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Triple Bottom Line

The “triple bottom line” captures the three ways in which a company's performance can be conceptualized and measured. John Elkington refers to these three domains as economic prosperity, environmental quality, and social justice. The concept of the triple bottom line implies that a company's effectiveness cannot be judged by financial performance alone. To become more sustainable, a company needs to meet the requirements and expectations of most, if not all, of its stakeholder groups, which include shareholders, employees, customers, suppliers, the local community, and the natural environment. Performance with respect to all these stakeholder domains is reported, for example, in Global Reporting Initiative (GRI) measures, on which an increasing number of companies rely. However, some observers argue that even future generations must be considered in such stakeholder measures since the UN's Brundtland Report defined sustainable development as “development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.” The concept of the triple bottom line pays tribute to the interdependence of the aforementioned three broad areas, in the sense that there is no social progress without economic development and there is no economic or social prosperity without ecological sustainability. Furthermore, the concept acknowledges the interrelationships between these three areas, which are in constant flux due to social, political, economic, and environmental influences.

Economic Prosperity

This element of the triple bottom line represents, to some extent, a company's conventional financial bottom line. Usually, profitability is used as a proxy of the financial strength and value of a company's physical and financial assets. As per standard accounting practice, profit figures are expressed as earnings per share (EPS) or return on assets (ROA). However, under the triple-bottom-line nomenclature, economic prosperity is a broader concept than financial performance because it takes into account a company's direct and indirect economic impact on various stakeholders (e.g., in the form of investments, dividends, or wages). For example, to achieve economic prosperity, companies use and deploy human capital or knowledge-based assets. To achieve economic prosperity, companies must constantly evaluate their employees' skills, experiences, and knowledge. These elements are often dubbed intellectual capital, which companies must maintain, develop, and enhance to achieve economic prosperity.

Hence, the concept of the triple bottom line requires that companies think more broadly about economic prosperity than just ROA. Particularly the sustainability agenda pushes toward long-term business planning. For example, Porter and van der Linde argued that, especially in the long run, there is no trade-off between environmental protection and economic competitiveness. Furthermore, a psychometric meta-analysis by Orlitzky, Schmidt, and Rynes showed that the empirical links between the economic, social, and environmental dimensions of corporate performance are, on average, positive and strong or moderately strong. In contrast, conceptualizing social and ecological improvements as in “natural” opposition to business success may only hinder the implementation of the triple bottom line. Therefore, in line with the empirical evidence, corporate executives must be persuaded that this broader thinking about company performance (as explained by three complementary, or synergistic, rather than contradictory forces) will, in the final analysis, pay off for the companies that they lead.

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