2.1 Triple Bottom Line and other sustainability models
6 min read•july 30, 2024
Sustainability models like the (TBL) help businesses think beyond just profits. TBL considers economic, social, and environmental impacts together. It's a simple but powerful way to measure a company's overall sustainability performance.
Other models like and Five Capitals offer different approaches. They each have strengths and weaknesses in how they define and measure sustainability. The key is using these frameworks to drive real improvements, not just for reporting.
Triple Bottom Line
Definition and Pillars
The Triple Bottom Line (TBL) is a sustainability framework that expands the traditional financial bottom line to also consider social and environmental performance
The economic pillar of TBL focuses on the financial health and viability of the company, encompassing profits, ROI, economic value creation, and financial resilience
The social pillar addresses the company's impact on people, including employees, customers, suppliers, and local communities. It covers labor practices, human rights, diversity and inclusion, product responsibility, and community relations
The environmental pillar considers the company's impact on the planet, including resource consumption, emissions, waste, and biodiversity. It involves measuring and managing the company's ecological footprint (, , )
Interconnectedness and Implementation
TBL emphasizes that the economic, social, and environmental pillars are interconnected and interdependent. True sustainability requires balancing and optimizing performance across all three dimensions simultaneously
For example, investing in renewable energy (environmental) can create jobs (social) and reduce long-term energy costs (economic)
Implementing TBL often requires adopting new metrics, accounting methods, and reporting frameworks to measure social and environmental impacts alongside financial results
This may involve tools like , calculations, and integrated reporting that combines financial and
Triple Bottom Line vs Other Models
The Natural Step
The Natural Step (TNS) framework defines four system conditions for sustainability based on science. In contrast, TBL provides a broad, flexible framework not tied to specific scientific principles
TNS focuses more on the environmental pillar, defining sustainability as not systematically increasing concentrations of substances from the Earth's crust (fossil fuels, heavy metals), not systematically increasing concentrations of substances produced by society (CFCs, PCBs), not systematically degrading the biosphere (overfishing, deforestation), and not undermining people's capacity to meet their needs. TBL gives equal emphasis to environmental, social and economic dimensions
The Five Capitals Model
The Five Capitals Model defines five types of capital that organizations impact and depend upon: natural, human, social, manufactured, and financial capital. This expands on TBL by making finer distinctions in the types of resources organizations interact with
Natural capital includes renewable and non-renewable resources (timber, minerals, ecosystems)
Human capital includes people's health, knowledge, skills, and motivation
Social capital includes institutions, relationships, trust and norms
Manufactured capital includes infrastructure, buildings, and equipment
Financial capital includes cash, investments, and monetary instruments
The Five Capitals Model, like TNS, is more prescriptive than TBL in defining what sustainable capital management entails, such as living off the income generated by capital rather than depleting capital stocks. TBL leaves more flexibility for organizations to define sustainable practices within its broad pillars
Shared Aims and Differences
All three models share a common aim of expanding business considerations beyond just financial performance to include sustainability factors. They push companies to internalize externalities and operate within social and ecological boundaries
The models differ in the specific environmental and social issues emphasized (TNS's science-based system conditions, Five Capitals' capital stocks) and level of prescription vs. flexibility provided (TBL's adaptable pillars vs. TNS and Five Capitals' rules)
Strengths and Limitations of Sustainability Models
Triple Bottom Line
A key strength of TBL is its simplicity and flexibility. The three pillars provide an intuitive, easy to communicate framework that organizations can adapt to their unique context and priorities. This has contributed to its widespread adoption
However, critics argue TBL's flexibility is also a weakness, as it allows organizations to cherry-pick issues to focus on without a clear standard for what constitutes sustainable performance. The lack of prescription can enable greenwashing (misleading sustainability claims)
The Natural Step
The Natural Step provides clearer guidance by grounding sustainability in scientific principles. This can help organizations set more rigorous, context-based sustainability goals and avoid burden-shifting between different environmental issues
For example, ensuring emissions reductions in one area don't cause increases elsewhere
However, TNS's emphasis on the environmental dimension may neglect social sustainability issues (inequality, human rights). The scientific principles can also be challenging for business leaders without a scientific background to understand and apply
The Five Capitals Model
The Five Capitals Model excels in providing a comprehensive view of the different resources that organizations impact. Delineating five capitals offers a more nuanced and actionable framework than TBL's broad pillars
For instance, it separates renewable natural capital from non-renewable
However, quantifying performance on some of the capitals, like social and human capital, remains difficult. Critics argue the model still centers financial capital and may not go far enough in redefining the purpose of business
Implementation is Key
Ultimately, the effectiveness of any model depends on how rigorously and holistically it is applied. All models still rely on the quality of their implementation to drive meaningful sustainability improvements
Strong governance, target-setting, measurement, innovation and change management are critical regardless of framework
Integrating sustainability models deeply into strategy, operations, and decision-making, not just reporting, is essential to create long-term shared value
Sustainability Models in Case Studies
Measuring TBL Performance
Conducting a TBL assessment involves measuring a company's performance on key indicators within each of the three pillars
For example, a TBL assessment of a consumer packaged goods company might evaluate operating profits and market share (economic), employee diversity and customer satisfaction (social), and greenhouse gas emissions and packaging waste (environmental)
Comparative benchmarking of sustainability performance requires compiling data on key indicators over time and across industry peers
Sustainability rankings, like the Dow Jones Sustainability Index, aggregate such data to score companies' relative sustainability performance
Monetizing Sustainability Impacts
Monetization methods attempt to quantify the financial value of companies' social and environmental impacts
Social return on investment (SROI) estimates the monetary value of positive and negative externalities, such as job creation or pollution
(IP&L) apply internal carbon prices and other monetization factors to integrate environmental and social line items
For example, PUMA's EP&L estimated the company's entire supply chain created €145 million in environmental externalities, mostly from GHG emissions, water use, and waste
Contextualizing Sustainability Performance
Contextualizing sustainability performance requires evaluating a company's impacts in relation to science-based thresholds and stakeholder expectations
For example, carbon emissions can be assessed against the carbon budget for meeting Paris Agreement goals to limit warming to 1.5-2°C
Context-based metrics evaluate performance relative to social and ecological carrying capacities
For example, water use can be compared to the sustainable supply in local watersheds
Multicapital Scorecards
Multicapital scorecards, based on the five capitals model, assess companies' net impact on each form of capital
This involves quantifying the stocks and flows of each capital type in relation to sustainable levels required to maintain the resource base and productive capacity of the capital
For example, Novo Nordisk's pioneering environmental profit and loss account assesses impacts on natural capital
In 2014, it calculated a net positive EP&L of DKK 11.4 billion, reflecting investments in renewables and eco-efficiency that offset negative externalities
Assurance
Assurance by independent third parties can verify the accuracy and completeness of sustainability performance data
External assurance lends credibility to sustainability reports and performance claims
For example, Unilever's Sustainable Living Plan undergoes external assurance by PwC to validate the methodology and reliability of sustainability metrics
Key Terms to Review (16)
Carbon emissions: Carbon emissions refer to the release of carbon dioxide (CO2) and other carbon compounds into the atmosphere, primarily from human activities such as burning fossil fuels, deforestation, and industrial processes. These emissions are a significant contributor to climate change and are measured in terms of their impact on global warming, making them a central focus in sustainability efforts and various environmental models.
Deforestation: Deforestation is the large-scale removal of trees from forested areas, often resulting in damage to the quality of the land. This process can lead to significant environmental issues, including loss of biodiversity, disruption of water cycles, and increased greenhouse gas emissions. The implications of deforestation can be analyzed through various sustainability models that emphasize the interconnectedness of economic, social, and environmental factors.
Energy Efficiency Ratio: The Energy Efficiency Ratio (EER) measures the cooling output of an air conditioning system compared to the amount of energy it consumes. A higher EER indicates a more efficient system, which can contribute to lower energy costs and reduced environmental impact, making it a critical component in evaluating sustainability in energy consumption.
Environmental Impact: Environmental impact refers to the effect that an organization's activities, products, or services have on the natural environment. This includes a range of consequences, from resource depletion and pollution to habitat destruction and climate change. Understanding environmental impact is crucial for businesses aiming to enhance sustainability, manage risks, and meet stakeholder expectations related to ecological preservation.
Environmental Profit and Loss Statements: Environmental Profit and Loss (EP&L) statements are financial tools used by organizations to measure the environmental impacts of their operations, expressed in monetary terms. By quantifying the costs associated with environmental factors, such as carbon emissions, water usage, and waste generation, EP&L statements help businesses understand their ecological footprint and its implications for long-term sustainability. This financial perspective aligns with the concept of the Triple Bottom Line, which emphasizes balancing economic, social, and environmental considerations.
Integrated Profit and Loss Statements: Integrated profit and loss statements are financial documents that combine traditional financial metrics with environmental and social impacts, reflecting a company's overall performance beyond just economic factors. This approach aligns with the concept of the Triple Bottom Line, emphasizing the need to consider people, planet, and profit in assessing business success. These statements allow organizations to better communicate their sustainability efforts and impacts to stakeholders, promoting transparency and accountability.
Materiality Assessment: A materiality assessment is a process that helps organizations determine which sustainability issues are most significant to their stakeholders and have the greatest impact on the company's performance. This process is essential for aligning sustainability efforts with business strategy and ensures transparency in reporting by focusing on relevant issues that matter to both the company and its stakeholders.
Social return on investment: Social return on investment (SROI) is a performance measurement tool that captures the social, environmental, and economic value created by an organization's activities in relation to the resources invested. By quantifying the benefits generated for stakeholders, SROI helps organizations understand their impact and enhances accountability. This concept ties into community engagement by illustrating how investments in social initiatives lead to tangible benefits for society, aligns with sustainability models by incorporating broader values beyond financial gain, and aids in trend analysis by providing a framework for comparing the effectiveness of various projects over time.
Stakeholder capitalism: Stakeholder capitalism is an economic system where businesses prioritize the interests of all stakeholders, including employees, customers, suppliers, communities, and shareholders, rather than focusing solely on maximizing profits for shareholders. This approach promotes a balance between financial performance and social responsibility, emphasizing the importance of sustainable practices that benefit a broader range of parties involved in a company's operations.
Stakeholder Theory: Stakeholder theory is a framework for understanding the relationships between an organization and its various stakeholders, emphasizing that the interests of all parties involved, including employees, customers, suppliers, and the community, should be considered in corporate decision-making. This theory challenges the traditional view that a corporation's primary responsibility is to its shareholders, instead advocating for a broader perspective that includes ethical considerations and social responsibilities in business practices.
Sustainability disclosures: Sustainability disclosures are the reporting and communication of an organization’s environmental, social, and governance (ESG) practices and impacts. These disclosures aim to provide transparency and accountability to stakeholders about how a company is addressing sustainability issues, including its contributions to economic, environmental, and social well-being, often referred to as the Triple Bottom Line.
Sustainable Development Goals: Sustainable Development Goals (SDGs) are a universal call to action to end poverty, protect the planet, and ensure prosperity for all by 2030. They consist of 17 interconnected goals that address global challenges like inequality, climate change, and environmental degradation, aiming to create a better future for everyone. These goals not only guide governments but also serve as a framework for businesses and communities to align their strategies with sustainability principles.
The Natural Step: The Natural Step is a framework for sustainable development that provides a science-based approach to help organizations and communities transition towards sustainability. It emphasizes the importance of understanding and acting upon four system conditions that ensure social equity, ecological integrity, and economic viability, thus connecting it to broader sustainability models like the Triple Bottom Line.
Triple Bottom Line: The triple bottom line is a sustainability framework that evaluates a company's commitment to social, environmental, and economic responsibilities, often summarized as 'people, planet, and profit.' This concept emphasizes that businesses should not only focus on financial gains but also consider their impact on society and the environment, promoting a more holistic approach to corporate performance.
Triple bottom line accounting: Triple bottom line accounting is a framework that evaluates a company's commitment to social, environmental, and economic sustainability by measuring its performance in three key areas: people, planet, and profit. This approach expands the traditional financial bottom line to include social equity and ecological health, promoting a more holistic understanding of corporate responsibility and long-term value creation.
Water Usage: Water usage refers to the amount of water consumed by individuals, businesses, and industries for various purposes, including agricultural irrigation, manufacturing processes, and daily activities. Understanding water usage is critical for assessing environmental impacts, managing resources sustainably, and developing effective reporting frameworks that highlight a company's water-related performance and challenges.