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11/01/2013

The Triple Bottom Line

Back in 2005–not long after Hurricane Katrina had devastated New Orleans–Walmart's then-CEO Lee Scott gave a speech titled "21st Century Leadership." Addressing his personal and professional reaction to the disaster, Scott focused on the increasing importance of sustainability, and laid out three goals for the company: to be supplied 100 percent by renewable energy, to create zero waste and to sell products that sustain people and the environment.

"Hurricane Katrina really started it all for us," Scott explains on The Green Room site (www.walmartgreenroom.com)–a platform for an ongoing conversation with NGOs, suppliers and others who want to share ideas and partner with Walmart to help people live better around the world. "Our company's emergency response showed us the potential we have to make a difference on the social and environmental issues that matter most to our customers, associates and communities."

Walmart underscored its commitment to those issues in its sixth annual Global Responsibility Report, released in April 2013. Titled "The Responsibility to Lead," it highlighted the company's accomplishments and progress in the areas of social, company and environmental responsibility, as well as recent achievements to reduce its environmental impact.



"We believe our customers should not have to choose between affordability and sustainability."

–Andrea Thomas,

Walmart


"We believe our customers should not have to choose between affordability and sustainability," Andrea Thomas, Walmart's senior vice president for sustainability, said in a statement about the report.

Walmart's move to measure more than monetary success illustrates the Triple Bottom Line (TBL) approach to accounting: a method of evaluating corporate performance by measuring environmental sustainability and social responsibility in addition to profits.

"The [term] was first coined by John Elkington in 1994 to capture the full cost of doing business," says Marc J. Lane, founder of Marc J. Lane Wealth Group in Chicago, a nationally recognized business and tax attorney, and an expert on entrepreneurship and entrepreneurial finance.

The TBL approach, he explains, measures how a company affects people, planet, and profit–commonly referred to as the Three P's.

"Whole Foods Market Inc.'s mission 'to promote the vitality and well-being of all individuals by supplying the highest quality, most wholesome food available' exemplifies their initiative of a triple bottom line approach," Lane says. "[The company's] motto–'Whole Foods, Whole People, Whole Planet'–also reinforces this notion. Whole Foods, in an attempt to create a sustainable food chain, focuses on four factors: sustainable agriculture, wise environmental practices, community citizenship and integrity in all business relationships."

Gaining Steam

Conceived in the mid-1990s, the TBL concept has blossomed over the last several years, industry experts note.

"In recent years, it has been incorporated into thousands of strategic plans," reports Leesa Sluder, founder and president of Triple Bottom Line Consulting LLC in Mooresville, N.C. "The term is used in a number of business schools as a framework for setting strategy."

Amy Longsworth, the Washington, D.C.-based managing director in the Sustainable Business Solutions practice at PriceWaterhouseCoopers (PwC), a professional services firm, prefers the term "blended bottom line."

"It's a way of integrating the social and environmental performance measures into the total thinking about the company's overall performance," she says.

Longsworth identifies four goals driving companies to embrace the People, Planet & Profit approach. They want to reduce risk in the supply chain, reduce costs (particularly for transportation and energy) grow revenue, and improve relationships with customers and their communities.

The ultimate driver, however, is a quickly changing marketplace fueled by increasingly concerned and influential shoppers, research shows.

"As one of the most notable evolutions of the past decade, consumers have become progressively more concerned about their environmental and social impact. This concern has manifested in an increased demand for environmentally friendly products, a rise in the availability of organic foods, and more," according to The Retail Industry Leaders Association's "2012 Retail Sustainability Report."

"The traditional measures of competition–namely price, quality, service and convenience–are now being supplemented by environmental and social considerations. These changing marketplace dynamics reinforce retailers' efforts to identify and act on environmental and social concerns in their direct operations and product supply chains."

Leading the Way

Companies involved in food and beverage retailing are among those implementing initiatives that are measurably affecting people, planet and profit.

Walmart and the Walmart Foundation, for example, committed $1 million to the Red Cross and Save the Children for emergency relief efforts in response to Typhoon Haiyan in the Philippines. In 2012, the company was recognized by the EPA Green Power Partnership as the largest on-site green power generator in the U.S.; reduced its plastic bag waste globally by 38.1 percent, more than the targeted 33 percent; and donated more than $1 billion in cash and in-kind contributions around the world.

The Whole Trade Guarantee means that the product meets four key criteria: quality, premium price to the producer, better wages and working conditions and the environment.

Whole Foods Market is ranked No. 1 in Greenpeace's 2013 Seafood Sustainability Scorecard, and in October was named Retailer of the Year by The World Retail Congress, an award for global excellence across key areas of retail, including corporate responsibility. The company also works to alleviate poverty through its non-profit Whole Planet Foundation, which gives microcredit (small loans requiring no contract or collateral) in communities worldwide that supply products to Whole Foods stores.

Large corporations aren't riding the TBL bandwagon alone. "Implementing the triple bottom line approach for smaller retailers, although difficult due to scale and limited resources, is nonetheless achievable," Lane says, citing Rhino Foods, maker of the cookie dough for Ben & Jerry's ice cream, as one example.

"Rhino emphasizes the hiring of recently legal immigrants to help them get established in the country," Lane continues. "Rhino also established the Income Advance Program, a $1,000 line of credit for every employee, designed to help staff deal with financial hardships or emergencies that arise–no questions asked."

New Seasons Market, a locally owned company with 12 stores in the Portland-Vancouver, Wash., area, is another example of a small company doing big things from a TBL perspective. The company shares 20 percent of after-tax profits with its staff through an equitable profit-sharing plan.

In 2012, the company partnered with more than 900 local nonprofits committed to addressing community hunger, public education and conservation, and was recently verified to be a Zero Waste company, diverting 92 percent of its waste away from area landfills. New Seasons Market was the first grocery retailer to receive B Corp Certification from B Lab, a nonprofit organization with rigorous standards for social and environmental performance, accountability and transparency as related to TBL.

The Measuring Challenge

Understanding components that affect each leg of the TBL triangle is an important step in measuring success.

In the "people" realm, Lane says companies should not overlook charitable contributions, community outreach, human rights, knowledge diffusion, increased collaboration capacity, labor relations and fairness.

The "planet" component should encompass reducing waste, conserving energy and maintaining environmentally safe manufacturing processes that avoid future potential legal liabilities, Lane says.

Finally, "profit" should consider capital efficiency, risk management, margin improvement, total shareholder return and growth enhancement–factors that, according to Lane, "provide for sufficient income, strong brand and reliable relationships."

Food retailers, in fact, are often better positioned than others to hone a reputation as a sustainable business and, in the process, to embrace a TBL philosophy.

"A store has to build sustainability deeply into its brand through product mix and how it advertises," Langsworth says. "And grocery has an advantage here."

Lane concurs. "Retailers are an intrinsic part of their local communities, and a natural aggregator of community opinion," he says. "In this role, they are capable of setting, driving and amplifying local themes and concerns around sustainability."

One example he gives is Whole Foods' Take Action Centers, which educate shoppers about environmental issues and new legislation, and suggest how they can effect change. He calls the centers "one of the [company's] most important and impactful initiatives."

Though tough to measure and report, TBL is becoming increasingly important as the spotlight brightens on social and environmental business practices.

Perhaps Scott summed it up best in his post-Katrina speech when he countered skeptics who believe that companies that consider the environment will not succeed: "I believe they are wrong," he said. "I believe...that being a good steward of the environment and in our communities, and being an efficient and profitable business, are not mutually exclusive. In fact, they are one and the same."

Organizations Establish Reporting Standards

Measuring the economic, environmental and social components of the Triple Bottom Line can be challenging. The following organizations are among those addressing the issue by establishing criteria and reporting standards:

  • B Lab. This nonprofit organization serves a global movement of entrepreneurs using the power of business to meet social and environmental challenges. B Corporations are certified by not-for-profit B Lab to meet rigorous standards of social and environmental performance, accountability and transparency.
  • Global Impact Investing Network (GIIN). GIIN is a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. Impact investments are made into companies, organizations and funds to generate measurable social and environmental impact along with a financial return.
  • Global Reporting Initiative (GRI). GRI promotes sustainability reporting for organizations. A sustainable global economy should combine long-term profitability with ethical behavior, social justice and environmental care. When organizations consider sustainability–and integrate it into how they operate–they must consider four key areas : economic, environmental, social and governance.

Freelance writer Kathleen Furore covers business topics for publications including Progressive Grocer, Convenience Store News, Hispanic 360 Retail and el Restaurante Mexicano magazines.