Triple Bottom Line Analysis

Nowadays, we hear that sustainability is the goal of all businesses; nonprofit companies and governments. Sustainability is a term that combines environmental, economical and social impacts. Though sustainability is a goal, it is difficult to find a unified and global measure for it [1].

One framework in which an organization or company may measure sustainability is through the Triple Bottom Line analysis (TBL).  This framework incorporates three performance dimensions: social, environmental and financial. This framework differs from the traditional accounting framework by taking into account environmental and social measures. The dimensions of TBL are also referred to as the 3Ps: people, planet and profits. Defining the TBL is easy but measuring the impacts of these different dimensions is the tricky part [1].

This framework was first explained in 1997 in a book by John Elkington “Cannibals with Forks: The Triple Bottom Line of 21st Century Business”. The idea behind this framework is that companies, organizations and governments hold a responsibility towards their stakeholders, their associates and any individual associated directly or indirectly with the respective firm. This leads to the conclusion that the firm’s decisions also has an impact on the environment through their projects and/or activities therefore the environment should also be considered as one of the stakeholders [2].

TBL is also a method that can be used to measure Corporate Social Responsibility (CSR). CSR is a management concept in which companies incorporate both social and environmental concerns within their business operations and stakeholders [3].

Currently, there isn’t a universal method for calculating the TBL nor is there a measurement that comprises all three dimensions. This allows the firm to adapts the framework on the different projects or policies the firm is focusing on. The type of project or policy would drive the decisions about what the measures may include.  The stakeholders and the ability to collect the necessary data will determine the set of measures.  The following are some of the questions or factors that can be included in the different dimensions [1].

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Economic Measures [1]:

The units used to measure the economic dimension should deal with the flow of money within the firm. The areas that could be looked at are the income, taxes, business climatic factors, and employment and business diversity factors. Examples include: personal income, job growth, establishment sizes, employment distribution by sector, and revenue by sector.

Environmental Measures [1]:

The units used to measure the environmental dimension should represent measurements of natural resources. The units could include energy consumption, natural resources, solid and toxic waste, land use, air and water quality.  Long-range trends for each environmental dimension would help firms identify the impacts their projects or policies would have within an area. The following are some of the examples that could be used to measure the environmental dimension:  sulfur dioxide concentrations, carbon dioxide concentrations, nitrogen oxides concentrations, concentrations of priority pollutants, electricity consumption, fossil fuel consumption, solid waste management, hazardous waste management, excessive nutrients and change in land use.

Social Measures [1]:

The measures used for social dimensions of a community or region could include measurements of education, equity, access to social resources, health and well-being, quality of life and social capital. The following examples could be used to measure the social dimension: unemployment rate, percentage of female labor force, median household income, relative poverty, the percentage of a population with a certificate or a post-secondary degree, violent crimes per capita and health adjusted life expectancy.

There are many ways in order to involve the participation and input of the stakeholders when designing the TBL framework. A decision matrix to incorporate public preferences into project planning and decision making maybe developed and having the stakeholders rank and weigh the components of the framework according to the priorities of the community [1].

The Triple Bottom Line analysis has provided firms whether governmental, nonprofit organizations or businesses a framework in order to measure how sustainable their projects or policies are.  The flexibility of not having a unified or common measurement for all three dimensions allows these firms to apply this framework in a way that is suitable for their needs.

By: Mehad Habbab 

References:

[1] http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html
[2] http://www.mindtools.com/pages/article/newSTR_79.htm
[3] http://www.unido.org/what-we-do/trade/csr/what-is-csr.html

 

 

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