Taking it to the next level

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Written by Rob Noble on 1 September 2014 in Features
Features

Rob Noble explores the importance of the triple bottom line and the impact it can have on an organisation and it's people

Businesses are all about making profit, right? Of course they are but increasingly organisations understand that profit at any cost is not the only – or ideal – answer. You need to take a number of factors into account, not least the people who work for you and your customers and the spectrum of decision-makers and influencers. They can have a negative or positive impact on your organisation and spell the difference between success and failure.

The time-trusted conventional way to measure the success of a business is the bottom line. But the concept of a triple bottom line (TBL), where social and environmental factors are considered along with economic ones, is also getting a lot of attention. The triple bottom line (also known as 3BL, the three Ps and the three pillars) puts into concrete terms what we already know: a number of ingredients need to come together to deliver profit.

The three pillars are a key component to good corporate citizenship through sustainability. TBL is a holistic approach to business that sees people, the planet and profitability (the three Ps) as equal pillars in a corporate mission. This mission has become so popular amongst the public that it’s now a widely heeded business prerogative by global brands including FedEx, Nike and Tesco, by start-up technology businesses and increasingly the SME sector. But how does the holistic feel good factor translate to all of us who manage businesses? It boils down to a good old-fashioned dose of common sense together with informed best practice and as with any successful organisation, enlightened leadership.

People, planet and profit

TBL was coined by the globally-acclaimed corporate responsibility advocate, John Elkington, in his 1997 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business. Elkington asserted that there are other factors which should be equally as important as profit or whatever may be an objective for why an organisation exists.

Elkington stated that if an overarching objective does exist, it is that all organisations must be sustainable. He argued that companies should prepare three bottom lines; the first is the traditional measurement of corporate profit, the second focuses on how socially responsible an organisation has been throughout its operations and the third measures how environmentally responsible it has been.

This wider perspective meant not just producing an income and ensuring it hits a level greater than any cost or other liability, but it also accounts for the impact on people and the planet. Therefore, all organisations have an economic, social and environmental perspective which ultimately relates to translating an overall value. Transparency and reporting should also be present to demonstrate what takes place as a true reflection of these elements.

Elkington’s seminal work looked ahead to the future and how the TBL should be directed in reality. Almost 20 years on, it now seems the need for accounting to the TBL is more important than ever before, with a drive for corporate governance to meet its demands and competition becoming increasingly stronger, as the economy continues to rise and budgets allow more room for manoeuvre.

Whatever the sustainable motives and other objectives, how to successfully and efficiently lead an organisation while focusing on the TBL is paramount for many businesses, if not all.

The Leadership Trust’s approach takes seriously the point that businesses should be concerned with a wider range of focus other than pure profit generation; the workforce is the driver behind an organisation’s success and so effective staff training is crucial to nurture personal development, which impacts on the business. Producing profits alone cannot guarantee sustainable business growth and so investing in a wider perspective helps business leaders to develop areas of an organisation’s operations, which have a longer term and greater impact on the traditional bottom line.

Leaders who focus on the TBL recognise the long-term value of being more environmentally friendly. For example, a company vision that reduces its ecological footprint, looks at sustainability and accountability in regards to its impact on the environment will attract more clients, stakeholders and new talent pools as they seek organisations with a conscience.

It requires effort at every level, which is not easy but has a simple concept; skilful and enabled leadership has to become dispersed throughout the organisation – this forms the backbone of a high performance culture.

Naturally, traditional accounting methods will be focused on profits and growing the business, which provide a conflict with the view that looks beyond the financials. Therefore, it’s essential for the triple bottom line ethos to be dispersed throughout the business, in order to gain as much support as possible from staff across all departments.

Value of TBL

As already referenced, the main priority for most businesses is to generate profit. A survey1 by BSI and Verdantix, of 150 sustainability executives from 20 industry sectors, revealed that the majority (70 per cent) identified sustainability as a key growth driver but recognised that connecting sustainability to overall financial and business performance could still remain a challenge. This is because only 51 per cent believe that sustainability issues will impact their firm’s financial performance over the next two years.

It might not always be feasible to embrace TBL, as some businesses might not have the time, money or resource to invest in becoming more sustainable or put in place a company-wide training scheme. One problem the TBL produces is that it can be difficult to measure the benefits to people and planet in the same way that profits are measured, which may be off-putting for some businesses who want to see a clear return on their investment and benchmark this in monetary terms.

The TBL is missing a key thread – planning. This should be the fourth P, as it affects the other three accounts and is the backbone for all business decisions. Focusing on profit is good for the short-term, but thorough planning enables the profits to continue towards long-term success.

If we manage the three Ps properly, then we end up with prosperity. If we push too far on unsustainable growth and consumption, then the planet will suffer. Similarly, if organisations don’t invest in and care for their staff, then their reputation as an employer will become negative and staff morale will decrease, thereby affecting profits.

It’s an area bosses simply can’t ignore and is a key factor in getting ahead of the competition, as it has taken a strong and profitable foothold across industry. It’s a smart investment, even in challenging economic times.

Taking metrics into account

Traditional accounting models are all about profit and more profit, whereas triple bottom line accounting recognises that, without content, healthy people to run a business and the natural environment to sustain those people and resources, the business is simply unsustainable in the long term. Triple bottom line accounting means expanding the traditional reporting framework to take into account environmental and social factors as well as financial performance. Financial reporting is a legal requirement for organisations across the world.

Yet, accounting for the effects of their strategies, practices and outcomes on external stakeholders requires non-financial measurement of social and environmental performance. Including this social and environmental performance in the reporting of organisations – which is becoming known as corporate responsibility reporting or sustainability reporting – has moved from being virtually non-existent in the 1980s to being unusual in the 1990s to being expected for all large organisations in today’s business environment. Already professional organisations such as the Institute of Chartered Accountants in England & Wales (ICAEW)2 have produced briefings for members on how they need to be not just part of the reporting process but the co-ordinators of such reports. Universities are building triple bottom reporting into their courses, local authorities are encouraging private and public sector TBL. We have seen tax breaks (or penalties!) for certain industries and those who get ahead of the game by adopting many of the principles of TBL accounting will be better placed to not only stay ahead of the competition but to be seen as a trusted product or service by savvy customers who can tell the difference between a cynical move and a real company vision.

It’s also important to note that CEOs must manage the balance between achieving the TBL while meeting board, shareholder and other stakeholder expectations. This can be challenging but enforces a discipline of greater reporting, as the organisation must demonstrate its return on any and all investments.

Why embrace the triple bottom line?

An ethical position underlined by a measurable and proven track record of corporate social responsibility is a powerful reason to bring the three Ps to your business plan. However, it’s not the only one. A recent MIT study3 is only one of many that shows how corporate sustainability is profitable. The results are somewhat intangible, related to competitive advantages, brand reputations and improved innovation. Perhaps more interestingly, the study found that companies must set concrete goals and draft targeted plans to reap the benefits of sustainability; in other words, sustainability needs to be treated seriously to really pay off.

TBL opens new markets and expands existing ones. Think of how many people prefer to purchase fair trade options wherever possible? Or consider the popularity of geotourism, ecotourism, recycling, sustainable energy…the list goes on. Perhaps most importantly, if non-renewable resources or indeed the planet itself are depleted, there’s nothing left for anyone to profit from. The planet pillar views profits on a longer, sustainable timetable.

As part of an overall corporate social responsibility plan, the three Ps provide tangible benefits in the form of employee retention and employee engagement. Active CSR programmes translate into higher levels of engagement, and studies show that companies with a high level of engagement are more successful than those with lower engagement. Still other studies show that more engaged employees create a more effective culture of social responsibility. Thus, there is a feedback loop between the right employees and the right corporate culture that benefits your company while helping the community.

One need not have any interest in the altruism part of corporate philanthropy to see the benefits of the triple bottom line, only an interest in operating the most successful company in your industry. What CEO could refuse such a prospect?

TBL training

Communication is essential to gain the support of key decision-makers, stakeholders and staff before implementing a TBL strategy and measuring its performance. There is no universal standard for measuring the value of TBL, so it can be challenging for business leaders to gain support from their workers.

Consequently, each business must draw up their own measurables to provide evidence and gauge the success of the TBL programme and greater long-term profitability, in order to place a value on the work they’re doing, particularly in the social and sustainability areas. For example, a business might measure their charitable contributions or the average number of training hours accumulated by each employee; in addition, business leaders could measure the organisation’s water consumption and waste         to landfill.

Not only will greater communication with existing staff support the TBL, but it will also attract new talent of individuals who want to work for an employer with strong ethics and passion to place emphasis on other areas of profit – particularly generations X and Y. Building that reputation will be key to the future success of the organisation as it becomes known for its sustainable practices.

Consumers, future recruits and potential clients are now more aware of the ethical and environmental stance of companies, with some basing their purchase, career and business decisions on these areas. Consequently, accountants, managers and other business leaders will need to fully appreciate the value of the TBL and the impact it has on the business.

Organisational strategy

Taking on a TBL perspective requires a focused commitment to long-term strategic thinking, planning and action. If the business has chosen to adopt its principles, then business leaders must ensure that it is applied throughout the organisation and embraced by the team. Good leadership will be key for its success, which will be used to drive improvements in how the business operates, by helping managers to focus on what they need to do to improve all three bottom lines.

Leaders who focus on the TBL recognise the long-term value of being more environmentally friendly. A company vision that reduces its ecological footprint, looks at sustainability and accountability in regards to its impact on the environment attracts more clients, stakeholders and new talent pools as they seek organisations with a conscience.

Culture change

Leadership is a powerful quality and plays a key role in successfully bringing about change. It can change businesses for the better, nurture new ways of operating and unite staff to achieve a common purpose. Good leadership must be used in order for people who value the TBL to help change its organisation; if the senior team and other business leaders have embraced the ethos of the TBL, then this enthusiasm and recognition of its values will be filtered throughout the organisation, winning the hearts and minds of its workers.

A leader with long-term vision and the ability to communicate can influence others to adopt his or her vision and ensures that the business does exactly what it says it will do.

A comprehensive survey of 1,712 corporate members of the United Nations Global Compact4 from 113 countries revealed that nearly two-thirds of respondents claimed to evaluate sustainability policies and strategies at the CEO level, and only around a third train managers to integrate these into their work. Further down the management supply chain, just more than half of the companies include sustainability expectations in supplier documents but less than a fifth actually do anything to help those companies set and review their goals.

This illustrates there is more work to be done and greater leadership throughout the business is required to ensure the TBL principles are implemented.

When strategic leaders emphasise attention on the TBL, they often change and shape the values and culture of the entire organisation, which naturally will be met with some conflict but also positivity. This will create a ripple-effect that will also affect suppliers, peers and the new business it acquires, as it becomes a recognised player in adhering to more sustainable and social practices.

Effect of the TBL

With more individuals and businesses concerned with the TBL, it’s not surprising to assume that more organisations will want to adopt a TBL strategy. With good leadership, regulation and resources, businesses can build a reputation of being an organisation focused on people, the planet and profit, which should in time generate business growth and a return on investment.

A Sloan Business Review survey5 found that 92 per cent 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 leave their values at the door. Despite media coverage of ethical business lapses and short-sighted business practices, most CEOs know intuitively they need to do the right thing.

They want employees to be healthy because they care about them not just because it affects productivity. They want to reduce pollution from their workplaces 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 rationalise 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. Ultimately, the motives may differ, but if the results are positive on all fronts, what’s not to like about TBL?

A fully referenced version of this article is available on request

About the author

Rob Noble is chief executive of The Leadership Trust. He can be contacted via www.leadership.org.uk

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