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What is the Financial Value of Goodness?

Don't want to be good for goodness' sake? What about to add to your bottom line and the long term stability of your brand? If your company is doing good this goodness can be quantified and added to your bottom line? Conversely, what is the cost of spreading negativity and ill will?

Yes, and the tool to do that is called Triple Bottom Line accounting, and it became a thing in the west in about 2009 and has been developed an applied with much success since then. It is time for the companies int he Czech Republic to get onboard. (Examples of some companies you may know who apply TBL are at the bottom of the page.)

Here is a brief introduction to the concept. 

Triple bottom line (TBL or 3BL) is an accounting framework with three parts: social, environmental (or ecological) and financial. Many organizations have adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value. 

The phrase “the triple bottom line” was first coined in 1994 by John Elkington. His argument was that companies should be preparing three different (and quite separate) bottom lines. 

1. One is the traditional measure of corporate profit—the “bottom line” of the profit and loss account. 

2. The second is the bottom line of a company's “people account”—a measure in some shape or form of how socially responsible an organization has been throughout its operations. 

3. The third is the bottom line of the company's “planet” account—a measure of how environmentally responsible it has been. 

The TBL thus consists of three Ps: profit, people and planet. It aims to measure the financial, social and environmental performance of the corporation over a period of time. Only a company that produces a TBL is taking account of the full cost involved in doing business, or the true value of a business. (from The Economist)

           

TBL demands that a company's responsibility lies with stakeholders instead of shareholders. In this case the "stakeholders" are anyone who is influenced, either directly or indirectly, by the actions of the company. Company’s should maximize stakeholder interests, instead of maximizing shareholder profit. A growing number of financial institutions incorporate a triple bottom line approach in their work. It is at the core of the business of banks in the Global Alliance for Banking on Values, for example.

Economic Measures (from Indiana Business Review)

Economic variables ought to be variables that deal with the bottom line and the flow of money. It could look at income or expenditures, taxes, business climate factors, employment, and business diversity factors. Specific examples include:

  • Personal income
  • Cost of underemployment
  • Establishment churn
  • Establishment sizes
  • Job growth
  • Employment distribution by sector
  • Percentage of firms in each sector
  • Revenue by sector contributing to gross state product

Environmental Measures

Environmental variables should represent measurements of natural resources and reflect potential influences to its viability. It could incorporate air and water quality, energy consumption, natural resources, solid and toxic waste, and land use/land cover. Ideally, having long-range trends available for each of the environmental variables would help organizations identify the impacts a project or policy would have on the area. Specific examples include:

  • Sulfur dioxide concentration
  • Concentration of nitrogen oxides
  • Selected priority pollutants
  • Excessive nutrients
  • Electricity consumption
  • Fossil fuel consumption
  • Solid waste management
  • Hazardous waste management
  • Change in land use/land cover

Social Measures

Social variables refer to social dimensions of a community or region and could include measurements of education, equity and access to social resources, health and well-being, quality of life, and social capital. The examples listed below are a small snippet of potential variables:

  • Unemployment rate
  • Female labor force participation rate
  • Median household income
  • Relative poverty
  • Percentage of population with a post-secondary degree or certificate
  • Average commute time
  • Violent crimes per capita
  • Health-adjusted life expectancy

The change from one-dimensional financial reporting to three-dimensional “triple bottom line” (TBL) reporting has created new challenges; however it has also created new opportunities. Management accountants (sometimes known as Certified Management Accountants or CMAs) in particular already possess many skills required to take advantage of these opportunities. Nevertheless, some challenges will require management accountants and other financial professionals to adapt and learn some new skills. 

Some of these new skills were identified by the Institute of Chartered Accountants in England and Wales (ICAEW) in a recently published report titled Sustainability: The Role of Accountants. This article is much more detailed in terms of accounting practice. 

                                     

Above are are eight (of many) companies that are applied TBL accounting: Unilever, Seventh Generation, DHL, EnviroPure Systems, CSI globalVCard, Due, Patagonia, The Eco-Laundry Company. Note: Coca-Cola applies an array of similar systems that includes many of the same elements as TBL, but does not call it TBL.

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