Triple Bottom Line Accounting

While environmental science encompasses many goals, sustainability is at its core. Meanwhile, scientists and others approach sustainability issues in a cause, effect and solution manner, with quantitative and qualitative data as a guide. However, many corporations, governments and organisations have adopted a sustainability framework based on accounting. This makes sense – businesses and governments often have the skills and tools to measure money and services.

Full Cost Accounting

Using an accounting framework to “measure” sustainability was a natural fit when environmental issues became more prominent in the late 1960’s and 1970’s. Also known as “full-cost” or “true-cost” accounting, these frameworks recognise that economic activity (both profitable and otherwise) incur indirect and non-monetary costs to the environment and to individuals not engaged in the activity. These hidden “expenses” are not accounted for in traditional accounting.

Take, for example, a coal-fired power plant. The owners of the power plant generate electricity that powers homes, schools and hospitals. They receive money to pay themselves and their workers for this service. However, there are other costs.

Hospitals will need to treat more patients who suffer from increased respiratory ailments, forests and nearby ecosystems may be impacted and degraded by more acidic rainfall due to sulphur in the coal released upon burning, the CO₂ emissions from the plant will contribute to warming that raises sea-levels and degrades ecosystems (and their ecosystem services) even further. Who pays for the increased healthcare costs? How much will it cost to replace the ecosystem services provided by the forests and rivers damaged by the powerplant emissions? These are hard questions to answer and, in the past, were ignored by organisations as not important, too hard or went unnoticed.

In 1981, Freer Spreckley wrote an article that outlined a framework organisations could apply to address the “full costs” of their activity. By considering the social equity, environmental and economic impacts of their activities, organisations, corporations and governments could begin to address, or at the very least acknowledge, the total cost of their activities.

The Triple Bottom Line: People, Planet, Profit

The phrase People, Planet, Profit, or “The Triple Bottom Line” was applied to this framework by John Elkington in 1994. In the next step, you’ll read an article by John Elkington about why he thinks the Triple Bottom Line (TBL) needs to be reimagined 25 years later.

Briefly, the “People” refers to an activity’s ability to benefit as many stakeholders as possible (the workers, the community) without harming or exploiting any of them. “Planet” refers to engaging in an activity in a sustainable manner (or as sustainable as possible) through the careful consumption and management of raw materials and waste and reducing the environmental impact as much as possible. After all the input costs are deducted, “Profit” is the traditional profit associated with a shareholder’s point of view, but also includes the benefits to workers, stakeholders, communities and the nation too.

In the recent past, some have critiqued this approach by claiming it ignores culture and values (some people add “Culture” and call it the Quadruple Bottom Line). Another critique is that corporations use the TBL approach to offset and outsource their environmental and social responsibilities through offsets and philanthropy, rather than through better business practices that strive for real sustainability or social equity.

References

Spreckley, Freer (1981). Social Audit: A Management Tool for Co-operative Working. Beechwood College.