The Triple Bottom Line: What It Is & Why It’s Important

The world is full of uncertainty. Monumental challenges—including climate change, poverty, and inequality—are at the forefront of daily life and seemingly becoming ever more urgent.

One thing that isn’t uncertain, according to the online course Sustainable Business Strategy, is the need for change.

The general goal of a sustainable business strategy is to positively impact the environment, society, or both, while also benefiting shareholders. Business leaders are increasingly realizing the power of sustainable business strategies in not only addressing the world’s most pressing challenges but driving their firms’ success. However, defining what sustainability means, solidifying clear and attainable goals, and formulating a strategy to achieve those goals can be daunting.

One common way to understand a business’s sustainability efforts is using a concept known as the triple bottom line.

What Is the Triple Bottom Line?

The triple bottom line is a business concept that posits firms should commit to measuring their social and environmental impact—in addition to their financial performance—rather than solely focusing on generating profit, or the standard “bottom line.” It can be broken down into “three Ps”: profit, people, and the planet.

Profit

In a capitalist economy, a firm’s success most heavily depends on its financial performance, or the profit it generates for shareholders. Strategic planning initiatives and key business decisions are generally carefully designed to maximize profits while reducing costs and mitigating risk.

In the past, many firms’ goals have ended there. Now, purpose-driven leaders are discovering they have the power to use their businesses to effect positive change in the world without hampering financial performance. In many cases, adopting sustainability initiatives has proven to drive business success.

Related: HBS Professor Explores the Impact Purpose Can Have on Your Organization

People

The second component of the triple bottom line highlights a business’s societal impact, or its commitment to people.

It’s important to make the distinction between a firm’s shareholders and stakeholders. Traditionally, businesses have favored shareholder value as an indicator of success, meaning they strive to generate value for those who own shares of the company. As firms have increasingly embraced sustainability, they’ve shifted their focus toward creating value for all stakeholders impacted by business decisions, including customers, employees, and community members.

Some simple ways companies can serve society include ensuring fair hiring practices and encouraging volunteerism in the workplace. They can also look externally to effect change on a larger scale. For instance, many organizations have formed successful strategic partnerships with nonprofit organizations that share a common purpose-driven goal.

Related: 4 Accessible Ways Companies Can Drive Social Change

The Planet

The final component of the triple bottom line is concerned with making a positive impact on the planet.

Since the birth of the Industrial Revolution, large corporations have contributed a staggering amount of pollution to the environment, which has been a key driver of climate change. A recent report by the Carbon Majors Database found that 100 companies in the energy sector are responsible for roughly 71 percent of all industrial emissions.

While businesses have historically been the greatest contributors to climate change, they also hold the keys to driving positive change. Many business leaders are now recognizing their responsibility to do so. This effort isn’t solely on the shoulders of the world’s largest corporations—virtually all businesses have opportunities to make changes that reduce their carbon footprint. Adjustments like using ethically sourced materials, cutting down on energy consumption, and streamlining shipping practices are steps in the right direction.

Related: What Is Sustainability in Business?

Why Is the Triple Bottom Line Important?

To some, adopting a triple bottom line approach may seem idealistic in a world that emphasizes profit over purpose. Innovative companies, however, have shown time and again that it’s possible to do well by doing good.

The triple bottom line doesn’t inherently value societal and environmental impact at the expense of financial profitability. Instead, many firms have reaped financial benefits by committing to sustainable business practices.

Related: Why You Need Sustainability in Your Business Strategy

“In many situations, it's possible to do the right thing and make money at the same time,” Harvard Business School Professor Rebecca Henderson says in Sustainable Business Strategy. “Indeed, there's good reason to believe that solving the world's problems presents trillions of dollars worth of economic opportunity.”

Case in point: Research by Nielsen found that 48 percent of US consumers would change their consumption habits to lessen their impact on the environment. In 2018 alone, this sentiment translated to roughly $128.5 billion in sales of sustainable, fast-moving consumer goods.

Beyond helping companies capitalize on a growing market for sustainable goods, embracing sustainable business strategies can be highly attractive to investors. According to Sustainable Business Strategy, evidence has increasingly shown that firms with promising environmental, social, and governance (ESG) metrics tend to produce superior financial returns. As a result, more investors have begun focusing on ESG metrics when making investment decisions.

Doing Well by Doing Good

As the world’s most pressing challenges evolve, purpose-driven leaders are needed to spearhead initiatives that can spur positive change—but making those changes isn’t an easy task.

“Finding these opportunities and making them successful takes both real courage and grindingly hard work,” Henderson says in Sustainable Business Strategy. “It’s often the firms that have a purpose—beyond simply making money—that make the first move.”

Although the road ahead is long and uncertain, it’s important not to be discouraged. The first steps toward sustainability start with the individual. Little by little, firms can unite around a common cause and have a real, measurable impact.

“It’s not only OK to take your values to work; it's required,” Henderson says. “A shared purpose can make firms both more productive and more innovative. But what's most important is that, in the end, [our values] are all we have.”

Are you interested in learning how to lead your organization toward positive change? Explore Sustainable Business Strategy, one of our online Business in Society courses, and discover how you can become a purpose-driven leader.