What is Triple Bottom Line Reporting and how it impacts responsible growth of businesses.
There was a time when businesses could solely focus on monetary profits by keeping a myopic vision of their future development. They could afford to show the least amount of concern towards the social impact of their operations – gone are those days!
Several factors have compelled corporations to take into account their impact on both society and the environment. The emergence of watchdogs with global reach has created awareness about the impact of business on human development and social issues. The escalating role of the media as gatekeepers has further leveraged the transition of the corporate vision from solely monetary profit to the overall well-being of society. It is now obvious that a company which harms the environment will find it impossible to expand. Regulators, politicians and communities create lesser hurdles for socially responsible corporate citizens. According to Daniel C. Etsy and Andrew S. Winston in their book, Green to Gold, a caring attitude by businesses is now a “social licence” to growth. Business academics have introduced concepts like social development, sustainability, social audit, Corporate Social Responsibility (CSR), cause-related marketing, corporate citizenship (among others) to educate decision makers and show them a future roadmap.
According to The World Bank Report, Development and Climate Change (2006), countries such as Australia, Canada, Lebanon, the Philippines and the USA, have integrated climate change education into their curriculum with an objective of bringing about behavioural change. This will allow future stakeholders in a business to know what to expect from a company when it comes to matters of social well-being. Ralph Tench, author of Exploring Exploring Public Relations, says research has revealed that once considered a compulsion (a drain on the bottom line), concern for social well-being in any business is a two-way traffic, and it is to the benefit of both businesses and society that it exists in equally.
In order to study the relevance of Triple Bottom Line reporting (TBL) within the Corporate Communications (CC) function of a publicly quoted company, this article will look at different concepts which may or may not establish a connect between Corporate Communications and TBL reporting. The nature of TBL reporting, its impact on businesses and how the Corporate Communications function has used or abused it to achieve its goals, will be elaborated upon.
1) Triple Bottom Line Reporting
The augmented importance of sustainability and corporate citizenship concepts in business have called for the measurement of their impact. Only when the positive impact is known, can the business and the stakeholders be encouraged to adopt and monitor the concepts in their totality. According to an article on TBL published in The Economist, the term ‘Triple Bottom Line’ was introduced by John Elkington. As the founder of a British consultancy called SustainAbility, he took into account the relevance of intangible factors that have a colossal impact on society and attempted to quantify them. He argued that companies, in order to paint the true picture of their performance and results, should come up with three bottom lines. The first one is the traditional measure of corporate monetary earning – popularly known as the ‘bottom line’ of the profit and loss (P&L) account. The second bottom line should outline an organisation’s ‘people account’ – a measure to depict the extent of the social responsibility of an organisation. The third bottom line depicts the company’s ‘planet account’– a measure of how environmentally responsible an organisation is. The triple bottom line (TBL) should therefore be made of three Ps: profit, people and planet, with the aim of measuring the financial, social and environmental performances of a corporation over a given period of time.
2) As sound as a dollar, or bet on the wrong horse?
The biggest concern in the corporate world today is the escalating costs of running a business. It is widely believed that any investments in CSR, philanthropy and cause-related marketing programmes always add to the cost, thus proving to be a drain on the bottom line. However, one needs to understand the strategic nature of these programmes when taking ROI into account. Tench quotes James Burkes, CEO, Johnson & Johnson, to throw light on the return on investment aspect of TBL and says that companies that hold a reputation for ethics and social responsibility, grew at a rate of 11.3% annually from 1959 to 1990, while the growth rate for similar companies without the same ethical approach was 6.2%.
3) TBL – The strategic game plan
At any particular point, long and short-term profit maximisation need to be kept in perspective. In the short-term, profits can be maximised by cheating customers, exploiting workers, evading taxes and damaging the environment. However, this will result in customer loss, exit of key employees, confrontation with the government and loss of reputation on account of environmental damage. Hence, there is a trade-off between earning short-term profits and maintaining long-term reputation. The previously mentioned explanation of TBL reporting indicates that the corporate world needs to move from shareholder to stakeholder concerns.
#### 4) Touching base with Corporate Communications
The definition of Corporate Communications by different sources reveals that this concept is not limited to shareholders. It takes into account communication with stakeholders along with company values and with corporate citizenship at the heart of the communications. Emma Wood, senior lecturer at Queen Margaret University, Edinburgh, defines Corporate Communications as a function meant to convey meaningful values to encourage the organisation to behave in a way that complements building social capital and establishing legitimacy. Corporate Communications offers a framework for effective coordination of all internal and external communication with the purpose of establishing and maintaining a favourable reputation with stakeholder groups upon which the organisation is dependent.
#### 5) CC and TBL – Get on like a house on fire
If we examine the two definitions mentioned previously, words like values, social capital, legitimacy, favourable reputation and stakeholders seem to form a consolidated definition of Corporate Communications. Interestingly, one can find common elements between Corporate Communications and TBL; TBL quantifies the efforts of an organisation in the areas of ‘People and Planet’ and Corporate Communications complements this effort by making stakeholders aware of these efforts with the objective of creating a good reputation.
Kolja Paetzold in his book, CSR: An International Marketing Approach, on Corporate Communications establishes a relationship between the two functions by saying that when organisations make concerted efforts to increase public awareness of their CSR programme, they are more likely to develop a relationship with their customers. He mentions a survey of 20 developed countries conducted by the Business and Sustainability Development Commission in which it was revealed that 49% of any company’s image or reputation is constituted by CSR related activities and communication. Another study conducted by them showed that stakeholders have a tendency to penalise organisations by not purchasing their products and services if they do not fulfil their social responsibility obligations.
A PR corporate survey in the US revealed that over half of the heads of Corporate Communications departments tend to oversee communication functions that include media relations, crisis management, employee communications, reputation management, community relations and products/brand communications. The same survey reveals that among the functions included under Corporate Communications, community relations is at 62% with reputation management at 68%.
In the short-term, profits can be maximised by cheating customers, exploiting workers, evading taxes and damaging the environment. However, this will result in customer loss, exit of key employees, confrontation with the government and loss of reputation on account of environmental damage.
6) Corporate Communications for a publicly quoted company
It is a well-known fact that publicly quoted companies are required to inform the general public about developments in a company which may have an impact on share prices. Although little information about the environmental impact of corporate activities pertaining to securities’ reporting is currently required, this could be an integral requirement in the near future. Rosella Gambetti and Mattia Giovanardi maintain that due to the involvement in many functions (investor relations, government relations, executive communication, brand strategy, research, community relations and marketing communications) Corporate Communications regularly collects quantitative data through internal communication and converts it into qualitative information. This information suits the needs of regulators, the communities where they operate as well as watchdogs and shareholders.
On the other hand, global media organisations such as the Fortune, The New York Times, Business Week and The Wall Street Journal have increased their coverage of environmental issues that emerge from business operations. Consider the scenario: an increasing number of reporters, bloggers and watchdogs are sniffing out stories from organisations of fair repute, but which are not up to the mark in meeting standard environmental expectations. Hence, CC and TBL have to make an integrated effort to highlight the work and its measurement.
Criticism of the Triple Bottom Line Reporting
1) Milton Friedman: On the same page?
Critics of corporate citizenship often turn to Milton Friedman to reinforce that it is not the responsibility of a business to worry about its social impact. According to Friedman, a business’s only social responsibility is to make profits, for which it can pursue any avenue, as long as the rules of the game are followed. However, there is a big question mark on these ‘rules of the game’ since slavery, child labour, sexual, racial and gender discrimination, were at a time also part of the game. A closer look at Friedman’s doctrine reveals that he is referring to the establishment of a law framework which is primarily the responsibility of the political and legal processes that exist in a particular society. In a way, he seems aware of the fact that businesses will not be able to fulfil their CSR duties or will dodge them due to a likely conflict with their objective of making profits. It is, therefore, the responsibility of a political process and legal framework to ensure the well-being of society. Friedman seems to be misunderstood widely, as instead of denying the concept of social well-being, he was trying to be clear about assigning roles and responsibilities in this area.
2) Is it beyond measure?
The basic criticism on TBL reporting is the quantification of social and environmental objectives. While there are a number of quantitative indicators, there are far more unquantifiable factors present to make the equation complicated; this complication may also result in manipulation.
3) Changing lenses: greenwashing
The discussion on establishing relevance between TBL reporting and Corporate Communications takes a dramatic turn when we start exploring the concept of ‘greenwashing’. The argument to support TBL falls on its face when we refer to factual examples where companies of global repute have used TBL to enhance or safeguard their image and reputation. Paetzold defines greenwashing as “to try to convince people that you are doing something which is good for the environment by being involved in small environment-friendly initiatives, especially as a way of hiding your involvement in activities which are damaging to the environment.”
Guy Pearse in his book Greenwash states that to explore the corporate spin behind “going green” by umpteen corporations, he watched over 3,000 TVCs, approximately 4,000 online, billboard, newspaper and magazine ads, and read about 750 company annual and sustainability reports. From banks to coffee manufacturers, he investigated their carbon footprint. According to him, banks such as the Bank of America, Barclays, European Bank for Reconstruction & Development, HSBC, National Australia Bank, Royal Bank of Canada and the Export-Import Bank of the United States make tall assertions regarding carbon cuts, claiming using green energy in their commercial banking branches as well as green cards, etc. The fact is that these players are involved in financing coal power projects which add millions of tons of carbon to the environment. Even the World Bank, despite its claims of stressing global solutions for climate change, is financing coal-fired power projects from India to South Africa to Chile. These financial institutions have published the list of green power production projects they have financed in their sustainability reports; however, the list of fossil fuel projects and their contribution to carbon rise in the environment are never published.
Pearse also quotes the example of the Netherland’s Tudor Bank to show that to become and remain profitable, a bank does not have to invest in the fossil fuel business. This bank uses 100% renewable energy for its operations, and as a matter of policy they do not finance any fossil fuel projects. The example signifies that it is not impossible to be 100% committed to the environment provided there is a genuine desire to do good for society.
4) Every cloud has a silver lining
The optimistic perspective on greenwashing suggests that things are likely to improve with the passage of time. Climate activists are pushing these banks hard to curtail their financing of coal projects. As a result, many banks have done so and the trend is likely to continue. Furthermore, financial rating agencies have decreased and discouraged several utilities in the US for their forthcoming coal-fired projects. Hence there is ray of light at the end of the tunnel and things are likely to improve.
This article has given an overview of the theoretical concepts of TBL and Corporate Communications. Supporters of TBL reporting believe that accountability for social performance in a company’s books is not simply signified by the escalating costs, but also by the substantial growth in profits; a growth that is an evident and direct result of the improved reputation of a company which is attributable to the smart function of Corporate Communications.
However, there are shortcomings of the TBL concept. Greenwashing comes out as a major criticism as the companies which may be considered to be the biggest threats to the environment are using this concept to make themselves appear socially responsible. They have used different Corporate Communications functions to their advantage in an attempt to camouflage the real story. However, such shortcomings can be overcome by relevant legislation and active persuasion by governments, watchdogs, media and the general public.
Disclaimer: This article was first published on the writer’s LinkedIn profile.
Aamir Abbasi is a PR and Corporate Communications professional. He is currently working for Tappy Twins UK as Manager/Consultant PR. firstname.lastname@example.org