2.1 Triple Bottom Line and other sustainability models

Sustainability models like the Triple Bottom Line (TBL) help businesses think beyond just profits. TBL considers economic, social, and environmental impacts together. It's a simple but powerful way to measure a company's overall sustainability performance.

Other models like The Natural Step and Five Capitals offer different approaches. They each have strengths and weaknesses in how they define and measure sustainability. The key is using these frameworks to drive real improvements, not just for reporting.

Triple Bottom Line

Definition and Pillars

• The Triple Bottom Line (TBL) is a sustainability framework that expands the traditional financial bottom line to also consider social and environmental performance
• The economic pillar of TBL focuses on the financial health and viability of the company, encompassing profits, ROI, economic value creation, and financial resilience
• The social pillar addresses the company's impact on people, including employees, customers, suppliers, and local communities. It covers labor practices, human rights, diversity and inclusion, product responsibility, and community relations
• The environmental pillar considers the company's impact on the planet, including resource consumption, emissions, waste, and biodiversity. It involves measuring and managing the company's ecological footprint (carbon emissions, water usage, deforestation)

Interconnectedness and Implementation

• TBL emphasizes that the economic, social, and environmental pillars are interconnected and interdependent. True sustainability requires balancing and optimizing performance across all three dimensions simultaneously
  • For example, investing in renewable energy (environmental) can create jobs (social) and reduce long-term energy costs (economic)
• Implementing TBL often requires adopting new metrics, accounting methods, and reporting frameworks to measure social and environmental impacts alongside financial results
  • This may involve tools like environmental profit and loss statements, social return on investment calculations, and integrated reporting that combines financial and sustainability disclosures

Triple Bottom Line vs Other Models

The Natural Step

• The Natural Step (TNS) framework defines four system conditions for sustainability based on science. In contrast, TBL provides a broad, flexible framework not tied to specific scientific principles
• TNS focuses more on the environmental pillar, defining sustainability as not systematically increasing concentrations of substances from the Earth's crust (fossil fuels, heavy metals), not systematically increasing concentrations of substances produced by society (CFCs, PCBs), not systematically degrading the biosphere (overfishing, deforestation), and not undermining people's capacity to meet their needs. TBL gives equal emphasis to environmental, social and economic dimensions

The Five Capitals Model

• The Five Capitals Model defines five types of capital that organizations impact and depend upon: natural, human, social, manufactured, and financial capital. This expands on TBL by making finer distinctions in the types of resources organizations interact with
  • Natural capital includes renewable and non-renewable resources (timber, minerals, ecosystems)
  • Human capital includes people's health, knowledge, skills, and motivation
  • Social capital includes institutions, relationships, trust and norms
  • Manufactured capital includes infrastructure, buildings, and equipment
  • Financial capital includes cash, investments, and monetary instruments
• The Five Capitals Model, like TNS, is more prescriptive than TBL in defining what sustainable capital management entails, such as living off the income generated by capital rather than depleting capital stocks. TBL leaves more flexibility for organizations to define sustainable practices within its broad pillars

Shared Aims and Differences

• All three models share a common aim of expanding business considerations beyond just financial performance to include sustainability factors. They push companies to internalize externalities and operate within social and ecological boundaries
• The models differ in the specific environmental and social issues emphasized (TNS's science-based system conditions, Five Capitals' capital stocks) and level of prescription vs. flexibility provided (TBL's adaptable pillars vs. TNS and Five Capitals' rules)

Strengths and Limitations of Sustainability Models

Triple Bottom Line

• A key strength of TBL is its simplicity and flexibility. The three pillars provide an intuitive, easy to communicate framework that organizations can adapt to their unique context and priorities. This has contributed to its widespread adoption
• However, critics argue TBL's flexibility is also a weakness, as it allows organizations to cherry-pick issues to focus on without a clear standard for what constitutes sustainable performance. The lack of prescription can enable greenwashing (misleading sustainability claims)

The Natural Step

• The Natural Step provides clearer guidance by grounding sustainability in scientific principles. This can help organizations set more rigorous, context-based sustainability goals and avoid burden-shifting between different environmental issues
  • For example, ensuring emissions reductions in one area don't cause increases elsewhere
• However, TNS's emphasis on the environmental dimension may neglect social sustainability issues (inequality, human rights). The scientific principles can also be challenging for business leaders without a scientific background to understand and apply

The Five Capitals Model

• The Five Capitals Model excels in providing a comprehensive view of the different resources that organizations impact. Delineating five capitals offers a more nuanced and actionable framework than TBL's broad pillars
  • For instance, it separates renewable natural capital from non-renewable
• However, quantifying performance on some of the capitals, like social and human capital, remains difficult. Critics argue the model still centers financial capital and may not go far enough in redefining the purpose of business

Implementation is Key

• Ultimately, the effectiveness of any model depends on how rigorously and holistically it is applied. All models still rely on the quality of their implementation to drive meaningful sustainability improvements
  • Strong governance, target-setting, measurement, innovation and change management are critical regardless of framework
• Integrating sustainability models deeply into strategy, operations, and decision-making, not just reporting, is essential to create long-term shared value

Sustainability Models in Case Studies

Measuring TBL Performance

• Conducting a TBL assessment involves measuring a company's performance on key indicators within each of the three pillars
  • For example, a TBL assessment of a consumer packaged goods company might evaluate operating profits and market share (economic), employee diversity and customer satisfaction (social), and greenhouse gas emissions and packaging waste (environmental)
• Comparative benchmarking of sustainability performance requires compiling data on key indicators over time and across industry peers
  • Sustainability rankings, like the Dow Jones Sustainability Index, aggregate such data to score companies' relative sustainability performance

Monetizing Sustainability Impacts

• Monetization methods attempt to quantify the financial value of companies' social and environmental impacts
  • Social return on investment (SROI) estimates the monetary value of positive and negative externalities, such as job creation or pollution
  • Integrated profit and loss statements (IP&L) apply internal carbon prices and other monetization factors to integrate environmental and social line items
• For example, PUMA's EP&L estimated the company's entire supply chain created €145 million in environmental externalities, mostly from GHG emissions, water use, and waste

Contextualizing Sustainability Performance

• Contextualizing sustainability performance requires evaluating a company's impacts in relation to science-based thresholds and stakeholder expectations
  • For example, carbon emissions can be assessed against the carbon budget for meeting Paris Agreement goals to limit warming to 1.5-2°C
• Context-based metrics evaluate performance relative to social and ecological carrying capacities
  • For example, water use can be compared to the sustainable supply in local watersheds

Multicapital Scorecards

• Multicapital scorecards, based on the five capitals model, assess companies' net impact on each form of capital
  • This involves quantifying the stocks and flows of each capital type in relation to sustainable levels required to maintain the resource base and productive capacity of the capital
• For example, Novo Nordisk's pioneering environmental profit and loss account assesses impacts on natural capital
  • In 2014, it calculated a net positive EP&L of DKK 11.4 billion, reflecting investments in renewables and eco-efficiency that offset negative externalities

Assurance

• Assurance by independent third parties can verify the accuracy and completeness of sustainability performance data
  • External assurance lends credibility to sustainability reports and performance claims
• For example, Unilever's Sustainable Living Plan undergoes external assurance by PwC to validate the methodology and reliability of sustainability metrics