What is Triple bottom line Theory?

In finance, when speaking of a company's bottom line, we usually mean its profits. Elkington's TBL framework advances the goal of sustainability in business practices, in which companies look beyond profits to include social and environmental issues to measure the total cost of doing business. Triple-bottom-line theory says that companies should focus as much attention on social and environmental issues as they do on financial issues.

TBL theory also says that if a company focuses on finances only and does not examine how it interacts socially, it is not able to see the whole picture and, therefore, cannot account for the total cost of doing business.

How to implement triple bottom line (TBL) ?

The implementation of the triple bottom line will focus on the three kinds of the framework. Under this procedure, the company will focus on people, the planet, and profit for the company. On the other hand, they examine each element to focus on the demand for company products in the market.

The main motive of this triple bottom line is to maintain the demand for company products in the market. Tesla is the most famous company in the automobile industry that applies triple-bottom-line terms in its development. This company has introduced the novelties idea of introducing 100% electric vehicles. This is the best example to define their marketing strategies as they have been focusing on increasing the brand value of the company in the market on international level.

This benefits the triple bottom line term in the company and for implementation. The company must check people's demands and take care of the planet. Due to this electronic innovation, Tesla will be able to protect the environment and attract consumers towards their brand.

What are the 3 Ps in Triple Bottom Line?

The triple bottom line theory helps the organisation focus on its social and environmental issues. These points will be considered in mind if the company will not able to make a profit. TBL's theory defines whether the company will focus on its particular finance section. On the other hand, they did not give importance to their company's social platforms. Due to this, the company will be unable to understand the whole market picture. The company also faces difficulties while doing business at full cost. Based on the theory of TBL, the company has to work on its 3 Ps in these three bottom lines:

There are 3 P’s according to TBL theory:

People: This is the traditional measure of corporate profit—the profit and loss (P&L) account.
Profit: These measures show how socially responsible an organization has been throughout its history.
Planet: These measures show how environmentally responsible a firm has been.

Lets delve deeper in this .

People

When discussing the triple bottom line, "people" refers to any individual who interacts with a business. But is not restricted to:

Workers: This entails making certain that they are paid fairly and have a secure workplace that promotes professional growth.
Vendors: This entails making certain that a varied range of suppliers are employed and, when necessary, giving small enterprises or minority owners priority.
Consumers: This entails making certain that consumers have equitable access to items and that their opinions about safety or equity are taken into account.

Traditionally, a business would put its shareholders or investors first. The concept of the triple bottom line directs attention towards those who may not have a financial stake in the firm but are nonetheless indirectly involved in its operations. The triple bottom line now aims to create value by, for example, supporting small suppliers' businesses or encouraging employee volunteerism rather than just trying to increase investor returns.

Profit

A company's profit can imply more than its total revenue when considering the triple bottom line. A business must make sure its revenue is generated in a moral and just manner. This involves looking for vendors and business partners that share its philanthropic values. It also specifies how a business formulates its financial operational plan or strategy. For instance, a company's ability to make a profit is correlated with its ability to fulfill its financial responsibilities to its creditors, lenders, and employees.

A company's profit and the profit of persons in the company's immediate vicinity may be considered profit by some users of the triple bottom line. This particularly relates to the neighborhood where the company is located. This could consist of:

Ensuring that the business pays its appropriate share of federal, state, and local income taxes on schedule.
Verify whether the corporation supports local small companies or shops locally to promote economic prosperity in the neighborhood.
Pledging to make financial contributions to the community through corporate sponsorships, collaborations, and developments.

Planet

The reporting of environmental impacts is the biggest departure from just financial reporting. A business is frequently compelled to choose between an environmentally friendly choice and a less expensive one. A business may also decide to go with a less desirable option; eco-friendly transportation, for instance, is probably going to be slower than flying.

It is frequently far simpler to evaluate the effects of the options a company chooses rather than highlighting the beneficial benefits the organization has made to the environment. Consider a business that reduced its energy use by redesigning its distribution networks; this kind of action would be recorded as a reduction in greenhouse gas emissions.

How the Triple Bottom Line Is Calculated?

Businesses that want to measure the triple bottom line might have to think outside the box. The way in which a business must record its accounting profit is strongly governed by traditional accounting principles. On the other hand, there could not even be a minimal framework in place for a company to measure its triple bottom line, especially if there isn't a necessity for external reporting. So, let’s know how can you calculate the triple bottom line.

Measuring Profit

Even yet, a business will typically include net income for the entire company in its triple bottom line report. Profit has excellent guidance already, so it's the easiest part of the triple bottom line to disclose. But it might also provide or highlight a number of additional financial or profitability criteria, like:

To show uniform or fair pricing across various demographic groups, break down the gross margin by geographic area.
The effective rate of federal income tax is demonstrated by historical payments.
Information on past late payments or penalties as evidence of one's ability to manage finances.

Measuring People

The people component of the triple bottom line is also known as social measures or social metrics, and it can include both financial and non-financial measurements. Once more, some might be required by other reporting guidelines or generally accepted accounting principles (GAAP), while others might be data that was obtained internally. Measurements of humans include, for example:

Calculate the average employee payroll to show that wages are above the living standards in the area.
To illustrate the complete benefits package for each worker, calculate the average employee benefits above and beyond compensation.
The mean quantity of vacation days accrued and utilized by each staff member to guarantee that they are able to take time off.
Employment demographics include the percentage of workers who belong to different age, racial, sexual, or religious groups. Keep in mind that some of this data may be confidential and that employees must voluntarily submit it (because employers are not legally required to collect some types of demographic data).
Vendor demographics include companies who identify as minority-owned, LGBTQ-owned, veteran-owned, or small businesses.
The number of returns of products by region to make sure a certain population continues to receive high-quality products.

Measuring Planet

The planet is arguably the most challenging triple bottom-line component to quantify. Measuring an organization's impact on the environment may take the most significant knowledge or work because it is essential for them to understand both their current and "eco-friendly" effects. Nonetheless, there are a few widely used environmental metrics, like:

Reductions in greenhouse gas emissions are determined by comparing the results of previous processes with the anticipated modifications of new processes.
Pounds of garbage produced may also include the total amount of recycled material over time.
Quantity of energy used; seasonality corrected.
The amount of fossil fuel used (which, if the business is expanding, may be modified for each employee or each sales lead).
Percentage of raw materials obtained morally.

Triple bottom-line reporting

The triple bottom line report defines the company's accounting framework. Based on it, the company will be able to incorporate three types of dimensions. This will include the social, environmental, and financial performance of the company. The triple bottom line report includes the frameworks that examined the ecological, environmental, and social measurements.

These are all the terms and measurements that are defined in this report. Moreover, this report defines the company to check their working policy and procedures. If the company can get positive results. Then it defines that the company has been doing great in its brand development. The triple bottom line report will help the company improve their marketing strategies and brand value in the market. Moreover, this report suggests the company make changes in its marketing strategies.

These are the benefits the company will get from the help of the triple bottom line report. This report will focus on the social platforms and people activities in the market. This data can help the company to check its product market value and demand in the market.

Conclusion

In conclusion, the Triple Bottom Line (TBL) concept provides a framework for businesses to measure their performance based on three key factors: people, planet, and profits. The TBL theory emphasizes the importance of sustainable business practices, where companies prioritize social and environmental issues alongside financial metrics. By adopting this approach, businesses can ensure they are making a positive impact on society and the environment while still generating profits. This win-win situation benefits all stakeholders involved, including employees, customers, shareholders, and the wider community. Overall, the TBL represents a more holistic approach to measuring business success that goes beyond traditional financial metrics and recognizes the importance of social and environmental responsibility.

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Nick Johnson

Nick is a multi-faceted individual with diverse interests. I love teaching young students through coaching or writing who always gathered praise for a sharp calculative mind. I own a positive outlook towards life and also give motivational speeches for young kids and college students.