple Bottom Line

Updated on February 1, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is a Triple Bottom Line?

Triple bottom line (TBL) emphasizes corporate social responsibility. It nudges organizations to consider social and environmental impacts along with the obsession for profits. TBL recommends focussing equally on the three Ps: people, profit, and the planet.

In 1994, John Elkington developed TBL as an accounting framework. Elkington was an entrepreneur and author. TBL aims to incorporate sustainable accounting in business, i.e., in social, environmental, and economic aspects. Amidst growing societal pressure, all businesses want to appear green. But not all are willing to sacrifice profits. GreenwashingGreenwashingGreenwashing is a system which provides misleading facts or impressions proving that the products manufactured by an organization or the industry does no harm to the environment by way of classy packaging or providing false information on labels or branding the product.read more is TBL’s biggest challenge.

Key Takeaways

  • The triple bottom line (TBL) method postulates the adoption of social, environmental, and economic elements into financial objectives.
  • TBL also emphasizes profits; businesses have a responsibility to pay for their lenders, operational creditors, and employees.
  • Companies have to make sure that the vicinity is clean and that their operations don’t affect the environment adversely. The dumping of toxic waste is a controversial issue highlighted by TBL. Sustainable disposal of waste costs much higher.

Triple Bottom Line

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Triple Bottom Line (wallstreetmojo.com)

Triple Bottom Line Explained

The triple bottom line (TBL) framework makes an organization realize its responsibilities towards society and ecology. It is all about accountability for the overall effect of the company’s business practices and contribution towards non-profitable aspects.

The bottom lineBottom LineThe bottom line refers to the net earnings or profit a company generates from its business operations in a particular accounting period that appears at the end of the income statement. A company adopts strategies to reduce costs or raise income to improve its bottom line. read more is the ultimate aim for businesses. Most businesses operate with the sole purpose of turning a profit. However, TBL theory focuses on the 3Ps that makes firms socially responsible:

  1. People: Companies are liable for the well-being of society and its people. Thus, TBL measures the extent to which an organization contributes socially.
  2. Profits: It is every company’s responsibility to pay its lenders, operational creditors, and employees.
  3. Planet: It is concerned with the location, i.e., the area, city, or state in which the company is located. Companies have to make sure that the vicinity is clean. They must ensure that their operations don’t affect the environment adversely.

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Triple Bottom Line Sustainability

Now, let us walk you through the three aspects of TBL:

  1. Social Sustainability: It is a part of corporare social responsibility (CSR), businesses must focus on community, social surroundings, and internal resources. This is measured by the investment made on labor compensation and the company’s profits from it.
  2. Environmental Sustainability: It emphasizes business practices that cause the least damage to the environment.
  3. Economic Sustainability: The economic aspect measures the financial performance and profitability of the business. Additionally, it measures the business’ contribution towards the overall economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more and the growth of its industry.

Examples of Triple Bottom Line

Following are real-life examples of TBL.

#1 – Unilever

Unilever’s positive beauty vision claims to improve its system for its beauty and personal care brands. The company has brought in new laws, policies, and social norms to benefit people and society.

Unilever’s People Positive program includes the “Self-Esteem” initiative by Dove. This movement aims to eliminate discrimination based on people’s color and physical attributes. Similarly, Lifebuoy’s Handwashing Education project spreads awareness about washing hands correctly—a movement that gained popularity during the Covid-19 pandemic.

Unilever - Example 1

Source: https://www.unilever.com/

#2 – DHL

DHL Global Forwarding has developed its GoGreen Solutions to make the supply chainSupply ChainA supply chain refers to a process beginning with the procurement of raw materials and the production of finished goods and ending with their distribution and sale.read more more eco-friendly. DHL is a leading logistics company. DHL claims that it employs sustainable logistic options for its clients. This way, the company reduces transport-related waste, emissions, and other environmental hazards.

DHL - Example 2

Source: https://twitter.com/

Benefits

Given below are the various benefits of the triple bottom line:

  • Profit and CSR Go Hand in Hand: The TBL theory reminds businesses that social and ecological concerns cannot be overlooked.  
  • Spreads Environmental Awareness: When a business contributes towards the environment, it inspires competitors, consumers, employees, and customers to become eco-friendly themselves. Big brands leading by example sends a powerful message.
  • Business Becomes More Meaningful: Following the TBL ideology, companies are basically redistributing their yields to those who helped them earn, i.e., nature and society. TBL aggressively promotes sustainable development.
  • Attracts New Customers and Investors: Companies that adopt sustainable methods attract both investors and customers. Cultural trends have made TBL a profitable option owing to the positive PR. Everyone wants to work with a firm that wants to preserve nature.

Challenges

TBL is not easy to implement; therefore, many companies refrain from incorporating this concept into their business. Thus, given below are some of the significant challenges :

  1. Low Recognition: Companies often neglect the TBL concept since it hinders their financial goals and profit-making strategies. Eco-friendly practices like recycling waste may cost the firm higher than normal.
  2. Quantifying the Social and Environmental Aspects: Everything is factual and quantifiable when it comes to financial accountingFinancial AccountingFinancial accounting refers to bookkeeping, i.e., identifying, classifying, summarizing and recording all the financial transactions in the Income Statement, Balance Sheet and Cash Flow Statement. It even includes the analysis of these financial statements.read more. However, it isn’t very easy to measure the social and environmental impact of a business.
  3. Legally Compulsive at Times: The legislation of certain states or countries forces companies to inculcate socio-economic objectives.
  4. Greenwashing: Many corporates around the globe use TBL as a marketing strategy which results in ingenuine efforts towards the betterment of society and the ecology. In other words, everyone wants to appear green as long as profits remain intact.
  5. Clashing Objectives: The three elements of TBL contradict themselves. It is tough to allocate human, financial, and material resources evenly.  
  6. Difficult to Implement: TBL is highly impractical amidst a corporate culture where businesses are least bothered about nature and society.

Frequently Asked Questions (FAQs)

What are the three Ps of a triple bottom line?

The three P’s of TBL refers to the three pillars of sustainable business development:
1. People,
2. Profit, and
3. Planet.

Who uses the triple bottom line?

The TBL is applied by business entities, government enterprises, and non-profit organizations. It promotes sustainable growth. In addition, it safeguards the interests of society and the environment—a crucial part of corporate functioning.

Why is the triple bottom line important?

The TBL is all about a company’s contribution to society, the environment, and the economy. After all, they facilitated business growth. An organization that focuses on bettering its surroundings has a long way to go. On the other hand, a sustainable business gains loyal customers. With growing awareness about environmental damage, all businesses want to appear green. But due to greenwashing, they don’t always apply the sustainable practices that they claim publicly.

Recommended Articles

This article has been a guide to What is Triple Bottom Line (TBL) and its Definition. Here we discuss TBL sustainability, challenges, examples, and benefits. You may learn more about financing from the following articles –