The bottom line is more than just profit.
Of course, business professionals need their companies to be financially strong and to have economic value—a term that can mean the value that people place on a product or service based on a) the benefit they get from it, and/or b) its ability to generate income. For many people today, both definitions will work.
In addition to dollars and cents, though, there’s the wealth that companies can create—and are increasingly choosing to create—through their social value: the difference they make in their communities and the world at large. Social value includes non-monetary influences on people, such as their level and quality of education, skills and training; their employment status and satisfaction; personal health and wellbeing; the state of the economy; and issues involving environment, air quality, and carbon emissions.
Read on to explore why it’s important to create economic and social value in business, and to consider how your company can measure and communicate its progress.
Why Should Businesses Create Economic and Social Value?
Steve Butterworth is the CEO of the UK-based community investment platform Neighbourly. Writing about the importance of social value in a 2021 article for Reuters, he said, “By changing how we account for value, we contribute to a fairer society and a more sustainable environment.”1
Those goals sound noble, but they have powerful financial motivations woven into them. Butterworth’s article explained that, more and more, business leaders are called upon to account for their social value to the people who pay their bills. As investors, consumers, and employees make choices based on a company’s reputation for environmental and social sustainability, they expect the company to prioritize environmental, social and governance (ESG) issues. Further, in addition to those influential decision-makers, businesses themselves have a stake in ensuring that society thrives, as they cannot survive in one that fails. Economic value and social value, therefore, don’t solely benefit the recipients of a company’s goods and services. They can determine the survival or demise of the company itself.1
Measuring and Communicating Economic and Social Value
As businesses become more tuned in to their role in helping communities thrive, it’s good social responsibility practice for them “to regularly review, report, and celebrate the value they create in the places where people live, work, and play.”2 So wrote Des Bourne, MBA, APMP, and Director of Strategic Business Development Consultancy for the UK’s Ariaconsult Limited, in a 2021 article published on LinkedIn. Measuring financial gain and loss is a fairly straightforward process, but how can companies of any size reliably measure their economic and social value?
This is where the concept and practices of the Triple Bottom Line come in. The Triple Bottom Line (also written as ‘TBL’ or ‘3BL’) is an accounting framework used to measure business performance. Companies use it to prioritize social betterment and sustainability.3 John Elkington, founder of the consultancy firm SustainAbility, coined the phrase ‘Triple Bottom Line’ in 1994, proposing that companies track three distinct measures of profit and loss (bottom lines).4 Extending beyond traditional assessments of profits, return on investment (ROI), and shareholder value, the TBL considers performance regarding three pillars: social, environmental/ecological, and economic—in other words, People, Planet, and Profit.
Measuring how socially responsible an organization has been throughout its operations, this involves looking at the impact of the organization—particularly in the areas of wellbeing, equity, and health—on its stakeholders, including employees, customers, suppliers, partners, investors, and the communities in which the organization operates.
This gauge of a company’s environmental responsibility addresses variables connected to water and air quality, natural resources, land use, and energy conservation.
This traditional meter of corporate profit and loss involves economic variables connected to cash flow and a company’s financial standing.
The TBL is useful in measuring a company’s social impact: its financial viability and return, including its impact on its stakeholders, society, and the planet. Employees and consumers today are increasingly interested in engaging with companies that operate sustainably — companies that don’t make a profit at the expense of the planet or the well-being of their employees, customers, or others. Companies can attract these customers and employees — and enhance their profit — by using the TBL to measure, improve, and communicate their sustainable practices and products and services.
The Triple Bottom Line helps companies:
- Get a more complete view of the true value—both costs and benefits—created by their operations, products, and services
- Set and achieve meaningful sustainability goals
- Measure and communicate the economic and social value they provide
Using the Triple Bottom Line to Measure Social Impact
With the Triple Bottom Line in mind, your company can use these six steps to measure its net effect on your community and the well-being of individuals and families:
1. Identify the key stakeholder and social impact issues to address
First, the company’s leaders must determine what they want to accomplish and in what areas. They may look at issues of greatest concern to the organization, industry, or their stakeholders. Do they want to address gender equality in their leadership team or board? Implement clean energy practices within their manufacturing or reduce their carbon footprint? Invest in research and development to produce their goods with more sustainable materials? The opportunities are as many and diverse as the needs, so setting clearly defined goals is essential to success.
2. Determine the metrics to measure your impact
The metrics that your company might use are similarly varied. These five tools can be a useful starting point in developing an impact measurement strategy:5
- Net results measure the direct output of action, such as hours volunteered, percentages of emissions reduction, and number of initiatives funded
- The Net Promoter Score (NPS) helps rank the perception of a given initiative within a specific community, essentially by answering the question, ‘How likely is it that you’d recommend X to your family or colleagues?’
- Outreach metrics, such as social media and website tracking, can reveal how effectively your message is getting across
- Metrics that track inclusion and diversity in your company’s staff and beneficiaries can include survey questions about power dynamics, representation, and inclusion; each question is directly linked to the company’s social impact goals
- Open feedback from staff and beneficiaries, as responses to interviews, surveys, and direct inquiries about personal experience, can provide rich insights into the success of your efforts
3. Collect and analyze data
For each metric you employ, plan to collect initial data that will give you a clear picture of your starting point and help you set targets for your intended progress. Multiple brands offer social impact data analysis technology that can help you understand what your data are telling you.
Bear in mind that there’s no single right measurement strategy. Set your expectations knowing that any approach your company uses will require time and effort. It’s a large, important undertaking with robust benefits: By understanding its social impact data, your company can make informed decisions, improve its actions and reputation, and implement positive change.
4. Set targets and develop a plan
No marathon runner starts out by conquering 26.2 miles at a stretch; it takes shorter, measured runs to build strength and stamina. Similarly, the path to reaching your company’s main goals is marked by incremental ones. Call on your strategic planning experts to identify the benchmarks which, once met, will create the overall change you’re looking for. By planning the steps needed to realize each intermediate goal, you’ll generate the roadmap to your finish line.
5. Monitor and evaluate progress
As with any significant project, you’ll need to continue gathering data, pay attention to your advancement, and modify your tactics along the way. In reaching your first (and each successive) benchmark, how did things go? What could you have done better? What new information can you apply to your further progress? If you didn’t reach the goal as set, how should you adjust your earlier plan, to accommodate for where you are relative to where you aim to be?
6. Report on your social impact
A social impact statement, also known as a corporate social responsibility statement, is a document or press release outlining the steps a company has taken to improve its business operations’ social and environmental standards. It states the company’s values and priorities, and it often shows numbers and other data addressing progress to date. These documents are typically released annually, in tandem with the company’s annual reports to shareholders. They’re in increasing demand, as investors continue to seek out companies with high environmental, social, and governance ratings.
Major global companies—including Hewlett-Packard, Amazon, Patagonia, ExxonMobil, Apple, and The Walt Disney Company, among many others—make their social impact statements and ESG reports publicly accessible online.
Beyond the Triple Bottom Line
The Triple Bottom Line has been part of the business and economic landscape for nearly 30 years: long enough to take hold as a trusted gauge of business performance and to grow beyond its initial framework.
In the 2019-2020 academic year, the faculty leaders in the CSUMB College of Business expanded on the People-Planet-Profit focus of the TBL. They added Ethics and Equity to it, creating the Quintuple Bottom Line. As Kelly O’Brien and the CSUMB College of Business’ Founding Dean, Shyam Kamath, wrote on our site:
“Ethics is a code by which a business abides, which includes legal, moral, and values-based considerations that guide business behavior. Ethics includes operating with integrity and in a transparent manner; that is, “doing it right” with nothing to hide. ‘Do right to do good’ is the guiding principle of responsible business.
With regard to community, Equity requires that a responsible business acts in a way that provides for the health of the community in which it operates, providing local employment for its citizens, providing programs that help the needy and the underrepresented, and, in general, building a sense of equitable community. These actions reflect the responsibility of contributing to the improvement of the quality of life in the communities in which it operates and for acting in a manner that ensures the equity of the process to everyone it touches.”
The Quintuple Bottom Line is at the heart of responsible business and CSUMB’s Responsible Business Online MBA program.
Stand out as a responsible business leader.
CSUMB’s accredited online MBA program provides a rigorous yet flexible online learning experience that instills the expertise you need for career success. Earning a Responsible Business Online MBA from California State University, Monterey Bay will help you advance as you earn your degree in our 100% online curriculum. Join today to start gaining the skills that make a difference. Review the program details and schedule an appointment with an Admissions Advisor.
- Retrieved on March 17, 2023, from reutersevents.com/sustainability/businesses-prioritise-social-value-will-thrive-we-build-back-better
- Retrieved on March 17, 2023, from linkedin.com/pulse/why-social-value-important-businesses-understand-des-bourne/
- Retrieved on March 17, 2023, from linkedin.com/pulse/triple-bottom-line-how-align-performance-impact-chase-friedman/?trk=public_post
- Retrieved on March 17, 2023, from economist.com/news/2009/11/17/triple-bottom-line
- Retrieved on March 17, 2023, from boardofinnovation.com/blog/metrics-social-impact-measurement/