Redefining Business Success: The "Triple" Bottom Line
by Sara Schley and Joseph Laur

from LEVERAGE™, No. 22

Copyright © 1998 Pegasus Communications, Inc. (www.pegasuscom.com). All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from Pegasus Communications, Inc. If you wish to distribute copies of this article, please contact our Permissions Department at 781-398-9700 or permissions@pegasuscom.com.

On Earth, we live in a closed system with respect to matter; there are certain physical limits that we must respect if all life on Earth is to thrive and prosper for generations to come. To describe the implications of this reality for business, Karl-Henrik Robèrt and his colleagues at The Natural Step—a Swedish organization that helps businesses and professional organizations explore ways to achieve sustainability—introduced "the funnel." The concept behind the funnel is that while exponential population growth is causing increasing demand for products and services, the Earth's capacity to provide water, fisheries, arable land, food, forest cover, and waste absorption are declining. As time moves forward, the narrow portion of the "funnel" puts more and more pressure on business and industry, especially on efforts to establish prices, to compete, and to earn a profit.

Yet what would happen if we turned these constraints around and saw them not as challenges but as opportunities for innovation in business—just as a skilled engineer or architect uses the constraints posed by his or her project as catalysts for designing creative, attractive, and valuable solutions? To see constraints through the lens of opportunity, organizations need to adopt a systems view and see natural systems principles as strategic guidelines for product and service development. Com- panies that can develop strategies in alignment with sustainability principles will avoid getting squeezed by the walls of the funnel, and will hone their competitive edge in the marketplace.

The Triple Bottom Line
To many people, the idea of the "bottom line" brings up images of the financial measurement or success of an organization. "Bottom line" means hard-core numbers: Did the company make a profit this year or didn't it? However, true success can be measured in a number of different ways; for example, when talking about sustainable development, it is useful to refer to the concept of the triple bottom line. Attending to the triple bottom line means meeting the financial, ecological, and social needs of the present while maintaining the ability of future generations to meet their own needs.

Some key issues emerge when we consider organizational strategies and actions in light of the triple bottom line. Specifically, the concept prompts us to think about the financial benefits of practicing sustainable development, the impact of our operations on the natural systems that the company uses and depends on, and the ramifications that our business actions have for the surrounding community and society.

Companies that fail to tend to the financial bottom line obviously do not stay in business very long. However, this element of the triple bottom line is probably one to which organizations pay the most attention. It's relatively easy for managers to ask, "How does this particular product, service, or action impact our business?" When managers consistently make poor choices in this arena, the company may meet an early demise.

Failure to consider the ecological impacts of operations can also bring about devastating losses for companies. These losses may well extend beyond the costs of inefficiency and environmental compliance to the destruction of wetlands, contamination of groundwater, and the health of entire communities. W. R. Grace is an example of what can happen if managers ignore the ecological bottom line. Grace spent over $15 million in legal fees and penalties as a result of their part in poisoning the water supply of Woburn, Massachusetts. Likewise, Union Carbide and Exxon suffered tremendous financial losses as a direct result of deadly chemical and petroleum spills in Bhopal, India, and Alaska, respectively. Even business actions that are commonplace and legal now may create enormous liabilities in the future as public awareness of the price of those actions increases. To attend to the ecological bottom line, managers can ask, "How does this product, service, or action impact the natural systems that our business uses and relies on?"

Finally, companies need to think about broader social impacts of nonsystemic decision-making. Failure to consider this aspect of the triple bottom line may show up as increased health and unemployment costs in the larger society, as well as higher taxes for welfare, social services, and prisons. Attending to community needs can create a motivated, skilled workforce and greater goodwill. Managers can ask, "How does this product, service, or action impact the communities in which we do business?"

Keeping all three of these aspects in focus is a challenge for any business—a challenge that markets, society, and government are increasingly demanding that businesses meet. More and more, it is becoming an expectation and a price of admission to the "game." But it is also much more than that. Attending to the triple bottom line reveals that you value sustainability, and gives you an opportunity to shape a business that is more resilient to the ever-changing demands of the marketplace. The real bottom line is: It's a better way to do business.

Sara Schley and Joseph Laur are founding partners of SEED Systems, a company dedicated to promoting sustainable development in business through the principles of organizational learning, systems thinking, and basic science.

This article was extracted from Creating Sustainable Organizations: Meeting the Economic, Ecological, and Social Challenges of the 21st Century, a volume in the Innovations in Management Series (Pegasus Communications, Inc., 1998).