Definition of Triple Bottom Line Sustainability

Written by matt petryni
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Definition of Triple Bottom Line Sustainability
Triple bottom line sustainability is a concept for social responsibility in business. (Recycle image by sarkee from Fotolia.com)

The triple bottom line is a popular concept for understanding social responsibility among corporations looking to incorporate nonmonetary values into their business model. It's a method of "true cost accounting," which considers the impact of production decisions in terms of ecological and social value, as well as economic value. A company that practices triple bottom line accounting may or may not be more socially responsible than one that does not. Those who create environmental and social value alongside economic value are often considered to have a sustainable triple bottom line.

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Economic Value

One component of the triple bottom line is that of the traditional bottom line: net profit or loss. An enterprise that creates environmental and social benefits but loses money is typically not considered sustainable because, at some point, it will lack the funding to continue operating. The triple bottom line, therefore, is not intended as a system to exclude profit incentive from operations. It exists to balance the profit incentive with the costs of production decisions that are often externalised: social and environmental costs. Proponents of triple bottom line sustainability suggest that operations that create value in economic terms but only create costs in social and environmental terms are similarly unsustainable, as they'll eventually run out of the natural and human resources necessary to continue their business.

Definition of Triple Bottom Line Sustainability
Economic value is one component of the triple bottom line. (money money money image by Tribalstar from Fotolia.com)

Ecological Value

Environmental sustainability, or costs to natural capital, is another component of triple bottom line sustainability. An operation that creates economic wealth but depletes the resources of the natural environment is not considered to have a sustainable triple bottom line because, eventually, it will lack the natural resources to continue operating. Additionally, those operations that do not factor environmental costs of production decisions into their prices can send the wrong supply signals to customers. If a business externalises a significant amount of its costs onto either its local or its global environment, customers will believe the cost of consuming products is lower than reality, and demand will increase unsustainably. Triple bottom line sustainability seeks to address both of these problems by developing a producer consciousness of its long-term environmental costs.

Definition of Triple Bottom Line Sustainability
Environmental costs and benefit of production are a component of the triple bottom line. (forest image by Marcin Chochlew from Fotolia.com)

Social Value

All production decisions rely heavily on the resources of social and human capital, or the skills, education, and motivation of the people they employ and impact. An enterprise that creates negative social value --- that impoverishes or confines the people with whom it relates --- is not considered to be sustainable because it will eventually lack the skills and demand to continue operating. Businesses that engage in exploitative trade, labour rights violations or the employment of children might create economic value, but doing so will incur long-term social costs. These costs might include the inability of children to receive education and develop skills, or of workers to purchase products and provide a consumer base for the enterprise. As with environmental sustainability, failing to factor social externals into a production decision results in an artificial price deflation, and causes unsustainable increases in demand. Further, it leads to decreases in the quality of life of those affected by the enterprise.

Definition of Triple Bottom Line Sustainability
The costs of decisions on workers and society is a component of the triple bottom line. (worker image by Alexey Klementiev from Fotolia.com)

Life-Cycle Assessment

While not necessarily a component of triple bottom line sustainability, the product life-cycle assessment often provides companies, consumers, governments and organisations with information necessary to evaluate the full costs of their decisions. A life-cycle assessment allows for the accounting of costs not just during production and distribution, but also during consumption and disposal as well. Those operations that are triple bottom line sustainable in their production may still create tremendous social and ecological costs if their products' disposal is incredibly dangerous or costly. Further, those operations that use life-cycle assessment to account for long-term costs are more likely to develop products with lower disposal or recycling impacts.

Definition of Triple Bottom Line Sustainability
Life-cycle assessment allows organisations and companies to account for long-term costs. (global recycle arrows image by Michael Brown from Fotolia.com)

History of the Concept

The triple bottom line was inspired originally by urbanist Patrick Geddes, who developed similar concepts as early as the beginning of the 20th century. Geddes's concept relied on the triad of "folk, work, and place," which encouraged the use of a multifaceted approach to policy and economic analysis. Later, the concept was adopted in a similar fashion by environmental and business theorists, specifically John Elkington, who is widely credited with coining the term "triple bottom line" in 1994. Elkington's intention was to develop an approach to social responsibility that was practical for business managers without disregarding or watering down the social and environmental values of more ethical business. A number of approaches have been attempted to develop better metrics for calculating a triple bottom line since then, and some have been considered for legislation by Oregon, Minnesota, and the nation of Australia.

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