Companies are geared to making profits and typically focus on the impact of their actions on their bottom line, or earnings. John Elkington came up with the concept of the triple bottom line. Triple-bottom-line reporting means that a business has to report the effect of social and environmental aspects of the business, rather than just financial aspects. This approach has some disadvantages.
The triple-bottom-line reporting approach says that businesses should focus on profits as just one aspect of their mission. They should also focus on the impact of their actions on people, such as their employees and the community they live in, and on the environment. Thus, the traditional goal to generate a profit irrespective of other outcomes is tempered by the need for the business to consider the societal and environmental consequences of its actions.
While a company may quantify financial aspects such as earnings, revenues and costs, it is difficult to quantify social and environmental aspects. When a business makes a commitment to protecting the environment by recycling, for example, its impact is not easily discernible. Companies that embrace the triple-bottom-line approach tend to adopt more of a compliance approach, stating that they have engaged in certain activities that are environmentally sound, for example.
A business’s management traditionally aims to maximize returns to shareholders. Triple-bottom-line reporting might create a conflict for such a business. The benefits of any social and environmental actions that a business engages in are likely to emerge over the long term. However, they could have a short-term negative impact on profits. Most shareholders are more geared to the short-term profits than to long-term results.
As businesses become more socially and environmentally conscious, they are likely to engage less in activities that generate pollution. As they weigh the effects of their actions on the environment and on society, they are likely to make more environmentally beneficial decisions. This will benefit the larger society in the long run.