The Triple Bottom Line is a concept that has become more prevalent over the past few years. Broken down into “Three Ps”, profit, people, and planet, it measures a businesses’ capability to maximize return for shareholders while focusing on social responsibility and ethical practices. In this blog, we will cover what the Triple Bottom Line is, how to measure it, and why it is important for any business to consider.
What is the Triple Bottom Line?
The standard “bottom line” just considers financial profit, with the methods utilized to achieve profitability not typically criticized or inspected. The Triple Bottom Line measures the financial, social, and environmental performance of a company over time. The general goal of the Triple Bottom Line is to promote sustainable and ethical business practices while driving success and benefitting shareholders. Social and environmental impacts of business operations have become a focal point in recent years as customers desire transparency into the ethical and moral principles that drive a company. The Triple Bottom Line can be broken down into the “Three Ps”: Profit, People, and Planet.
The standard “bottom line”, profit is the difference between revenue and expenses involved in selling a product or conducting a business. Financial success typically relies heavily on this relationship between amount earned and amount spent. If profit margins are too small, businesses cannot support their employees and operations and will likely close. Sustainability-focused leaders often consider additional factors like people and the planet in addition to the standard bottom line.
The second attribute of the Triple Bottom Line is the societal impact the business has. It is important to understand the distinction between shareholders and stakeholders. Shareholders own a piece of the company and may generate returns from the company’s profitability. Traditionally, businesses have sought to prioritize shareholders. A company’s stakeholders are people who have a less formal interest in a company but may still be affected by its operations, i.e. the company’s employees, customers, and community members.
Maximizing the positive impact on a company’s stakeholders can yield positive results. Utilizing fair hiring practices, maximizing employee retention, encouraging volunteer opportunities, and maintaining a work-life balance can better the community, the business, and ultimately drive profit for shareholders.
The final component of the Triple Bottom Line is a company’s commitment to the planet. Between pollution, climate change, and waste management, a company’s commitment to taking care of the planet is more important than ever. Some customers are more likely to buy products and support businesses that are socially responsible. Cutting energy consumption, reducing carbon footprint, and using ethically sourced materials are all steps in the right direction for a company that wants to commit more to the planet as part of its commitment to the Triple Bottom Line.
Measuring the Triple Bottom Line
Measuring the Triple Bottom Line can seem difficult, since most of the components are typically more qualitative than quantitative. In reality, there is not one set in stone way to measure the Triple Bottom Line. The entire essence of the Triple Bottom Line is to focus on the people and the planet as much as the profits. This can be achieved by setting specific goals for each section and measuring if they are met.
Some companies take an extra step towards commitment to the Triple Bottom Line by becoming B-Corp certified. These companies are held to specific standards and pledge to uphold social and environmental goals alongside financial goals. This certification is awarded by non-profit B-Lab, which cultivates standards for social and environmental performance, accountability, and transparency. B-Corp certification is voluntary and can be discarded at any time. It is important to note that a company that is B-Corp certified is not necessarily a Benefit Corporation; a legal designation that requires permanent changes to a company’s structure.
Why is the Triple Bottom Line Important?
To some, implementing the Triple Bottom Line can seem like common sense, but in a world where many have historically equated success to profits, changing that mindset can be difficult. Many customers and employees today would prefer to support a company that shares similar moral and ethical principles of social responsibility. This shifting perspective could be a reaction of individuals to the challenges the world faces today. Companies that try to mitigate harmful effects to the society and environment in which they operate may be looked at more favorably by stakeholders and shareholders alike.
Businesses can take steps to maximize the positive impact of their success by focusing on the Triple Bottom Line but that is just one way they can ensure socially responsibility in their practices. Commitment to the Triple Bottom Line demonstrates a company’s desire to impact their communities in a positive way while maintaining financial success.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.