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by | May 14, 2017

The “Triple Bottom Line” Concept

The Triple Bottom Line Concept (TBL) is the idea that it is possible to run an organization in a way that not only earns financial profits but also betters people’s lives and helps the planet.

Business strategist and entrepreneur John Elkington coined the term “triple bottom line” in a paper he published in 1994.

An investment manager, individual investor, or CEO that wants to pursue the triple bottom line (TBL) must consciously consider three areas — economic, social, and environmental — in making investing and business decisions. Deploying money and other resources, such as human labor, to a project or an investment can either contribute to these three goals or focus on profit at the expense of one or both of the other two. TBL can be thought of as an accounting framework in the most basic sense of the word “accounting” in that it accounts for not only financial performance but also social and environmental performance. Some of the repercussions that have come about from ignoring the TBL in the name of profits include rainforest destruction, labor exploitation and ozone layer damage. That being said, pursuing the TBL may improve long-term profitability, for example, reducing waste can reduce costs.

It can be challenging to maximize financial returns while also doing the greatest good for people and the environment. Consider a clothing manufacturer whose best way to maximize profits might be to hire the least expensive labor possible and to dispose of manufacturing waste in the cheapest way possible. The result might be the highest possible profits for the company but miserable working and living conditions for laborers (albeit better conditions than if they had no job and no source of income at all), and damage to the natural environment and the people who live in that environment. In the past, such practices were more socially acceptable, but today, many consumers are willing to pay more for clothing and other products if it means that workers are paid a living wage and the environment is being respected in the production process. Many consumers want companies to be transparent about their practices and to be considerate of all their stakeholders, hence the popularity of the TBL concept that accounts for the full cost of doing business.

The triple bottom line can be difficult to measure because while the issue of profitability is black and white, what constitutes social and environmental responsibility is somewhat subjective. How do you put a dollar value on an oil spill — or on the prevention of one? Is it good enough to pay workers in Bangladesh three times the average local wage if that wage still sounds horrifyingly low to consumers in the United States? How do you measure the cost of child labor? Does it benefit children and their families by allowing them to rise out of poverty, or does it perpetuate poverty by denying children sufficient time to get educated and deprive them of a carefree childhood? Is it possible to have a carefree childhood while living in extreme poverty?

The upside of this lack of standardized measurement is that metrics can be adopted that make the most sense for each organization, project or location. A restaurant could measure and report on how much it reduces its waste by switching to environmentally friendly packaging and serving leftover food to a local homeless shelter that would otherwise be thrown out. A car manufacturer could measure its progress toward producing less-polluting vehicles. A government project to expand public transit could measure how much it reduces highway and surface road congestion.

Other key factors to report on, depending on the organization, might include job creation, employee turnover, fossil fuel consumption, hazardous waste management, percentage of women and minorities employed overall and in management positions, contributions to charity, how employee income and benefits compare with a living wage, and number of employees taking advantage of workplace benefits for pursuing higher education.

Federal, state and local governments as well as nonprofit organizations have also implemented the TBL approach. For example, Grand Rapids, MI, has applied the TBL concept to creating a sustainable local economy through focused efforts related to environmental quality, economic prosperity, and social capital and equity. Indicators used by the city to measure its TBL include alternative fuel usage, traditional fuel consumption, number of air pollution ozone action days, personal income per capita, unemployment rate, public transportation ridership, crime statistics, educational attainment and voter participation.