VCFO

Triple Bottom Line Reporting

Triple-bottom-line-reporting

There is a growing global trend towards greater corporate responsibility and accountability. Triple Bottom Line reporting responds to this by reporting the Social and Environmental impacts of a business, in addition to the traditional aspects of “bottom line” Profit and Loss.

What is Triple Bottom Line reporting?

The overarching philosophy of Triple Bottom Line reporting is that a business is accountable to all its stakeholders (customers, community, environment etc.), rather than only shareholders, and should therefore seek to maximise all stakeholder benefits rather than only maximising profit for shareholders.

The Triple Bottom Line (TBL) concept was first fully articulated in 1994 by John Elkington – a prominent author and entrepreneur. In his book, “Cannibals with Forks: the Triple Bottom Line of 21st Century Business,” he argued that businesses should report and measure Social Wealth creation and Environmental responsibility in addition to the traditional reporting of Profit and Loss. This concept is also known as Corporate Social Responsibility or People, Planet, Profit (the three P’s).

The Three Bottom Lines

1) Social Wealth creation

The Social wealth component of TBL refers to actions taken by a business to benefit, and not to take advantage, exploit or harm people. It is argued that by benefitting others, a business will in turn benefit itself (i.e. “enlightened self-interest”).

Examples include fair trade policies, prohibiting the use of child labour in the supply chain, employee welfare programmes and so on.

2) Environmental responsibility

Environmental responsibility refers to practices or actions taken to promote environmental sustainability, reduce negative environmental impacts or increase recycling. Examples include tree planning programmes, recycling and waste reduction programmes and emission reduction initiatives.

A popular example in play is that of Ecosia, a search engine modelled on Google but which instead promises to plant a new tree for each search conducted on the platform.

3) Profit and Loss

The traditional Profit and Loss statement guided by the accounting standards.

Reporting and Quantifying Results

There is no regulatory requirement, either in Australia or globally, to report on a triple bottom line basis, so TBL disclosures and the quantification of benefits are made on a voluntary best efforts basis.

In an ongoing push to standardise TBL reporting, guidance is provided by global organisations such as the Global Reporting Initiative (GRI) and the Global Alliance for Banking on Values (GABV).

Why Report on a TBL Basis?

    TBL reporting should be considered where there is genuine corporate commitment to social and environmental values. Reporting on a TBL basis can then potentially deliver a number of benefits;

  • Enhancement of reputation and brand with stakeholders and the community generally
  • Improved attractiveness to customers and potential employees who share the TBL values
  • Improved self-awareness of non-financial impacts within the business
  • Encourages Corporate Social responsibility

There is also some evidence that businesses which pursue social and environmental goals (in addition to purely financial goals) perform better than peers, however this has not been conclusively demonstrated.

Criticisms of Triple Bottom Line Reporting

    There are a number of common criticisms of TBL;

  • There are no generally agreed standards regarding appropriate disclosures, or the quantification of social and environmental initiatives and benefits
  • Businesses are sometimes criticised for exaggerating their social and environmental achievements, or simply using TBL for “grandstanding”

To counter these criticisms many businesses using TBL reporting have their disclosures and quantification of benefits audited by independent experts.

Businesses with a genuine commitment to corporate social responsibility can benefit from the community awareness and recognition that TBL provides. If you need help with Triple Bottom Line reporting reach out to the seasoned team at Fullstack whom can help with outsourced CFO services.

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