disadvantages of triple bottom line
The American Economist, 36, 37. Systems thinking entails the ability for grasping more complex relations, interactions and situations which include, but go beyond, simple cause-and-effect relationships (Doppelt 2003). Companies are geared to making profits and typically focus on the impact of their actions on their bottom line, or earnings. Whether you are starting your first company or you are a dedicated entrepreneur diving into a new venture, Bizfluent is here to equip you with the tactics, tools and information to establish and run your ventures. 2002). We want to investigate whether corporations tend to highlight their certifications prominently throughout their sustainability reports. The main points for analysis are based on the three fundamental principles of TBL (economic, social, and environmental) and how the corporations reported against principles in their reporting system. More specifically, companies that follow the TBL business model claim to equally prioritize three pillars (or "bottom lines"): people, planet and profit. Natural Capitalism: Creating the Next Industrial Revolution. This process is open to research that in turn offers the prospect of facilitating the integration of social, environmental and economic reporting. Seven out of the forty corporations in the DJSI Asia-Pacific rankings do not state any sort of certification that their product/service or corporation has obtained. The main function of the TBL approach is to make corporations aware of the environmental and social values they add or destroy in the world, in addition to the economic value they add (Henriques and Richardson 2004; Elkington 1997; Berger et al. TBL ideas are ingrained in various theoretical frameworks that challenge the notion of unrestricted capitalism. But beyond those, some software tools have been developed that are specifically focused on the triple . Although, the market moves up or down sharply after a close below the upper trend line. California Management Review, 49, 132157. In short, normative institutional theory asserts that institutions will react to changes in the environment by initiating reforms and welcoming greater complexity. Have to compete with commercials 2. Strategic Communications Management, 4, 3237. There are currently three sets of indicators: core, additional and sector-specific (which could, for that sector include core and additional). 2023 Springer Nature Switzerland AG. A research limitation in this paper is that only listed corporations included in the DJSI have been chosen to represent our sample. We seek to explore the three criticisms of the TBL approach by drawing out five questions from the criticisms and conducting a review of sustainability reports to investigate and provide answers for the questions. Triple bottom line, which measures the social, environmental and financial impact of business, may have seemed like a fad a decade ago, but the growing number of sustainability reports issued by large corporations show that this fad is here to stay. There are two main claims about TBL and social performance that are central to the criticism of TBL: the measurement claim and the aggregation claim (Elkington 1997). The efforts to achieve rationality with uncertainty and constraint lead to homogeneity of structure (institutional isomorphism) (DiMaggio and Powell 1983). While the GRI Sustainability Reporting Guidelines (G3) is the leading reporting standard for the TBL approach, the analysis in this paper was centred more around the robustness of the TBL approach and the robustness around the ranking criteria of the DJSI (criteria centred around TBL) used for the analysis, to understand how TBL and the selection criteria put forth by sustainability indexes are used by corporations in order to get ranked and recognized for their efforts. In order to think beyond compliance, corporations need to think of how the definition of sustainability evolves, and also how as an organization, how the reporting evolves from TBL to a more holistic approach. Public Relations Review, 31, 578583. What are the boundaries for corporations in terms of what they choose to measure? Dartington: Schumacher Society. The reason behind a majority of these problems is the lack of systems thinking in the TBL reporting system. This differs from traditional reporting frameworks as it includes ecological (or environmental) and social measures that can be difficult to assign appropriate means of measurement. 3. The Singapore story: 19652000. The balanced scorecard (Kaplan and Norton 2004), intellectual capital assessment, environmental and social audits, the tools of social accounting and social impact analysis (Epstein and Birchard 1999; Scott and Jackson 2002; Unerman et al. It has formed the framework for many a policy, strategy and sustainability report for the past 15 years. Sustaining edges: CSR, postmodern play, and SMEs. Dimaggio, P., & Powell, W. (1983). In essence, sustainability is dependent upon healthy systems. The third limitation found in the TBL approach is the lack of integration. Corporate Communications: An International Journal, 7, 169183. Rescuing the baby from the triple bottom line bathwater: A reply to Pava. Accounting Forum, 30, 121137. While a company may quantify financial aspects such as earnings, revenues and costs, it is difficult to quantify social and environmental aspects. (2002). However, if the corporation takes a systemic view, then the stage of sustaining corporation is attainable. Corporations look at stakeholders and the business and see what issues is material to both parties and focus on them. For example, there exist national differences in law that could make human rights performance indicators less relevant to a reporting entity operating in one jurisdiction. As identified in the criticism of TBL, the integration of the three principles are absent in the literature. Enter the Triple Bottom Line. In A. Henriques & J. Richardson (Eds. However, the social cost comes only from tree planting, ignoring other social activities. 4 provides a way of thinking that can help people determine whether reports are being produced to provide mere compliance or whether they are being used to develop/evolve corporations to higher levels of sustainability. AQAL Journal of Integral Theory and Practice, 1. The survey aims to find social activities by corporations that are meaningful and have potential to be measured as part of a corporation's overall performance. Environmental and social factors are increasingly impacting the market in complex ways. The Triple Bottom Line, or TBL, is an economic concept. However, in this category, the corporation flourishes its ISO and OHSAS accreditations eight times in the report while other corporations average about four times. Companies that focus on the social bottom line of their business, the second bottom line in the triple bottom line philosophy, are often rewarded with decreased employee turnover. GRI and the camouflaging of corporate unsustainability. Question #4 investigates how many corporations comply with the DJSI selection criteria (based on the TBL approach) and whether corporations have stuck to the three dimensions or have attempted to go beyond the TBL requirements and also beyond compliance, in a manner of speaking. (2004). Triple Bottom Line Reporting. As seen in Fig. In this way, systems' thinking also helps in building more accurate mental models for understanding complex phenomena. While the first question dealt with the integration of the TBL principles, the final question here is whether the reports have a discussion at the end that summarizes the overall performance/sustainability based on the tracking of the social/economic/environmental performance from the report. Future research needs to focus on this area especially if the aim of the research is to improve the TBL approach and find a way of making the TBL output understandable to the readers. In the last 15years, various proposals have been developed to overcome the focus on the financial performance of a corporation as the main indicator of a firm's health. Construction Innovation project. (2002). Tepco is one of the few corporations that have included nonconformity disclosure criteria in its sustainability report. When a business makes a commitment to protecting the environment by recycling, for example, its impact is not easily discernible. Figure4 illustrates the Dunphy framework: Dunphy et al's work shows a pathway to a more sustaining approach. While environmental accounting measures environmental performance (excluding economic and social), TBL claims to measure all three. The evidence from the reports show a lack of integration, a focus on compliance, a hazy social measurement and its impacts, and finally, a lack of aggregation of the TBL results. Accounting, Corporations and Society, 27, 687708. Every single company measures each of the TBL indicators separately, but fails to tie them together at the end and makes no comment on intermediate causeeffect relations at levels above the bottom line. Hence, there is a paradox when corporations that are highly transparent about their legal breaches and fines lose investors turned off by their social and legal irresponsibility. Here are some of the summarized criticisms: "The TBL is vague and for all intents and purposes, already in effect" It's easy to say "People, planet, profit", but it's hard to say what we mean by those things. The DJSI has nine dimensions that it uses to rate corporations. The other important revelation is the problem of measurement and aggregation of results. Among the financial institutions that were analysed, Westpac was the only bank that dedicated a column to its suppliers and showed the sustainability performance of each of its suppliers. All corporations ranging from Asahi Breweries to Woodside Petroleum report dollar values to their economic performance and carbon dioxide equivalent emissions (CO2e) to their environmental performance. Raar, J. London: EarthScan. The Triple Bottom Line (TBL) is a conceptual tool that companies use to prioritize sustainability and social betterment. Difficult to Quantify While a company may quantify financial aspects such as earnings, revenues and costs, it is difficult to quantify social and environmental aspects. 3). New York: Harper-Collins. Towards the sustainable corporation: Win-Win-Win Business Strategies for sustainable development. Asian J Bus Ethics 2, 91111 (2013). This method is closely linked to full-cost, or . & Weber, K. (2006). This leads to the next criticism of effective integration which is absent in all forty reports. Elkington (1997) states that the three components, including the social area of the TBL approach can and need to be measured. They impact on individuals and communities differently. Business Strategy and the Environment, 18, 177191. TBL is a way of following the trend of other corporations in terms of sustainability reporting. Asahi Breweries established the cross-organizational Moderate and Responsible Drinking Committee in 2004. The accounting framework takes into account a social, ecological and financial dimension. The benefits are measured in quantities, such as tonnes, CO2e. However there is no discussion of relations between the three, and the reader gets lost at the end of each report, not knowing how to decipher the data systematically. There are three major criticisms of TBL in this paper: TBL's measurement, TBL as a non-systemic approach, and TBL as a compliance/ranking mechanism. Some sectors and industries are unique, and the environmental and social performance can only be understood if a certain level of alignment to the issues and problems present in that industry context is mapped out in the guidelines of the GRI. Corporate Environmental Studies, 9, 193207. However, they meet only six of the dimensions of the DJSI criteria. 2006). Moving beyond the three legged stool and reporting on more areas material to corporations is a move beyond compliance as the traditional TBL framework is simply not adequate. NAB does have a rigorous policy with their suppliers but fail to deliver the data on their procurement policies in their CSR report. Elkington, J. National Australia Bank (NAB) and BHP have such a procurement policy but do not report on performance of suppliers. London: Earthscan. Yew, L. (2000). Sustainability reports by corporations in the Dow Jones Sustainability Index showcase this problem explicitly. A number of sustainability indexes as well as internationally recognized standards and frameworks such as the Global Reporting Initiative (GRI) exist today. TBL has become a dominant approach today in terms of corporate reporting and being more transparent in accounting practices (Robins 2006; Savitz and Weber 2006). The need for research in this area has not been raised in other articles. Disadvantages of Triple Bottom Line. Being committed to the social bottom line entails treating employees in an ethical and fair manner, as well as engaging in equitable compensation. Boston: Little, Brown & Co. Hawken, P., Lovins, A., & Lovins, L. (1999). As a majority of corporations are value driven, the corporations' culture needs to be built around those values. the Triple Bottom Line (TBL) is a method of pushing social problems and pressures towards economics and changing corporate behaviour through institutional pressure and self-regulation. Mainstreaming Corporate Social Responsibility: DEVELOPING MARKETS FOR VIRTUE. Komatsu, Kao and NTT DoCoMo conduct environmental accounting where they factor in social and environmental costs and benefits into their economic performance. This paper presents a criticism of the TBL approach that adds to the limited information on the pervasiveness of this approach. It also encourages an emphasis on making trade-offs, which may often be necessary but which should always be the last resort, not the assumed task, in sustainability assessment. The model was developed by John Elkington, in his 1994 book SustainAbility. London: Routledge. Firstly, TBL offers no means of prioritizing among the requirements of different stakeholder groups. A 2008 survey by KPMG showed that more than 75% of 250 sustainability reports surveyed adhered to the GRI guidelines. A social bottom line can possibly be deciphered in a qualitative manner; however a calculation of this bottom line still remains a mystery. Robins, F. (2006). Unfortunately, 25 years later he was disillusioned with the manner in which business leaders had embraced the triple bottom line, and the slow pace at which the business world was evolving to become sustainable, so he issued a public recall of the triple bottom line, claiming it had become mere window dressing with business leaders using it to Adams, C. A. Michel Coulmont, Sylvie Berthelot & Vincent Gagn, Fridolin Simon Brand, Verena Berger, Claus-Heinrich Daub, Khine Kyaw, Julio Pindado & Chabela de-la-Torre, Zeeshan Mahmood, Rehana Kouser & Md. TBL claimed on assigning a number to items in the social and ethical dimensions of reporting. Due to the absence of mandatory standards, corporations handpick those metrics that they can easily measure and disclose information on these metrics while ignoring those that cannot be measured or those that could possibly show a darker side of the corporation in terms of their sustainability initiatives. However, institutions are constantly changing and improving, while TBL has been fairly conservative in its approach to change. Perrini, F., & Tencati, A. The review of the forty corporations' CSR reports is shown below in Figs. TBL ideas are ingrained in various theoretical frameworks that challenge the notion of unrestricted capitalism. Our broad research question is: are there TBL shortcomings within the sustainability reports analysed that can be correlated with the weaknesses in TBL found in the research? TBL does not provide a systemic view of thinking. While TBL guides corporations to have a framework or rigor around reporting to make sure what areas need to be reported on in terms of achievements in each area and demonstrate compliance, that's about all it does. In addition, it rates its customers and suppliers. Triple-bottom-line reporting means that a business has to report the effect of social and environmental aspects of the business, rather than just financial aspects. Hence, TBL has been a catalyst for confusion in measurement through a lack of aggregation as it had promised. From third world to first. (1997). If the reporter was informed that an indicator assumed global operation, it would be better placed to make materiality decisions with its stakeholders. Companies can . For the sake of this paper, we will only argue that TBL promised aggregation and failed to deliver. However, no such common unit of measurement exists for the social indicator of the triple bottom line reporting system, thus making the aggregation principle that much harder to execute. The Pros And Cons Of The Triple Bottom Line. However, they could have a short-term negative impact on profits. Accounting, Auditing & Accountability Journal, 15, 223250. The model in Fig. One of the first scholars to initiate the requirement of social initiatives for corporate enterprises was Bowen (1953). However, each category is given a separate performance evaluation, and there is once again no real integration or interrelation between them. The first discussion point is the importance of the dimension criteria weighting of the DJSI (Fig. The TBL approach is often accompanied by an assumption that sustainability is about balancing (Hacking and Guthrie 2008), which contradicts both the key insights concerning the interdependence of factors and the need for mutually supporting advances on all fronts (Archel et al. Secondly, it provides no method or formula in its framework that can aggregate across the TBL principles. When a business makes a commitment to protecting the environment by recycling, for example, its impact is not easily discernible. However, how does spending $100,000 in the community affect the corporation from a sustainability perspective? Japan Tobacco gets into the DJSI by focusing heavily on the economic performance, and getting certifications from recognized industry standards. The stage of strategic proactivity is where systems thinking become salient. Most shareholders are more geared to the short-term profits than to long-term results. Institutions are constraints devised by actors that govern the way they interact, and these institutions can come in the form on rules and constraints (March and Olsen 1995; North 1992). United Kingdom: EarthScan Publications Ltd. Hawley, A. Savitz, A. Systems thinking is not evident anywhere in the sample. Dunphy et al. These guidelines have inherent limitations as a one size fits all approach doesn't bode well for different corporations. Isomorphism is simply a constraining process that coerces one actor within a population to mimic the other actors, as long as they face the same set of environmental forces or conditions (Hawley 1968). Dunphy, D., Griffiths, A., & Ben, S. (2003). Several arguments are currently being made against . Firstly, it's hard to quantitatively assess the goodness or bad of a problem, and secondly, when dealing with social impacts, both quantitative and qualitative distinctions need to be made (Norman and MacDonald 2003). In attempting to combine the very different and often competing, imperatives of profitability, social justice and environmental protection, we show that the Triple Bottom Line (TBL) approach is problematic, as seen in the reports. A response to Getting to the bottom of Triple Bottom Line. 4, Compliance is the stage most corporations that are ranked in the DJSI follow. The different levels of parameters and indicators allow corporations to handpick those that are important to them leading the issue of selective reporting (Moneva et al. Secondly, and more directly towards the TBL reporting system, a lack of integration exists among the TBL principles as each principle is independent from the other in terms of its measurement. Some corporations incorporate elements of internationally recognized reporting frameworks such as the GRI and The International Corporation for Standardization (ISO). An emerging idea fitting with this tradition is the 'Triple Bottom Line', an innovative way of measuring an organisation's environmental, social and economic impact. Continuous changes in the world's economy have forced companies to go beyond their commercial purposes and pay attention to the importance of social actions. In order to expand their measurement and reporting systems, corporations constantly and consistently state the different choices they have to make: whether it's in developing a reporting process that is integral to their business alone or to use external guidelines; where is the limit in terms of how much resources are used; what techniques or methods are best in terms of measurement. They should also focus on the impact of their actions on people, such as their employees and the community they live in, and on the environment. (1968). Environmental Impact Assessment Review, 28, 7389. Organizational mortality in the newspaper industries of Argentina and Ireland: an ecological approach. Corporations should incorporate their economic, environmental and social requirements into their core values (Brown 2005; Dunphy et al. The required aggregation involving the goals to be sought, the costs of achieving them and the availability of resources to meet the costs in the future is seldom if ever provided. In order to effectively take account of environmental and social issues the TBL framework must develop along genuinely trans-disciplinary lines that integrate social and natural sciences with economics. Slider with three articles shown per slide. Hence, TBL can be seen as an institution that uses its institutional powers and pressures to change corporate behaviour. Sustainability and Stakeholder Management: Need for New Corporate Performance Evaluation and Reporting Systems. Hence, this is a limitation in terms of trying to study the findings from an Asian context as the majority of companies are based out of one particular region. While TBL may be the official benchmark for many corporations, as a measurement system, it is an ill-structured, poorly defined measure. 3BL is a state of thinking not an outcome. 29 out of the 40 companies are from Japan. The triple bottom line is, strictly speaking, a subfield of CSR, or one of its particular practical applications. If a corporation looks at each of the stages in Fig. The three major criticisms of the TBL approach are in its measurement approach, its lack of integration across the three dimensions and its function as a compliance mechanism. Communicating sustainable development initiatives. Unerman, J., Bebbington, J., & O'dwyer, B. This growing awareness is developing at a time when there is growing scrutiny by corporate and public administration bodies, as well as rising power of independent watchdogs. It has been seen that in trading where the market is in consolidation a triple bottom can be produced. TBL reporting has been institutionalized as a way of thinking for corporate sustainability. 4). Net Balance Management Group, 332, Kent Street, Sydney, NSW, 2000, Australia, Australian Catholic University, 8/20 Napier Street, NR House, North Sydney, NSW, Australia, 2060, You can also search for this author in Macdonald, C., & Norman, W. (2007). Rather than regulating corporations, the Triple Bottom Line (TBL) is a method of pushing social problems and pressures towards economics and changing corporate behaviour through institutional pressure and self-regulation. This concept came into existence due to increasing awareness of social and environmental issues. One way for corporations to tackle compliance is to adopt an approach that grows out of their business practices. 2023 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Friedman, T. (1999). Elkington, J. Centre for Research in Education and the Environment, University of Bath. London: Harper Collins. California Management Review, 36, 90100. However, future measurable results have not been factored into the reporting system.