Triple bottom line: The good, the paradox, and the tensions

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

One of the biggest contributors to the climate crisis has been the business sector polluting the environment, particularly since the industrial revolution, amongst other factors that led to urgent climate change taken up more seriously since the 1990s. A Carbon Majors database report shows that 100 companies in the energy sector alone contributes to roughly 71 per cent of all industrial emission. On top of this, of course, there are issues around waste recycling (or the lack of it) at factories, water wastage for industrial cleaning and manufacturing, and many other forms. At the same time, businesses hold the keys to driving positive climate impact. So, it's not all negative to be fair. Businesses caring about their wider stakeholder groups and not simply shareholders have led to increasing recognition and action around people-planet-profit, aka The Triple Bottom Line. Some of the largest corporations, whether it's Amazon or IBM, or TESLA have all set net-zero targets and micro-level reduction of carbon footprints. In addition to that, business goals such as using only ethically sourced materials, becoming more energy efficient, streamlining logistics practices, and applying the components of industry 4.0 to keep the community and business maintaining a near to win-to-win situation (if not always, and not in every market, however).

People-Planet-Profit: The Triple Bottom Line

While empirically, a high shareholder value would be considered an indicator of success, today it's more about scoring high on the indices such as sustainability, managing employees responsibly, supporting (instead of exploiting) other stakeholders in the supply chain, and looking after the well-being of community members. Purpose drives strategy today. And values-driven business tends to have better public perception and PR image than traditional ones with a sole focus on profit (while ignoring the planet and people as wider stakeholders). These are important variables to be successful today. In a 2017 sustainability survey by Cox Conserves, 88% of small and midsize businesses, across various sectors, have already implemented sustainable activities. It can be argued that the triple bottom line needs to be a part of a company's culture and values to be most successful in the long run and to manifest responsible practices in various forms.

26 years ago, John Elkington coined the 'Triple Bottom Line of People, Planet, and Profit (also known as the 3Ps, TBL, or 3BL). It soon became another buzzword shortly after a few years 'sustainable developments' was proposed by the Brundtland Commission in 1987. 'The triple bottom line can be defined as a sustainability framework that examines a company's social, environmental, and economic impact. People - the positive and negative impact an organization has on its most important stakeholders. Planet - the positive and negative impact an organisation has on its natural environment (reducing its carbon footprint, responsible usage of natural resources, etc). Profit - the positive and negative impact an organisation has on the local, national and international economy (includes creating employment, generating innovation, and paying taxes, amongst others). Of the three 3Ps, 'profit' has been mostly confused and rather misinterpreted on many occasions over the years. Generally, it would mean financial profit as a company makes – however, this interpretation is too limited and also inaccurate. Rather than 'profit' focusing on the financial aspect only, the economic impact is a much wider idea than just financial impact.

How can the Triple Bottom Line be a business strategy?

A more guided approach for businesses to manage their Triple Bottom Line priorities would be more meaningful today. For example, there is no essential 'requirement' for businesses to change their fundamental behaviours nor they are monitored by external agencies or outside parties, for example. For most businesses, that remains the case. The 3Ps need clearly defined progress scorecard variables and businesses need more evidence-based outcome reports to demonstrate accountability. e.g., food and beverage companies made a variety of 'green' claims on their packaging but some of them are not measured nor come with any evidence that is verified. It could be misleading the values of the triple bottom line, especially during a time when capitalism has led people to endlessly purchase things that they do not necessarily need leading to significant environmental degradation. Reforming business models to fit the 3Ps criterion would not be sufficient without changing resource use, disposal methods, and more responsible operational procedures.

The question, therefore - is how 3BL or Triple Bottom Line can be a lucrative and long-term strategy. A) Having 3BL raises transparency that mitigates shareholders' concerns about concealed information. In fact, it helps fulfil one of the pillars of corporate governance too – transparency. B) It involved accountability of organisations' actions while delivering growth and improved economic situations/opportunities for a business C) Lines up a business to be a part of 'world betterment', therefore at the local level boosting community development through better practice. D) 3BL improves a company's competitive advantage over peers.

The Paradox, The Tensions, and how to overcome them

For most businesses, 3Ps often come at a trade-off when contradictory yet interrelated elements are considered simultaneously and this creates a paradoxical scenario. There are paradox theories that identify such conflicting situations and argue that organisational tensions remain latent until environmental factors of scarcity, plurality, and change highlight the contradictory nature of the tensions, making them salient to organisational actors.

Conditions of scarcity refer to limitations on the resources available to the organisation, such as factors of production and finances. Plurality represents conditions of uncertainty as to organisational goals and the strategies necessary to achieve them. For example, as mentioned earlier in the article – The 3Ps need to become part of the values, culture, and strategy of an organisation to effectively function as desired. Finally, change means shifts in contextual conditions, which leads organisations to adapt and adopt newer practices.

A paradox approach argues that long-term success requires continuous efforts to meet multiple demands, not by trading off or prioritising one goal over others but by a dynamic process of splitting and synthesis, as explored in a study by Smith and Lewis in 2011. However, synthesis means that this short-term splitting process is repeated cyclically, with new priorities emerging in each cycle, and in the long run, a dynamic equilibrium emerges, which involves "purposeful iterations between alternatives in order to ensure simultaneous attention to them over time". In essence, this means that organisations can attend to the competing demands of the triple bottom line to varying degrees over time, thereby reaching a dynamic equilibrium to effectively manage all three objectives. Doing so promotes "…a virtuous cycle of tension and resolution as the firm responds dynamically to the changing and competing demands of sustainability management". This is one way to overcome the paradox in many circumstances.

Policies need to impact on effective integration of all the 3Ps

When it comes to studies on the management of sustainability, there is still a lack of empirical studies examining the nexus of social, environmental, and economic responsibilities. We also need to come up with ways to better approach tensions in sustainability management that avoid either/or solutions and focus instead on the opportunities to manage competing sustainability demands (e.g., organisations doing better with planet and profit, but not people OR a good outcome for people and planet at the cost of profit) simultaneously. Success on sustainability goals cannot be measured only in terms of profit and loss. It must also be measured in terms of the well-being of billions of people and the health of our planet, and the sustainability sector's record in moving the needle on those goals has been decidedly mixed. Conscious effort and will, improved stakeholder participation, and engagement towards these bigger goals that the businesses can have might fine-tune the situation (and newer expectations). Some studies show that social entrepreneurs perceive their organisations' operational landscape to be highly uncertain with changing government policy and changing political priorities. Although it would be possible to evaluate the impact of policy on the 'planet' / environment and 'people' / social dimensions, there is still a framework required that would help analyse how policy impacts integrated management of the 3Ps together.