Organizations have traditionally considered followed a target market’s laws to be sufficient due diligence. However, as many companies now produce their products or source their services in one country, and then sell them to customers in another, they are increasingly under public scrutiny and face social risks to their reputation.

Social risk arises from negative perceptions of an organization’s impact on the community. The social risks of a venture depend on the specific issues associated with an organization’s operations, the industry sector and the geographic context. Risks typically include environmental pollution, hazards to human health, safety and security, and threats to a region’s biodiversity and cultural heritage.

Social risk is characterized by four components in combination: an issue, a stakeholder or group of stakeholders, a negative perception about an organization, and the means to do damage.

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Social risk is characterized by the following components:

1. Issue: Societal and environmental issues are taking on heightened significance on a global level. The issue is specific to the organization, the target market and the planned ventures.

2. Stakeholder: For social risk, stakeholders are a broad group that includes any person or group who may have an interest in the issue. For instance, Nike now engages with environmental organizations, human rights groups, students, colleges, trade unions, socially responsible investor groups and academia, in additional to traditional stakeholders like shareholders, employees, customers, and suppliers.

3. Perception: Stakeholder perceptions are based on various information sources, including official news media, the Internet, word of mouth and the organization itself. Negative perceptions are more likely to arise in the absence of regular information or communication from the organization itself. Negative perceptions can be accurate or inaccurate; both can lead to challenges for the company.

4. Means: A stakeholder may possess a variety of means to affect organizational conduct. Small grassroots non-profit organizations may be able to mobilize large networks of allies very quickly.

Managing social risks through corporate social responsibility (CSR)

Management and mitigation of social risk factors are increasingly important for business success abroad. The costs of losing that social licence, both in terms of the organization’s share price and the bottom line, may be significant.

Ignoring social risk factors can lead to significant negative consequences to an organization’s reputation and operations. With no mitigation plan in place, these organizations have been subject to bad publicity, consumer boycotts and other negative outcomes. The advent of social media has had a large influence on how quickly these negative consequences can be realized and spread.

As organizations take advantage of global opportunities, there is a growing understanding that it makes good business sense to incorporate responsible business practices into investments and operations abroad; these practices also benefit the local economies and communities.

When organizations operate in an economically, socially and environmentally responsible manner, and they do so transparently, it helps them succeed. This is accomplished through encouraging shared values and social license with clients, customers and stakeholders.

In most cases, organizations can take steps to mitigate these risks. Some organizations have successfully mitigated these concerns through a range of activities classified as corporate social responsibility (CSR), which covers all of the voluntary actions a company can take to operate in an economic, social and environmentally sustainable manner.

Popular CSR steps include building closer relationships with local partners and stakeholders, increased transparency and public reporting, closer monitoring of suppliers and others in their supply chains, abiding by voluntary international standards for environmental emissions or labour rights, and ethically obtaining the rights to purchase or use any land.

Evaluating your business’s Triple Bottom Line

Social risk is also tied to the idea of Triple Bottom Line (TBL). TBL is an accounting framework that incorporates three dimensions of performance: social, environmental and financial. This differs from traditional reporting frameworks that focus exclusively on economic or budgetary performance. The TBL dimensions are also commonly called the three Ps: people, planet and profits.

The TBL, and its core value of sustainability, has gained traction in the business world due to accumulating anecdotal evidence of greater long term profitability. For example, reducing waste from packaging is good for the environment and it can also reduce costs. Among the companies that have adopted this approach are General Electric, Unilever, Proctor and Gamble, 3M and Cascade Engineering.

Over half of the global Fortune 500 companies and almost half of Standard & Poor’s (S&P’s) 100 companies now issue TBL reports. Investors incorporate these reports into their own measurements for valuing companies.

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The triple bottom line, or 3BL, refers to three things: people, planet and profit. In the past companies were almost entirely profit-driven enterprises where every business decision was based on economic prosperity, often at the expense of either communities and/or the environment.

Now, however, there is an increasing focus on the social and environmental impact that businesses have on their stakeholders, local communities and the world around them. This new interest in how companies measure their ‘Social and Environmental Responsibilities’ (SER) reflects the many advantages they hold for the company.

How can being more socially and environmentally responsible help your company grow?

1. High morale and improved productivity

The feeling of self-worth and pride that taking a moral stance can bring to the company’s employees and stakeholders can have a positive impact on productivity and morale.

2. Reducing overhead costs

The company could actually save money. Take the environmental aspect, for example – businesses do not have to begin by thinking on a global scale or changing suppliers to minimize their environmental impact.

They could start by investing in energy-saving lightbulbs, reducing water wastage, going ‘paperless’ and recycling all waste products. These small decisions will save money while reducing environmental impact.

3. Build a committed group of core, repeat customers

Companies can gain a crucial advantage by leveraging their Corporate Social Responsibility (CSR). Responsible consumers are looking for companies that adopt 3BL strategies and are willing and ready to support them – even if it means paying higher prices than competing products.

With the right branding and promotional efforts, companies that implement sustainable practises can become known as ‘green’ and socially responsible, and use this as a competitive advantage in the industry.

The brand image should reflect the company’s values. By incorporating CSR policies into the business strategies, this brand image attracts a whole new segment of consumers, thus increasing profits and allowing the company to grow.

Consider that many businesses, from small to large, are now making sustainability fundamental to their businesses. Companies that fail to keep up with the trend may find they get left behind and are unable to compete in their industries.

4. Attract top talent to grow your company

Businesses that invest in their employees (through training schemes and employee benefit packages, for example), invest in their local communities, and sponsor charities will be more enjoyable places for people to work.

Not only does that make people happier (an end goal in itself) but it will also inspire loyalty and attract talented people to the company. This will in turn benefit the company financially.

There are no true downsides to adopting a 3BL approach to business.

A common misconception might be that by considering the other two factors (people and planet), the third factor (profit) might be diminished. But as we can see, not only is there a growing market for sustainable businesses, but by adopting CSR policies businesses can actually be even more profitable and competitive.

Championing social and environmental causes can both save and make money

By embracing 3BL as a core value, companies have proven themselves successful in their industries, thus covering the “profit” part of the equation, and they also address both social and environmental concerns.

This is possibly a consequence of the public interest.

It’s easier to touch your customers’ hearts when they can clearly see their purchase easing immediate suffering (such as the “buy one, donate one” policies).

This can be more impactful than the more abstract concept of saving the planet by reducing our carbon footprints, reducing waste and using bio-degradable materials.

By winning over dedicated customers, improving employee loyalty, attracting top talent, and reducing overhead costs, this strategy could be your ticket to success.

The only question left is: what steps will your business take next to move towards this goal?

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Most people are familiar with the concept of the bottom line: the last line on a financial statement indicating the profit or loss a company has produced during the accounting period.

While generating profit remains a primary goal, many organizations are embracing more sustainable business practices that move away from a “profit above all” mentality which can lead to social or environmental damage. These practices are part of a company’s Corporate Social Responsibility (CSR) policies, and may include adopting a Triple Bottom Line accounting system.

Triple Bottom Line (TBL or 3BL) is a term coined by John Elkington in 1994, and came to prominence with the release of his 1997 book, Cannibals with Forks: The Triple Bottom Line of 21st Century Business. TBL is used to evaluate business performance from a more holistic perspective, measuring a company’s performance in three areas of impact: social, environmental and financial, often referred to as People, Planet and Profit.

In a TBL system, monetary profit is adjusted to reflect the company’s impact in the social and environmental categories.

In a traditional accounting system, companies are held accountable to their shareholders based on profit or loss generated by the business. Companies that have committed to a TBL accounting system still have a primary responsibility to their shareholders, but are held accountable to all stakeholders. This includes anyone who may be directly or indirectly affected by the activities of the company, positively or negatively, whether they have a financial interest in the company or not.

TBL companies must evaluate their present and future impact in all categories while considering the social and environmental consequences of business practices and decisions.

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The social (People) impacts

In the social category, TBL companies strive to develop business practices that benefit both the labour force and community stakeholders.

This could include:

• Offering fair compensation to employees, e.g. competitive, equal pay for equal work
• Avoiding exploitation of labour throughout the supply chain, e.g. child labour, sweat shops
• Providing a safe work environment
• Encouraging a work/life balance for employees, e.g. generous leave policies, health benefits package
• Investing in employees’ health, e.g. healthy cafeteria food, onsite fitness facilities
• Investing in the community, e.g. offering tuition subsidies/scholarships, supporting local charities, sponsoring community organizations

The environmental (Planet) impacts

In the environmental category, the impact of business activities on the planet must be considered. Minimizing any negative impact on the environment means recognizing that sustainability is more profitable in the long run. Practices that are deeper than “do no harm” can do more to promote sustainability, and a “make a difference” approach to business may include:

• Reducing energy consumption
• Reducing waste
• Disposing of harmful waste safely
• Reusing or recycling material, where possible
• Ethical sourcing, e.g. procurement from environmentally friendly suppliers
• Developing non-fossil fuel energy sources, e.g. solar, wind
• Offsetting company’s carbon footprint, e.g. purchasing carbon credits, reducing air travel

The financial (Profit) impacts

The financial category of a TBL company still exists to measure profit or loss, however, under this system the economic value generated takes into account costs of all inputs from the social and environmental accounting.

Adopting a TBL system can pose significant challenges to a company. Effective measurement of the social and environmental categories is difficult, and there are inevitable costs associated with both developing and sustaining an effective TBL accounting system.

However, most organizations will find that the benefits of any CSR policy outweigh the costs over time.

The direct and indirect benefits of a TBL system can include cost savings or new revenue streams, such as:

• Attracting employees and reducing employee turnover; people want to work for good companies and feel that their work makes a difference
• Creating goodwill and building brand loyalty; consumers support companies they feel are good for the community and environment
• Attracting investors interested in ethical or socially progressive investment
• Finding opportunities that might be overlooked in a model solely driven by profit, e.g. creating revenue by processing, recycling or upcycling used components or waste materials into useful commodities

As more organizations develop and improve their CSR models, Triple Bottom Line accounting will become a more prevalent way of measuring a company’s overall impact on people and the planet, relative to its financial profit. Adopting CSR and ethical sourcing practices can mean additional sourcing costs, which companies should consider as part of their cost analysis for importing products.

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While it will always remain a crucial part of business, some companies are expanding their view and building their business to focus on the triple bottom line (3BL/TPL): Profit, People and Planet.

The term “triple bottom line” was first “coined” in 1994 by John Elkington, founder of “SustainAbility”, a British consultant firm.  The idea is that business should have three bottom lines.

In addition to the traditional “profit” line on   the income statement, the second bottom line focuses on paying respect to the social dimension of business (people) and the third on the environmental aspects (planet).

These second and third accounts are for measuring SER (Social and Environmental Responsibilities), which is part of the CSR (Corporate Social Responsibility) and reflects how socially and environmentally responsible the business is throughout its operations.

Helping people and the planet one decision at a time

When talking about 3BL, there are two main questions to tackle: why is it important to re-focus your business around the triple bottom line, and how can you do so?

When businesses formulate their strategies and budgets for finance, they must know how much the second and third bottom lines will cost to show respect to people and the planet. They must also, however, know that on top of being good corporate citizens, adding the second and third bottom lines can help them in other ways.

When you ask why, I want you to consider these two questions:

1. Can firms that have an obligation to be socially and environmentally responsible improve their performance by doing so?
2. Can firms measure their social and environmental bottom lines to promote their corporate image, to preserve and to manage their brand name?

If you answer yes to either of those questions, you’ve just answered the ‘why’ for yourself.

As for the ‘how’, is the triple bottom line just a concept, a management tool, or a solid work plan? Should this be written in the mission statement, or become the vision to be accomplished in your business strategy?

Let’s look at some examples of how others have effectively implemented it, and how it has benefited those companies, and the people and world around them, so you can be inspired to do the same.

Do the right thing with your money

One of the most common ways companies re-orient their strategy around the triple bottom line is through their finances.

Some international businesses work with financial institutions like the Urban Partnership Bank (formerly ShoreBank Corporation) that invest in people and their community, create economic equity, and to help protect the environment.

Implementing such programs can develop a strong positive reputation for a company, both locally and internationally. A positive reputation often creates deeper customer loyalty, and facilitates word of mouth marketing to help your business.

Other institutions like VanCity are also “taking environmental, social and financial results into consideration in the development and implementation of a corporate business strategy” to network with the world’s leading sustainable banks, “sharing the commitment to achieving triple-bottom-line impact through responsible banking practices.”

Making this switch may cost time, and money in some cases, but emphasizing sustainability demonstrates a desire for both responsible corporate behaviour and long-term viability.

A clear focus on your company’s long-term future will reassure customers, and lead to, or be part of, other plans to ensure your company’s success for many years to come.

Build a sustainable work force

Some corporate citizens of good CSR practice follow the guidelines created by GRI (Global Reporting Initiative) to report not only the financial performance, but also to collect and audit social and environmental data, and voluntarily include it in their annual sustainability reports.

The data include staff turnover rate, the number of senior executives and board of directors, and their gender and ethnic diversity.

Some businesses also include the percentage of gross or net profit that goes to charity, as well as any work-related accidents and how much, or how many times, the firm was fined for non-compliance of industry and government rules and regulations.

Companies focused on the human element will treat their employees well, creating a positive work environment that will draw the best and brightest to want to work for you.

The social and environmental bottom lines can also motivate employees by ensuring they feel their work is making a difference in the world, which can spur creative thinking and teamwork.

When you’ve got the right people and continue to create a nurturing, positive work environment, the sky’s the limit for your business potential.

Source ethically and tell the world

In international trade, networks like the Ethical Sourcing Network and the Business Social Compliance Initiative (BSCI) help potential buyers look for manufacturers who seek to improve working conditions in the suppliers’ countries and use sustainable materials in their goods.

Other businesses like Fairware provide expertise to help firms formulate purchasing policies and procure promotional and marketing merchandise from ethical sources to show their respect to society and the environment.

When you add the sourcing and marketing together, it empowers consumers to feel as though they are being responsible citizens by purchasing goods or doing business with your company, thereby increasing customer satisfaction.

Your business also gains more control over the quality of your goods, and can build unique opportunities to develop beneficial relationships with workers in developing countries for training, economic development and equal hiring.

Help the Earth and gain a new customer base

When it comes to reducing carbon emissions, a triple bottom line strategy can lead to end to end supply chain planning, from design and R&D, to material procurement, manufacturing, replenishment and reverse logistics.

BlueSign, an industry cartel supported by like-minded manufacturer/retailers sets uniform standards and safety requirements to ensure environmentally friendly textile production.  This attracts consumers who prioritize using products made of fabrics that are rolled out from mills following this manufacturing standard.

Another approach is that of TenTree, a small e-clothing retailer whose main goal is to plant ten trees for each item sold.

For them, the triple bottom line is at the very heart of everything from their sourcing, to their logo, to their marketing.

Companies like these are often able to not only reduce their carbon footprint, but also to reduce waste and energy use. This reduces costs or offsets additional costs incurred, by using environmental materials or practices.  Adidas partners with “Parley for the Oceans” to recycle ocean plastic waste to “co-create” fabrics for integration into their products.

Such practices are also great ways to build relationships with environmentally focused customers and continue to build a loyal community for your brand.

When finished goods arrive at their end of life cycle, disposal becomes an issue.  Nike has started using less toxic materials for building their new products, apparels and footwear to reduce their environmental impact.

This practice incurs additional cost to consumers upon purchase of the products, but at the end, fully recyclable and zero waste would make a good corporate citizen look in the mirror and grin.

It’s time for everyone to add two more bottom lines

There are many reasons why, and ways how, companies can use the triple bottom line to better serve not only people and the planet, but also their own business practices.

All stakeholders should work together in making this decision. When all of them are on a level playing field towards a 3BL agreement, this will develop into an industry practice.

Much like a universal dial tone that we expect to hear when we pick up the phone, the triple bottom line should become the best practice in the corporate world and the expectation in every consumer’s mind.

What’s your company’s next step to including a triple bottom line going to be? Let us know how your organization has been using the triple bottom line in your business practices.

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