TRIPLE BOTTOM LINE ACCOUNTING
INTRODUCTION
Globalization has brought with it a widerealization that companies do not operate in isolation, but can have significantimpacts on the environment and people at local, national and global levels(International Forum on Globalization, 2008). For the purpose of measuring theimpact of business activities on the environment and the society, Hamilton(2001) noted that the conventional system of business and national accounts isinadequate, because it does not deal with the priceless environmental andsocial externalities, which are important in a sustainable development thusrequires an extension of the standard framework. This has led to an increasingawareness of the “triple bottom-line” of business success – measuring thebusiness not only in its financial performance, but by its social andenvironmental impact as well (Henri & Journeault, 2006).
The triple bottom line (TBL) refers to thesocial, environmental, and economic value of an investment. The concept isincreasingly salient to economic development related fields such as business,finance, planning, and real estate. Triplebottom line is an accounting framework with three parts: social,environmental (or ecological) and financial. Some organizations have adoptedthe TBL framework to evaluate their performance in a broader perspective tocreate greater business value. In traditional business accounting and commonusage, the “bottom line” refers to either the “profit” or “loss”,which is usually recorded at the very bottom line on a statement of revenue andexpenses.
OBJECTIVES OF THE STUDY
Theobjectives of this seminar paper is toexamine the concept of triple bottom line accountings standard so as ascertainits relevant to the accounting systems of an organization and its impact on thesocial, economic and environmental effects of the firms activities on the localpeople.
SCOPE OF THE STUDY
Aspects of the Triple Bottom Line (TBL) conceptare addressed in economic development literature; however, a clear definitionof TBL economic development is lacking. Furthermore, little research has beenconducted regarding how economic development professionals view and practicethe concept. This study addresses those gaps, paving the way for moreproductive engagement with an important and timely topic. The study begins withan introduction to the TBL concept, review literatures on TBL; discuss thefindings based on the reviewed literatures and draw conclusions.
LIMITATIONS
Thisseminar paper is limited to the above stated scope because of time, lack ofavailable materials and financial implications of the research. However, the researchermakes necessary effort within his reach to ensure that the seminar paper isresearched and conducted to a reasonable conclusion.
LITERATURE REVIEW
The Triple Bottom Line Concept
The triple bottom line term was coinedin the 1990s by business consultant John Elkington to describe economic,environmental, and social value of investment that may accrue outside a firm’sfinancial bottom line (Elkington, 2004). The TBL approach aims to moreaccurately value assets and leverage resources, so that capital is employed asefficiently and effectively as possible. The concept is sometimes referred to asthe 3Ps (people, planet, profit), triple value adding (Roberts & Cohen,2002), and blended value (Emerson, 2003). Triple bottom line thinking isinformed by and relates to the concept of sustainable development—the premisethat development should occur in ways that meet the needs of current generationswhile maintaining conditions and opportunities for future generations to do thesame (World Commission on Environment and Development, 1987). Inherent in the definitionof sustainable development are concepts of environmental stewardship and inter-and intra-generational equity.
Efforts to define and address sustainabilitywere born from the recognition that existing development patterns cannot proceedwithout jeopardizing the environmental systems necessary to sustain life andeconomies, and that significant disparity within and between generations isneither sustainable, ethical, nor in tune with development goals. Triple bottomline and sustainability concepts have gained traction in fields related toeconomic development including business, planning, finance, and real estate.This is evidenced by the growing number of journals, books, professionalorganizations, certifications, and conferences addressing sustainability inrelated topics such as impact investing, responsible property investment, andcorporate responsibility. As discussed below, aspects of the TBL are addressedin economic.
According to Bernardez (2005), sustainable development isa concept, which underscores that the rate of consumption or use of naturalresources should approximate the rate at which these resources can be sustainedor replaced. It is a development process that aimed at achieving the needs ofthe present generation without depriving the future generation the ability toachieve their own needs. There are several approaches to achieving sustainabledevelopment. This paper is however concerned with the application of accountingframework in sustainable development effort. Spreckley (1981) argued thatconsidering the impacts of business activities on the environment and society,enterprises should measure and report on social, environmental and financial performanceto evaluate their contributions to sustainable development. He thereforearticulated the triple bottom line in a publication called Social Audit – AManagement Tool for Co-operative Working. The phrase “triple bottomline” was coined by John Elkington in his 1997 book Cannibals with Forks:the Triple Bottom Line of 21st Century Business (Brown, et al, 2006). A TripleBottom Line Investing group advocating and publicizing these principles wasfounded in 1998 by Robert J. Rubinstein.
Over the last decades, environmentalists andsocial justice advocates have struggled to bring a broader definition of“bottom line” into public consciousness, by introducing full costaccounting. For example, if a corporation shows a monetary profit, but theirasbestos mine causes thousands of deaths from asbestosis, and their copper minepollutes a river, and the government ends up spending taxpayer money on healthcare and river clean-up, how do we perform a full societal cost benefitanalysis? The triple bottom line adds two more “bottom lines” social andenvironmental (ecological) concerns (Magee & Scerri, 2012).
For reporting their efforts companies maydemonstrate their commitment to CSR through the following: top-levelinvolvement- CEO, Board of Directors, policy investments, programmed, signatoriesto voluntary standards, principles – UN Global Compact-Ceres Principles, and reporting– Global Reporting Initiative(Bernardez, 2005; Kaunfman, 2011 ).
Dixon (1994) identified the followingfunctions of triple bottom-line accounting: it assists corporate managers intargeting costs reduction, improving quality in reinforcing quality’ principles;reveals the firm’s financial, social and environmental assets and liabilities,hence employees are motivated to search for creative ways of reducing theliabilities; encourages changes in processes to reduce waste, resources used,recycle waste or identify markets for waste; allocates costs to the appropriateproduct, process, system or facility and thus reveals costs to responsible manager; provides better estimatesof the true cost to the firm of producing a product and this improves pricing,thereby increasing sales and consequently profit; reassures shareholders and investorsabout the operations and performance of the company and this enables managersreduce the information gap between them and investors, thus gaining investors’confidence. This requires the firm to lower its cost of capital, raise itsstock valuation multiples, increase stock liquidity and enhance interest by institutionalinvestors; and indicates the level of business dependences on environmentalresources thereby serving as a premonition to the business on its use ofnatural resources and the impact on the society (Matthews, 1993).
Economic Development in Practice
Having defined TBL and sustainable economicdevelopment, we consider whether and how the concept has been addressed inpractice. Research regarding how economic development practitioners understandand prioritize TBL or sustainable development is sparse, though consistentlyidentifies the population as having limited engagement with sustainabilitythemes. Jepson (2003) surveyed 500 certified city planners and found that thosewho self-identify as economic developers offered slightly lower support for ecologicallyfocused sustainable development activities than planners with otherspecializations. Zeemering (2009) utilized Q methodology with 28 economicdevelopment officials in the nine-county San Francisco Bay Area and found thatparticipants do not hold a unified conceptualization of sustainability (e.g.,varying levels of emphasis on economic, environmental, and social factors) andthat prioritization of potential actions is influenced somewhat by context(e.g., whether a factor is constrained in their jurisdiction or viewed aswithin the organization’s scope of responsibility). Grodach (2011) exploredbarriers to sustainable economic development in 15 Texas cities throughdocument analysis and interviews with economic development officials. He foundthat economic development officials rarely mentioned TBL themes when asked todefine the purpose of economic development, but did mention TBL themes whenasked to identify important assets for economic development (e.g., humancapital, educated workforce, quality of life, accessibility, and regionalcollaboration).
Sustainability themes were viewed primarilyin relation to how they may negatively impact future growth and as outside theeconomic developer’s control. A competitive and reactive approach to developmentwas identified as a barrier, along with a conventional economic developmentmindset that emphasizes attention to economic growth over social equity andenvironmental protection.
DISCUSSION OF FINDINGS
Triple bottom line and sustainable economic developmentunderstand the purpose of economic development to be improved well-being andquality of life through the creation of jobs and wealth, and the process ofeconomic development to include creation, expansion, retention, andrecruitment, of jobs and businesses through a mix of techniques. Thesetechniques include, for example, business assistance, workforce development,and the cultivation of networks, infrastructure, and amenities that supportbusiness development and influence business location decisions. It adds to thisconventional view a recognition that economic development is inextricablyconnected to environmental and social factors, and that all three must beaddressed for economic development to succeed.
The research indicates that economicdevelopment professionals generally favor the consideration of economic, environmental,and social dimensions when making economic development investments, yet few doso. A number of interrelated factors may contribute to this gap. First,economic development is situated in a broader context in which understanding ofand support for TBL concepts may be limited. Research in related areas ofplanning, administration, and sustainability suggests that organizational andcommunity characteristics impeding uptake and implementation of TBL conceptsmay include insufficient capacity, a weak understanding of and support by keyorganizational and political leaders, and low socioeconomic status (Conroy, 2006;Grodach, 2011; Hammer, 2010; Hammer, Allen, &Meier, 2010; Johnson &White, 2010; Saha, 2009; Saha & Paterson, 2008; Svara, Watt, & Jang,2013; Wang, Hawkins, Lebredo, & Berman, 2012). Second, economic developmentoccurs in a highly competitive environment where much of what affects outcomesis outside the jurisdiction’s control and success is narrowly defined.Furthermore, TBL economic development may be impeded by a lack of integration andcoordination among various policies and programs, with existing programs oftenat odds with TBL principles, and trade-offs between economic, environmental,and social goals assumed to be required. Finally, TBL or sustainability principlesare not core to academic and professional accreditation for economicdevelopers, which likely translates into a lack of knowledge and skills toinfuse TBL concepts into practice. For example, accreditation as a CertifiedEconomic Developer or Accredited Economic Development Organization does notrequire any coverage or proficiency with respect to TBL or sustainabilitytheory or practice.
CONCLUSION
Pareto principle posits that a developmentprocess that makes one better off and another worse off, is not desirable. Inlight of this, a business firm that achieves its financial performance andcauses environmental degradation and social imbalance in the society where itoperates needs to be called to order for sustainable development to strive. Inthis study, it was observed that triple bottom-line accounting operationalizedas financial performance, social performance, and environmental performance,has a significant relationship with sustainable development. These findingsagree with the works of Kaufman (2011), and Dixon (1994). This study confirmedthat increase in the adoption of triple bottom-line accounting will result inabout 59% increase in sustainable development in Nigeria.
REFERENCES
Brown, D., Dillard, J., & R. S. Marshall. (2006). “Triple bottomline: A business metaphor for a social construct.” Portland, Portland StateUniversity School of Business Administration Press.
Dixon, J. (1994) “Economic analysis of environmental impact” London,Earthscan Publishers Ltd.
Hamilton, K. (2001) “Indicators of sustainable development” GenuineSavings, The World Bank; Washington.
Henri, J.F., & Journeault, M. (2006) “Environmental performanceindicators” An Empirical Study of Canadian Manufacturing Firms. Journal ofEnvironmental Management, 86, 143-149.
James, P & Scerri, A. (2010) Auditing cities through circles ofsustainability: In Amen, M., Toly, N.J., Carney, P. L., & Segbers, K. (ed)Cities and Global Governance, 111–36.
Magee, L. & Scerri, A. (2012) “From issues to indicators” A Responseto Grosskurth & Rotmans’, Local Environment, 17(8), 915-933.
Matthew, M., R. (1993) “The emergence of ecological & environmentalaccounting” socially responsible accounting. London, Chapman and Hall.
Quarter, J., & Mond, R. (2007) “Social accounting for business”non-profits & cooperatives in Crolia; Academic Research Review 8 (2),34-41.
Scerri, A. & James, P. (2010) “Accounting for sustainability” Combiningqualitative & quantitative research in developing ‘indicators’ ofsustainability”. International Journal of Social Research Methodology13:41-45.
Spreckley, F. (1981) “Social audit: A management tool for co-operativeworking” Working Paper 6.
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