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How a triple bottom line approach benefits your company

Increasingly, consumers are demanding that companies create strong sustainability and social responsibility efforts. Here's what you need to know.

When Patagonia Inc. announced in December 2016 that it would donate all of its Black Friday sales to environmental causes -- "100% for the planet" -- customers helped the company reach an impressive achievement. Instead of the approximately $2 million in sales the company said it expected, sales climbed to $10 million, which, in turn, went to underfunded grassroots environmental groups.

Patagonia is a consistent example of what the phrase "doing well by doing good" can mean, but it's not alone in that pursuit. Indeed, even in a political climate where some leaders in Washington, D.C., deny the effects of environmental issues, there are companies across the globe that have taken it upon themselves to pursue "good" in terms of profit, planet and people. This concept is called a triple bottom line -- TBL or 3BL, for short -- and it's a business approach that includes social and environmental results, beyond the more traditional single metric of the bottom line. It's closely related to the concept of corporate social responsibility, a term also related to a corporation seeking to add societal value.

The benefits of a triple bottom line approach are many. Some adherents can even be found in the financial sector. "I'm a firm believer in the long-term superiority of looking well beyond quarterly profitability," said Gary Duell, founder of Duell Wealth Preservation, a financial planning firm based in Happy Valley, Ore. In his view, profit and loss help to regulate purely financial behavior, but there needs to be a similar "market" for environmental and social outcomes.

Other advocates see similar positive attributes for TBL. "The triple bottom line -- combining financial, environmental and social metrics -- and corporate social responsibility are business success strategies, and we can go beyond them to create the world we want," said Shel Horowitz, an author who writes books about ethical business and marketing practices.

New recognition for the triple bottom line approach

Mission-driven companies show there is much that can be done in this effort toward creating that better world. For example, Patagonia's "Environmental and Social Initiatives 2015" report points to its traceable down program to promote animal welfare of down-bearing birds, its practice of using fair trade-certified cotton to help garment workers get a living wage, and its water-saving standards. The ice cream company Ben & Jerry's is also aggressively mission-driven. For example, it sources paper to make its pints from a responsible supplier, it monitors emissions and sets reduction targets, and it targets employee satisfaction, by, for example, paying its lowest hourly employees 46% above the living wage. Both companies are B Corporations, or B corps, which means they've been certified as having met high standards of social and environmental responsibility.

Companies which focus on TBL-type factors are, all other things being equal, likely to outperform over time.
Eoin Fahyhead of responsible investing, KBI Global Investors

Becoming a Benefit Corporation is another path to rigorous TBL. Benefit Corporations are a corporate legal form available in several states. The designation officially recognizes TBL efforts as an organizational foundation, legally obligating management to consider not just the financials, but also the interests of the environment, employees and customers. For example, WaterSmart Software, a San Francisco maker of software that helps conserve water, is a company in this category. Others include Method Products, which makes biodegradable, nontoxic cleaners; and Klean Kanteen, which makes stainless steel reusable drinking bottles. Companies with a Benefit Corporation can also be a B corp.

The revenue-generating byproduct of 'doing good'

Especially in today's marketplace, companies that focus on social and environmental responsibility can also boost that more traditional metric: profit. "Using the TBL framework opens up many chances to increase revenues, decrease costs and build loyalty," Horowitz said.

He's not the only one who believes in that potential. "From an investment perspective, I think it is increasingly obvious, based not least on a mounting volume of recent academic studies, that companies which focus on TBL-type factors are, all other things being equal, likely to outperform over time," said Eoin Fahy, head of responsible investing at KBI Global Investors Ltd., an institutional asset manager headquartered in Dublin, Ireland.

Fahy said it is a matter of "plain common sense" because if management is concerned about issues such as the impact of their business on carbon emissions, or on the environment more generally, or about whether their products produce some social gain, "then it seems to me to be very likely that those company management teams are also more likely to focus on the interests of shareholders and to drive the business, generally, in the right direction."

Indeed, one meta-analysis of studies that looked at the relationship of corporate performance and social and environmental sustainability found that 80% of such practices positively influenced stock prices and 88% showed better operational performance.

Mission-driven starts at the top

Many companies with a commitment to social and environmental practices are often founded specifically on those principles -- think environmental products by Seventh Generation or TOMS Shoes, which focus on giving back with each purchase. That reality underscores how important support from the top is when it comes to triple bottom line approach or corporate responsibility efforts.

For example, Southwest Airlines touts its alignment with TBL through a focus on serving its customers and energy efficiency which it distills down to three Ps: people, performance and planet. "We have been committed to the triple bottom line, really, since our inception, and we've been promoting it in our 'One Report' for the last several years," said Chris Mainz, ‎ spokesperson for Southwest Airlines and communications senior advisor at the company.

"One Report" is Southwest's annual report that includes financial measures as well as social and environmental accomplishments. Mainz says the support for the triple bottom line approach comes from the top, championed by CEO Gary Kelly. "Without strong support from our CEO, I don't think we could legitimately say we are committed to the TBL. It's essential, and it's important that our CEO believes in it and champions it; otherwise, it's just words with no action," Mainz said.

"For us, we've learned and proven over time that all three Ps work together -- many times what makes sense for one benefits all three," Mainz said. For example, a commitment to reducing greenhouse gas emissions also saves on fuel expenses, helping the company stay financially strong so it can "take great care of our people."

"We release our 'One Report' every year at our annual meeting of shareholders, and it's a source of pride for our board, as well as our employees," he added.

A triple bottom line approach gets help from tech

A number of technology tools that are helping to optimize a company's performance -- from traceability technology to supply chain analytics -- can also be used to boost sustainability efforts. But beyond those, some software tools have been developed that are specifically focused on the triple bottom line and on making it as manageable as the single bottom line has been.

For instance, BottomLine3 is a software package developed by Dipolar Pty Limited, a software company in Sydney, and ISA, a research group at the University of Sydney. The software integrates financial, social and environmental inputs to create a sustainability report. Similarly, AutoCASE, a web-based tool developed for use with AutoCAD, by Impact Infrastructure Inc., a New York City-based software company, analyzes and reports TBL values. These values include the economic, social and environmental costs and benefits of infrastructure projects. The product was even specified as a recommended tool in a recent San Francisco International Airport bidding document.

Companies for profit, people and planet

A growing number of investment organizations seek to link profits to social responsibility, such as those focused on impact investing, which from the outset aims to generate both financial and social gain. By the end of 2015, at least $8.72 trillion -- or $1 out of every $5 professionally managed in the U.S. -- was invested according to "sustainable, responsible and impact investing" principles, according to the Forum for Sustainable and Responsible Investment.

Indeed, "doing well by doing good" -- expanding the corporate model to measure its effectiveness beyond strictly financial terms -- appears to be gaining force.

"If one accepts that investors are increasingly focusing on these factors as important components of investment decisions, then it becomes almost inevitable that companies will have to take [social and environmental] factors more and more seriously," said KBI Global Investors' Fahy. After all, he added, for publicly traded companies, management is responsible to investors and, "what investors want, ultimately, is what investors will get."

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