Tomorrow's Bottom Line

John Elkington

Executive Chairman of Volans

John Elkington is currently writing his 19th book with Jochen Zeitz, former CEO of PUMA, with a foreword by Sir Richard Branson

Somewhere I read that Paul McCartney couldn’t believe he hadn’t already heard the melody of Yesterday when it first popped into his brain. In the same way, I couldn’t believe that I hadn’t heard the term ‘triple bottom line’ (TBL) when it surfaced in my mind 20 years ago, in 1994.

So I admit to feeling a fleeting moment of paternal pride in 2012 when, in the run-up to yet another largely abortive summit, UN Secretary-General Ban Ki-moon characterised the sustainability challenge as delivering against ‘what economists call a ‘triple bottom line’ job-rich economic growth coupled with environmental protection and social inclusion.’

I didn’t coin the term ‘sustainability’, though when I co-founded the firm SustainAbility in 1987 we initially thought we had made a ghastly mistake. We spent the next few years spelling the word for people who had never come across it. But in 1994, after several years of trying to explain the business implications of the new agenda, I did coin the term ‘triple bottom line’ and helped popularise the core concept the following year with the linked phrase, ‘People, Planet & Profit’.

“When I co-founded the firm SustainAbility in 1987 we initially thought we had made a ghastly mistake. We spent the next few years spelling the word for people who had never come across it”

The basic idea was that we create – or destroy – value in multiple dimensions. My aim was simple: to underscore the importance of taking into account our broader economic, social and environmental impacts, for good or ill. That said, I should confess that, although I have co-founded three companies since 1978, all of which are still operating, I remain largely numbers-blind when it comes to balance sheets.

But, through it all, I have had a bee in my bonnet about how we better account for the social and environmental externalities created by business and markets. In my 1987 book The Green Capitalists, I wrote that one problem is that ‘industrialists and environmentalists are generally working to different clocks. This is more than a matter of simply operating in different time zones. It is more like two cultures colliding, producing inevitable culture shock.’

A few years on, pulling in the social dimension, we would have spoken in terms of three cultures colliding. These days business people increasingly accept that there are multiple forms of capital, including the financial, physical, intellectual, human, social and natural forms.

We also now talk of ideas going virtual. 20 years ago, I described the spread of the TBL meme as akin to the proliferation of rabbits across Australia. As luck would have it, Australia and New Zealand were among the key early champions of the new thinking, as was the Netherlands – where they still talk of the ‘3Ps.’ One reason for this last breakthrough was that one of the first corporate sustainability reporters, the Anglo-Dutch oil giant Shell, decided to call its first (1997) sustainability report People, Planet & Profit.

Meanwhile, the rollout continues. Visiting Mumbai late in 2013, I was struck by how widely the TBL language is now shot through the debate about how best to respond to the country’s new law, which encourages major companies to spend two percent of their profits on corporate social responsibility (CSR) initiatives.

In retrospect, the triple bottom line has been surfing a larger wave. As our world has become increasingly business-oriented, a process accelerated by the fall of the Communist bloc, bottom line language has also popped up in many different walks of life.

In business language, the term refers to the final line of an organisation’s financial statement – showing the net profit or loss (for the year, or whatever the accounting period may be), with profit and loss often shortened to P&L. So, by extension, we have seen the evolution of terms like ‘Double Bottom Line’ (generally referring to a combination of the financial and social P&L), ‘Social Return On Investment’ (SROI), ‘Blended Value’ (introduced by Jed Emerson), ‘Shared Value’ (championed by Michael Porter and Mark Kramer) and ‘Environmental Profit & Loss’ (EP&L).

At the same time, popular usage of bottom line language links back to an older debate, about where to ‘draw the line.’ In Eastern philosophy this links to the concept of karma, sketching out great cycles of cause and effect. To take just one topical case, China’s one- child policy helped bring its burgeoning population under control. But at the same time it led to an estimated 336 million abortions over 40 years, many coupled with grotesque human rights violations. And it has also resulted in a population that is rapidly ageing, with mind-numbing socio-economic and political implications.

This level of causality may seem remote to most accountants toiling over the latest round of corporate results, but increasingly accounting must embrace corporate contributions to system-wide social and environmental effects. The more complex our world becomes, the more lines there are to be drawn, for example between profit and loss, between this quarter’s results and the next, between the interests of shareholders and stakeholders, or between the interests of present and future generations. And lines drawn at one point in time, together with choices made, can look very different in the light of future realities.

The TBL approach has been further elaborated not only in many thousands of corporate TBL reports aligned with the Global Reporting Initiative (GRI) and in the work of financial analysis platforms like the Dow Jones Sustainability Indexes (DJSI) but also in a growing library of books. As the need grows to drive all of this into the business mainstream, we also see an emerging push to integrate accounting and reporting across the various bottom lines, a process spearheaded by the International Integrated Reporting Council (IIRC).

Meanwhile, some companies continue to dig deeper. A recent pioneer has been the German sportswear brand PUMA, which launched its first round of EP&L results in 2011. These priced the negative environmental impacts generated through the company’s operations and supply chain in 2010, across key impact areas including greenhouse gas emissions, water use, land use, air pollution and waste, at €145 million — equal to around half of PUMA’s profits that year.

This first round of evaluation revealed that PUMA’s wider supply chain was responsible for 94 per cent (or €137 million) of the company’s total environmental impact. Strikingly, over half (57 per cent or €83 million) of all environmental impacts were associated with the production of raw materials (including leather, cotton and rubber) deep down in the company’s supply chain.

Stretching the initiative still further, PUMA’s parent company – Kering, which owns around 20 fashion houses including Gucci and Stella McCartney – says that this groundbreaking process will be implemented across all of its key luxury and sports brands by 2016.

So there’s plenty of life left in the original TBL concept, though here’s a second confession: working with former PUMA CEO Jochen Zeitz, I am now finishing off a new book on what we call ‘Tomorrow’s Bottom Line’. Another TBL, true, which may unsettle a few branding experts. But also an inevitable next step in evolving new forms of corporate strategy, management, accounting, reporting, assurance and communication that the 21st Century will demand.