TRIPLE BOTTOM LINE- Sanjeeb Kakati

In the recent decades, there has been increased awareness in the global community that human, economic and business activities are causing degradation both in the natural and social environments. Examples of degradation of natural environment are: global warming, greenhouse gas emissions, deforestations etc. Examples of degradation of social environment are: widening gap between the rich and the poor and increased poverty in developing countries. Across the world there is a growing demand that the natural resources must be used on a sustainable basis so that the benefits continue to be enjoyed by future generations.

On account of the above, business organizations have come under ever increasing pressure in justifying their nature and scale of consumption because they are among the largest consumers of natural and social resources. In response, the leading organizations of the world have appeared to be more transparent and accountable to society by reporting the social and environmental impact of their operations.

In early June of 1992, the UN Conference on Environment and Development focused on the idea that balancing economic growth, social equity and environmental protection was the key to sustainability. A more

subtle understanding of the ways in which these values are interlinked began to emerge in the late 1980s and early 1990s. The UN's Our Common Future, linked corporate resource efficiency to human and environmental health. Today, leading manufacturers are minimizing pollution, cutting waste and trimming resource consumption. Products with fewer harmful chemicals are reaching the marketplace with less of an impact on the natural world. Reduce, reuse, recycle is the new business mantra.

The Triple Bottom Line (a.k.a "TBL", "3BL", or "People, Planet, Profit") captures an expanded spectrum of values and criteria for measuring organizational and societal success. In practical terms, Triple Bottom Line accounting means expanding the traditional reporting framework to take into account environmental and social performance in addition to financial performance.

The phrase Triple Bottom Line was coined by John Elkington in 1994 in an article titles as “Towards the sustainable corporation: Win-win-win business strategies for sustainable development” published in the California Management Review. The concept was later expanded and articulated in his 1998 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business.

The concept of TBL demands that a company's responsibility be to 'stakeholders' rather than to shareholders. In this case, 'stakeholders' refers to anyone who is influenced, either directly or indirectly, by the actions of the firm. According to the stakeholder theory, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of maximising shareholders’ profit. TBL reporting provides information about the economic, social and environmental performance of

Definition of Sustainable Development:Development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.

an organisation. It is a departure from the traditional focus of companies in maximising their economic or financial bottom-line, commonly known as profits. TBL reporting is directly tied to the concept of sustainable development.

"People" (Human Capital) in TBL pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business. A TBL company conceives a reciprocal social structure in which the well being of corporate, labour and other stakeholder interests are interdependent. A Triple Bottom Line enterprise seeks to benefit many constituencies, not exploit or endanger any group of them. Quantifying this bottom line is relatively new, problematic and often subjective. The Global Reporting Initiative (GRI) has developed guidelines to enable corporations and NGO's alike to comparably report on the social impact of a business.

"Planet" (Natural Capital) in TBL refers to sustainable environmental practices. A TBL company endeavours to benefit the natural order as much as possible or at the least do no harm and curtail environmental impact. A TBL company reduces its ecological footprint by, among other things, carefully managing its consumption of energy, consumption of non-renewable resources, reducing manufacturing wastes and making wastes less toxic before disposing these in safe and legal manner. TBL manufacturing companies conduct a life cycle assessment of its products. Life cycle assessment attempts to determine what the true environmental cost is from the growth and harvesting of raw materials to manufacture to distribution to eventual disposal of the product by the end user. Currently, the cost of disposing of non-degradable or toxic products is borne financially by governments and environmentally by the residents near the disposal site and elsewhere. In TBL thinking, an enterprise that produces and markets a product that will create a waste problem should not be given a free ride by society. It would be more equitable for the business that manufactures and sells a problematic product to bear part of the cost of its ultimate disposal. TBL companies avoid ecologically destructive practices.

"Profit" is the bottom line shared by all business organisations. In the original concept, within a sustainability framework, the "profit" aspect needs to be seen as the economic benefit enjoyed by the host society. It is the more permanent economic impact the organization has on its economic environment. Profit should not be confused to be limited to the internal profit made by a company or organization. Adopting TBL practices requires organisations to systematically examine their whole set of values, issues and processes in determining profits.

A TBL organization does the following:

Pays fair salaries to its workers.

Maintains a safe work environment and tolerable working hours.

Typically seeks to "give back" by contributing to the strength and growth of its community with such things as health care and education.

Up-stream a portion of profit from the marketing of finished goods back to the original producer of raw materials.

A TBL organization does not do the following:

Do not produce harmful or destructive products such as weapons, toxic chemicals or batteries containing dangerous heavy metals.

Do not knowingly use child labour.

Do not otherwise exploit a community or its labour force.

In India many leading organisations have resorted to TBL reporting since a past few years. Two case examples are presented below. The information has been obtained from Internet sources published by the respective organisations.

Example – 1: ITC

The 6th Sustainability Report of ITC released in October 2009 reveals that the company has adopted a 4-pronged strategy to meet the challenges of climate change. This report is a voluntary and transparent disclosure of the company's sustainability initiatives and its contribution to building

economic, environmental and social capital. The four pronged strategy implemented by ITC includes:

a) Identifying climate change risks in various ITC businesses and implementing adaptation measures;

b) Improving competitiveness through innovations in products and technologies;

c) Minimising its Green House Gas (GHG) emissions by achieving minimum specific energy consumption in each of its businesses;

d) Expanding its renewable energy portfolio and enlarging its carbon positive footprint with large scale social and farm forestry programme.

The Report reveals that:

ITC's sustainable agricultural practices are helping farmers adapt to the vagaries of climate change;

Over 30% of the energy consumed in ITC's operations is from renewable sources;

ITC has pioneered research in clonal propagation that has enabled tribal population and farmers to create large scale plantations that in turn has established large green covers, helping mitigate the effects of climate change;

As of October 2009, ITC Sonar, the luxury hotel in Kolkata is the only hotel in the world to have earned carbon credits.

The triple bottom line summary of ITC as on July 2009 is presented below:

“The ability of a business corporation to adopt low-carbon operations as well as sustainable business practices will be one of the key determinants of competitiveness in the years to come. Going forward, competitiveness and profitability will be increasingly linked to the ability of business to make carbon reduction and the creation of sustainable livelihoods an integral part of their value proposition to consumers."

- Mr. Y.C. Deveshwar, Chairman ITC

ECONOMIC ITC has a growing portfolio of business encompassing FMCG, Paperboards &

Packaging, Agri & Foods Business, Hotels and Information Technology;

The turnover of ITC has grown over US $5 billion and its market capitalisation is over US $18 billion;

Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, grew at a compound rate of over 24% per annum over the last 5 years;

The new FMCG businesses support the competitiveness, technology up gradation and market reach of over 170 Small and Medium Enterprises (SMEs);

ITC Group provides direct employment to more than 26,000 people.

ENVIRONMENTAL ITC has been ‘Carbon Positive’ four years in a row (sequestering/storing twice the

amount of CO2 that the company emits);

‘Water Positive’ seven years in a row (creating two times more Rainwater Harvesting potential than ITC’s net consumption);

Solid Waste Recycling Positive (Reusing/Recycling more solid waste than generated);

All Environment, Health and Safety Management Systems in ITC conform to international standards.

SOCIAL ITC’s businesses generate livelihoods for over 5 million people;

ITC’s globally recognised e-Choupal initiative is the world’s largest rural digital infrastructure benefiting over 4 million farmers;

ITC’s Social and Farm Forestry initiative has greened nearly 96,000 hectares, creating an estimated 43 million person-days of employment among the disadvantaged;

ITC’s Watershed Development initiative brings precious water to over 46,000 hectares of dry lands and moisture-stressed areas;

ITC’s Sustainable Community Development initiatives include women’s empowerment, supplementary education and integrated animal husbandry programmes.

Example – 2: Reliance Industries Limited (RIL)

RIL commenced reporting, annually, on its triple-bottom line performance, from Financial Year 2004-05. All its sustainability reports are externally assured and are Global Reporting Initiative (GRI) checked. The maiden report received ‘in-accordance’ status from GRI

and all subsequent reports are ‘GRI Checked A+’ application level reports.

RIL’s maiden sustainability report, titled ‘Life’, was the first sustainability report from the Indian Oil & Gas sector and was based on the internationally accepted Global Reporting Initiative's (GRI) Guidelines 2002. Subsequent reports are based on G-3 guidelines - the new set of sustainability reporting guidelines launched by GRI in October 2006.

Further, from Financial Year 2006-07, in addition to referring GRI G3 guidelines, RIL refers The American Petroleum Institute/The International Petroleum Industry Environmental Conservation Association’s (API/ IPIECA) guidelines and The United Nations Global Compact (UNGC) principles and have aligned the sustainable development activities with the ‘Focus Areas’ of The World Business Council for Sustainable Development (WBCSD).

About the author:

Mr. Sanjeeb Kakati is the Director of the Management Consultancy Services Division of Third Eye Infosys(P) Ltd. He can be contacted at skakati@sify.com.

"We have embraced sustainability as our core business strategy. We believe sustainability is the very foundation of lasting success. We will use sustainability principles to drive process innovation, new product development, improving manufacturing efficiencies and reducing material and energy consumption. This commitment is backed by active initiatives on the ground".

Mukesh D. Ambani