The Triple Bottom Line: What Is It and How Does It Work? TIMOTHY F. SLAPER, Ph.D.: Director of Economic Analysis, Indiana Business Research Center, Indiana University Kelley School of Business TANYA J. HALL: Economic Research Analyst, Indiana Business Research Center, Indiana University Kelley School of Business ustainability has been an performance: social, environmental putting a dollar value on wetlands often mentioned goal of and financial. This differs from or endangered species on strictly Sbusinesses, nonprofits and traditional reporting frameworks philosophical grounds. Others governments in the past decade, yet as it includes ecological (or question the method of finding measuring the degree to which an environmental) and social measures the right price for lost wetlands or organization is being sustainable or that can be difficult to assign endangered species. pursuing sustainable growth can be appropriate means of measurement. Another solution would be to difficult. The TBL dimensions are also calculate the TBL in terms of an John Elkington strove to measure commonly called the three Ps: people, index. In this way, one eliminates sustainability during the mid-1990s planet and profits. We will refer to the incompatible units issue and, by encompassing a new framework these as the 3Ps. as long as there is a universally to measure performance in Well before Elkington introduced accepted accounting method, allows corporate America.1 This accounting the sustainability concept as “triple for comparisons between entities, framework, called the triple bottom line,” environmentalists e.g., comparing performance between bottom line (TBL), went beyond the wrestled with measures of, and companies, cities, development traditional measures of profits, return frameworks for, sustainability. projects or some other benchmark. on investment, and shareholder Academic disciplines organized An example of an index that value to include environmental and around sustainability have multiplied compares a county versus the social dimensions. By focusing on over the last 30 years. People inside nation’s performance for a variety of comprehensive investment results— and outside academia who have components is the Indiana Business that is, with respect to performance studied and practiced sustainability Research Center’s Innovation Index. along the interrelated dimensions would agree with the general There remains some subjectivity of profits, people and the planet— definition of Andrew Savitz for even when using an index however. triple bottom line reporting can TBL. The TBL “captures the essence For example, how are the index be an important tool to support of sustainability by measuring the components weighted? Would each sustainability goals. impact of an organization’s activities “P” get equal weighting? What about Interest in triple bottom line on the world ... including both the sub-components within each “P”? accounting has been growing across its profitability and shareholder Do they each get equal weighting? Is for-profit, nonprofit and government values and its social, human and the people category more important sectors. Many businesses and environmental capital.”2 than the planet? Who decides? nonprofit organizations have adopted The trick isn’t defining TBL. The Another option would do away the TBL sustainability framework to trick is measuring it. with measuring sustainability using evaluate their performance, and a dollars or using an index. If the users similar approach has gained currency Calculating the TBL of the TBL had the stomach for it, with governments at the federal, state The 3Ps do not have a common each sustainability measure would and local levels. unit of measure. Profits are stand alone. “Acres of wetlands” This article reviews the TBL measured in dollars. What is would be a measure, for example, concept, explains how it can be useful social capital measured in? What and progress would be gauged based for businesses, policy-makers and about environmental or ecological on wetland creation, destruction or economic development practitioners health? Finding a common unit of status quo over time. The downside and highlights some current measurement is one challenge. to this approach is the proliferation examples of putting the TBL into Some advocate monetizing all of metrics that may be pertinent to practice. the dimensions of the TBL, including measuring sustainability. The TBL social welfare or environmental user may get metric fatigue. The Triple Bottom Line Defined damage. While that would have Having discussed the difficulties The TBL is an accounting framework the benefit of having a common with calculating the TBL, we turn that incorporates three dimensions of unit—dollars—many object to our attention to potential metrics 4 Indiana University Kelley School of Business, Indiana Business Research Center for inclusion in a TBL calculation. Following that, we will discuss how businesses and other entities have The level of the entity, type of project and applied the TBL framework. the geographic scope will drive many of the What Measures Go into the decisions about what measures to include. Index? There is no universal standard method for calculating the TBL. Neither is there a universally subject matter experts and the ability would help organizations identify accepted standard for the measures to collect the necessary data. While the impacts a project or policy would that comprise each of the three TBL there is significant literature on the have on the area. Specific examples categories. This can be viewed as a appropriate measures to use for include: strength because it allows a user to sustainability at the state or national • Sulfur dioxide concentration adapt the general framework to the levels, in the end, data availability • Concentration of nitrogen needs of different entities (businesses will drive the TBL calculations. oxides or nonprofits), different projects or Many of the traditional sustainability • Selected priority pollutants policies (infrastructure investment or measures, measures vetted through • Excessive nutrients educational programs), or different academic discourse, are presented • Electricity consumption geographic boundaries (a city, region below. • Fossil fuel consumption or country). • Solid waste management Both a business and local Economic Measures • Hazardous waste management government agency may gauge Economic variables ought to be • Change in land use/land cover environmental sustainability in variables that deal with the bottom the same terms, say reducing the line and the flow of money. It could Social Measures amount of solid waste that goes into look at income or expenditures, Social variables refer to social landfills, but a local mass transit taxes, business climate factors, dimensions of a community or region might measure success in terms of employment, and business diversity and could include measurements of passenger miles, while a for-profit factors. Specific examples include: education, equity and access to social bus company would measure success • Personal income resources, health and well-being, in terms of earnings per share. • Cost of underemployment quality of life, and social capital. The The TBL can accommodate these • Establishment churn examples listed below are a small differences. • Establishment sizes snippet of potential variables: Additionally, the TBL is able • Job growth • Unemployment rate to be case (or project) specific or • Employment distribution by • Female labor force participation allow a broad scope—measuring sector rate impacts across large geographic • Percentage of firms in each • Median household income boundaries—or a narrow geographic sector • Relative poverty scope like a small town. A case • Revenue by sector contributing • Percentage of population with (or project) specific TBL would to gross state product a post-secondary degree or measure the effects of a particular certificate project in a specific location, such as Environmental Measures • Average commute time a community building a park. The Environmental variables should • Violent crimes per capita TBL can also apply to infrastructure represent measurements of natural • Health-adjusted life expectancy projects at the state level or energy resources and reflect potential Data for many of these measures policy at the national level. influences to its viability. It could are collected at the state and national The level of the entity, type of incorporate air and water quality, levels, but are also available at the project and the geographic scope will energy consumption, natural local or community level. Many are drive many of the decisions about resources, solid and toxic waste, and appropriate for a community to use what measures to include. That said, land use/land cover. Ideally, having when constructing a TBL. However, the set of measures will ultimately long-range trends available for as the geographic scope and the be determined by stakeholders and each of the environmental variables nature of the project narrow, the set Indiana Business Review, Spring 2011 5 of appropriate measures can change. The Genuine Progress Indicator companies do not have an index- For local or community-based (GPI), for example, consists of 25 based TBL, one can see how they projects, the TBL measures of success variables that encompass economic, measure sustainability using the are best determined locally. social and environmental factors. TBL concept. Cascade Engineering, There are several