Let’s take a closer look at how sustainability is measured within an organization. The phrase the “triple-bottom-line” was created in 1994 by John Elkington, who launched the British consultancy, SustainAbility. The triple-bottom-line is an accounting framework designed to measure organizational sustainability that is made up of three pillars described below:
Refers to the economic value created by an organization after deducting the cost of all inputs, including capital that is tied up.
Note: It differs from traditional accounting definitions of profit, which simply refer to the balance of revenues generated and expenses incurred. As part of the triple-bottom-line, profit represents the real economic impact generated not only organizationally but within society as a whole.
Pertains to the benefit and cost of organizational practices on employees as well the broader community of stakeholders who are in any way impacted.
Refers to the impact an organization’s operation has on our resource-constrained and fragile natural environment.
Approaches to measuring sustainability like the triple-bottom-line can be contentious, especially when criticized from an academic perspective. The choice to address sustainability measurement with the triple-bottom-line theory within this guidebook was made simply because it covers the three areas we believe are most important. The guidebook will not debate the intense theory behind the approach; the phrase was employed mainly because it is straight forward and generally understood by most sustainability professionals.
To watch a video that offers more about the triple-bottom-line click here
Organizations and ‘The Bottom Line’
Most organizations are mandated to ensure they perform well financially, whether profitable in the case of a business or breaking even and stable in the case of non-profits and public organizations. Said another way, organizations are structured to preserve economic sustainability, at least as it applies internally; it is essential. For that reason, economic measurement capacity is ubiquitous, unlike social and environmental sustainability measurement capacity, which is comparably very new.
Of course, organizations DO believe improved social and environmental performance can enhance performance, at least minimally. If that wasn’t the case, investing in energy efficiency or efforts to increase employee satisfaction wouldn’t happen. There is no question that core organizational functions like human resources, IT, and marketing are all contributors to success, even though it’s difficult to accurately quantify the financial benefits that come from investment into each. Just as the Marketing Director must soundly substantiate the benefits generated with some discipline, so too must sustainability advocates. To strengthen the case for sustainability, it is important to build measurement capacity so that ALL potential benefit can be estimated and tracked, making it possible for a significant impact on performance to be made.1
The concept of Integrated Reporting is worth mentioning as we discuss looking beyond financial performance alone. Integrated reporting involves expanding measurement and reporting practices beyond the bottom line to increase an organization’s ability to generate value over a longer period of time than a quarter or year. The International Integrated Reporting Council promotes the measurement of different types of capital and encourages gaining understanding of the interdependencies between them.
To learn more about Integrated Reporting and how your organization might expand what it measures click here
To learn more about the International Integrated Reporting Council click here
Sources of Impact
It is worth recognizing that organizations use many different terms to describe the costs and benefits they measure. The following highlights a few examples of such terms:
Indicators: an indicator is something that points to an issue or condition. Its purpose is to show you how well a system is working.
Performance Metrics: a performance metric is a measure of an organization’s activities and performance.
Outcomes: determination and evaluation of the results of an activity, plan, process, or program and their comparison with the intended or projected results.
In the interest of simplicity and avoiding confusion, we will use the terms impact and source of impact in place of any of those or other possible terms, to describe the various costs or benefits organizations measure.
To demonstrate how improving sustainability can actually strengthen financial performance, measurement capacity is needed in two ways:
To Measure Overall Sustainability: from a more strategic perspective, having a broad understanding of an organization’s economic, social and environmental sustainability will support identifying the greatest areas of weakness and opportunity. With a sound, overall understanding, it becomes easier to focus on the pillars of sustainability and specific sources of impact that deserve the most attention.
- To Measure Individual Sources of Impact: accurately measuring a wide range of sources of impact will support the identification and assessment of potential sustainability projects. Once projects are adopted, this capacity will also help to credibly demonstrate the impact generated.
In this section we will examine each pillar of the triple-bottom-line more closely beginning with what’s involved in measuring overall sustainability performance and followed by looking at the many sources of impact that contribute.
1. For more on the study of triple bottom line performance improvements contributing to the financial bottom line see the Andrew W. Savitz and Karl Weber, 2006 book The Triple Bottom Line: How Today’s Best Companies Are Achieving Economic, Social and Environmental Success and How You Can Too. Available in Print.