Disadvantages of triple bottom line reporting

Written by stephen byron cooper Google
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Disadvantages of triple bottom line reporting
Triple bottom line reporting can impair profitability. (Hemera Technologies/Photos.com/Getty Images)

Triple bottom line reporting is a system that enables companies to add the “social bottom line” and the “environmental bottom line” to their “financial bottom line” when reporting their results. The United Nations Environmental Program created the Global Reporting Initiative which acts as template for triple bottom line reporting. Although TBL is becoming an increasingly fashionable topic, its disadvantages discourage wide scale adoption by British business.

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Cost

All reports cost money to compile. You need special staff to gather data and possibly new computer systems to identify, store and compile the source data for reporting. Management reporting can be justified because it highlights areas were greater efficiency and profitability can be obtained. It is compulsory to compile financial statements and tax declaration, therefore a company has to invest in systems and staff to fulfil that requirement. TBL creates extra staff and systems requirements without any improvement to the company’s earnings. At times of economic downturn, when margins are thin, companies need to slash their costs to survive, not pile on more.

Time

Like regular financial reporting, the Board of Directors and departmental heads need to check all the data in the TBL reports to confirm that it accurately reflects the position of the business. This draws key staff away from their main tasks. There would be no point in TBL reporting unless the public were made aware of its contents, therefore it needs to be presented and promoted to the public and stakeholder groups, many copies of the report need to be printed and distributed. This all requires time that would be better spent running the business.

Boasting

Triple bottom line reporting encourages companies to focus on the value of their social impact on their employees and neighbours as well as their contribution or damage to the improvement of the environment. However, companies are more likely to use this as a PR exercise and only publicise the “positives” of their activities. Companies that behave unethically are fully aware of their actions and are unlikely to stop the systems that improve their profitability because of TBL. For example, a company would highlight their use of a waste disposal contractor that specialises in recycling, but not mention that they buy components from a third world supplier that uses child labour.

Opinion

Financial accounting is straightforward. It deals with quantifiable facts like the number of units sold in a year or the cost of raw materials. Even within this field there is legal room for manipulation, particularly in the field of asset valuation. Social and environmental factors cannot be properly quantified. If the company is left to value its own achievements it will overvalue the things it achieved and undervalue the goals it did not satisfy. If it takes a points system from a third party, it would end up running its business according to a pressure group’s priorities rather than guarding the interests of its shareholders.

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