Impact investing and social finance are concepts that are changing, at a fundamental level, how private companies and nonprofit groups manage their finances. These decisions have great ramifications in both board rooms and communities, but unfortunately a lot of the terminology that has become part of the everyday language of social financiers remains impenetrable jargon to those outside of that sphere. Today we’d like to take a look at one of these key terms: the Triple Bottom Line.
Bottom / Bottomer / Bottomest?
John Elkington, one of the founding fathers of the modern understanding of “sustainable development,” coined the phrase “Triple Bottom Line” in 1994. The concept here is that, while virtually all companies understand their bottom line as the balance of their profits and losses each quarter, this is at best an incomplete perspective of their relative success or failure. This model of thinking abstracts money from its context in a world of human and environmental responsibility, and in the long term may create substantially higher costs than pure profit can justify. As a step toward a remedy, Elkington proposed that companies should prepare not one bottom line, but three:
- The People Account: How much social impact have we had this quarter? How have our actions improved or debased the lives of our fellow women and men? (Incl. labour, fair trade, impact on communities affected by business)
- The Planet Account: How much better or worse have we left the Earth than we found it this quarter? How have we bettered or reduced our reliance on the planet’s resources?
- The Profit Account: How much money did we make or lose this quarter? How can we be less wasteful and optimize our resources, both human and technical? And, just as importantly, how have we contributed to the overall economic health of our society?
It’s important to note, though, that Elkington’s Triple Bottom Line is not a hierarchy; it is a superimposition wherein the three separate considerations merge into one. In a true full cost accounting, the three considerations are inseparable.
The Triple Bottom Line is in a sense a forerunner of concepts such as the ecological footprint and eco-labels, and it has influenced policy from the likes of the United Nations and the International Standards Organization (ISO). It has been endorsed by Forbes and The Economist. More importantly, as far as the Community Forward Fund is concerned, it is the foundation of the connections we forge between investors and nonprofit groups.
And that’s the Triple Bottom Line! If you’d like to know more about, and our work in social finance, get in touch with us via the social media links below, or find out our contact info!