The beginning of the 21st century has been thus far marked by a rapid and wide spread of the social justice and environmental sustainability movements. While previously, issues related to human rights and preservation of the environment were considered to lie in the domain of local and national governments, now the focus shifted, to a significant extent, toward businesses and corporations. Many individuals have adopted a more conscious approach to consumption, and ethical considerations now play a more important role in decision-making, both at individual and community levels.
Consequently, companies around the world responded to these social changes by incorporating corporate social responsibility (CSR) into their business strategy. While it is, undoubtedly, an important step, the practice shows that it is time to move from a broad and vaguely defined concept that CSR is, to its specific application that sets clear regulations and performance measurements. The triple bottom line approach provides exactly that – a framework of business reporting that produces measurable, understandable, and transparent information that allows businesses to be truly socially responsible. Multinational corporations, given their access to wealth, natural resources, and human capital, have a special obligation to adhere to the triple bottom line method.
Corporate social responsibility is a broad concept that denotes an organization’s “context-specific actions and policies” that are based on the stakeholders’ interests and economic, social, and environmental considerations (Aguinis & Glavas, 2012, p. 933). As the definition suggests, particular applications and manifestations of a company’s commitment to CSR vary: they range from donations to a specific cause to inclusive hiring practices and employees’ involvement in community service, to name a few. CSR is a rather new concept, although it does not mean that these concerns have only become important to organizations recently.
However, it is becoming increasingly significant, if not essential, part of a company’s business activities. The triple bottom line is, strictly speaking, a subfield of CSR, or one of its particular practical applications. Essentially, it is an accounting framework consisting of three elements as opposed to just one in conventional accounting. These three elements are financial, environmental, and social. This method is closely linked to full-cost, or true-cost, accounting that aims to include social and ecological costs and benefits through monitoring and allocation of direct and indirect costs (Savitz & Weber, 2012).
As mentioned previously, CSR has been largely inspired by the advocacy of social justice and sustainability activists. One of the main ideas lying at the core of these movements is the concept of distributive justice that refers to the practice of outcome allocation among society members (Lovett, 2009).
The concept has particular relevance when it comes to the protection of the environment: while the exploitation of natural resources typically benefits a few selected individuals and companies, it can have long-term damaging consequences for entire communities and even countries, if not the whole planet. Generally, the views on distributive justice can vary greatly based on one’s political affiliation and ideology. Thus, the American society favors a “self-made man” approach to redistribution, whereby individuals are not expected to rely on government benefits, and members of the society are not expected to make significant tax contributions to support social welfare policies. European countries, on the other hand, have adopted a more favorable view of welfare and distributive justice policies (Lovett, 2009).
Regardless of one’s political opinions, it is difficult to disregard the data on global wealth distribution. According to the annual report published by a poverty eradication NGO Oxfam, the majority of world wealth is concentrated in the hands of a small affluent elite. In 2014, a mere 1 percent of the Earth population controlled 48 percent of global resources, leaving 52 percent to the remaining 99 percent of the population (Hardoon, 2015, p. 2).
Even more striking is the fact that the wealth of the richest 80 people surpassed the wealth of the bottom 50 percent of the global population in 2014 (Hardoon, 2015, p. 3). Inequality implies, however, not only material and financial differences but other structural deficiencies such as unequal access to education and racial and gender inequality. This knowledge gives considerable support to the social justice activists’ calls for redistribution and accountability in the field of business. Multinational companies, as large wealth-accumulating entities, have a special obligation in addressing the global wealth distribution inequality.
Yet it cannot be said that, for a corporation to be socially responsible, it is enough for it to adhere to the practice of corporate social responsibility. Rather, the triple bottom line approach is necessary to achieve the desired outcomes. The reasons behind such a claim lie in the differences between CSR and the triple bottom line. As mentioned previously, CSR is a rather unstructured and self-regulated field. It is an umbrella term that covers a variety of different practices and policies but does not provide a comprehensive framework to assess the organization’s social, economic, and environmental impact.
Surely, it is beneficial if a large company makes donations to a charity fund, but if it engages in environmentally unsound practices at the same time, this company should not be considered socially responsible. In fact, the public opinion toward CSR reflects this observation. The recent proliferation of CSR actually undermines its credibility and validity, as some individuals believe it to be yet another “bandwagon” and “window-dressing” marketing trend (Aguinis & Glavas, 2012).
This public perception has been formed due to the fact that CSR remains a self-regulated domain, with little to no external auditing. Such events as the recent Volkswagen scandal – a company that was championed as one of the most environmentally responsible businesses – have only contributed to the public mistrust of CSR’s implementation by companies. The triple bottom line approach, on the other hand, is guided by the principles of measurability and accountability and places equal emphasis on different aspects of social responsibility. It thus allows multinational companies to be consistently socially responsible across different countries.
The main advantage of the triple bottom line is that it provides an orderly, systematic, and continuous framework for decision-making and performance assessment. Just like it would not be acceptable to claim that a company is financially stable because it once reported a profit and does so every now and then, a corporation should not be considered socially responsible if it engages in occasional, even if frequent, socially beneficial activities. The reporting standardization and consistency allow the consumers to be certain that the goods manufactured by this company are, indeed, produced ethically, even if the process took place in another country.
Along, the company’s CSR activities in the consumer’s home country, on the other hand, cannot give the same guarantee. The triple bottom line approach also encourages ethical decision-making in companies by helping them consider the environmental and social costs of their actions. Because current decision-making is primarily guided by financial considerations, companies may choose to dismiss other costs if the project already appeared economically attractive to them (Savitz & Weber, 2012). Given the global outreach of multinational corporations, it is of utmost importance that their decisions are guided by more than just profit generation.
It is, perhaps, for this reason, that companies that adhere to the triple bottom line have been found to enjoy some considerable business benefits that were attributed to their commitment to this CSR approach. For instance, Bob Willard (2012) has analyzed several business cases to discover how the triple bottom line helps companies improve their efficiency, productivity, and, consequently, performance. His research indicates that the benefits of adopting the triple bottom line approach affect several key elements of a company’s activities: revenues and market share, expenses, employees, and risks (Willard, 2012).
For instance, adopting the triple bottom line mentality can help a company identify a niche in the market: thus, a travel company can look for ecotourism opportunities in new countries and gain a new target segment to attract (Willard, 2012, p, 42). The savings that a company can make on its expenses come from several different costs: energy, IT, transportation, waste, water, and even hiring and attrition. According to Willard (2012), a sustainable organization becomes a magnet for the field’s top talent (p. 122).
Increased employee productivity comes from such sources as the time saved on travel as companies encourage telecommuting or the improved working conditions from green buildings (Willard, 2012, pp. 108-110). These and other factors help companies mitigate and reduce the associated business risks. Thus, the triple bottom approach prevails over corporate social responsibility as it yields significant benefits for the company as a result of a new mentality.
The main issue with implementing the triple bottom line is that it is difficult – and some would even claim, impossible – to quantify the social and environmental dimensions suggested by this approach. How can one assess the opportunity cost of a child engaged in labor versus the same child receiving an education? How can the long-term harm caused by an oil spill be accurately assessed and measured? While it is, indeed, a valid point, it is, nevertheless, based on a somewhat idealistic and perfectionist worldview. Many abstract concepts such as freedom of press or level of corruption have been successfully operationalized so that countries can be scored on these indicators.
In some cases, one just has to rely on the best estimates and proxies, and not on flawless information. Thus, while it is, certainly, a challenge, it is not an impossible one. Moreover, the researchers in the field have already developed a set of guidelines and standards for companies to implement – for instance, the Global Reporting Initiative (Savitz & Weber, 2012, p. 211). Besides, companies can still supplement their triple bottom line reporting with qualitative insights, just like they do with financial reports.
Despite the challenges that triple bottom line accounting presents, for a multinational corporation to meet its ethical obligations, it must adhere to the triple bottom line approach as CSR alone does not bring about the desired outcomes. The triple bottom line provides measurable and actionable performance indicators that are comparable across different industries and countries. Given the state of global wealth distribution, multinational corporations have a special obligation when it comes to social responsibility, which, in turn, benefits their performance, as well. The triple bottom line helps ensure transparency and accountability for corporations with global outreach.
References
Aguinis, H., & Glavas, A. (2012). What we know and don’t know about corporate social responsibility: A review and research agenda. Journal of Management, 38(4), 932-968. Web.
Hardoon, D. (2015). Wealth: Having it all and wanting more.
Lovett, F. (2009). Domination and distributive justice. The Journal of Politics, 71(3), 817-830. Web.
Savitz, A., & Weber, K. (2012). The triple bottom line: How today’s best-run companies are achieving economic, social and environmental success – and how you can too. New York, NY: John Wiley & Sons. Web.
Willard, B. (2012). The new sustainability advantage: seven business case benefits of a triple bottom line (10th ed.). Gabriola Island, Canada: New Society Publishers. Web.