Exam 11: Section 4: Is Sustainability Just a Buzzword

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The triple bottom line (TBL) approach can help businesses be more sustainable by assessing profitability (and other economic factors), social equity and environmental performance. Since the three factors interact, one can have a positive or negative affect on the other; thus, affecting business operations and profitability.
Economic Factors
While the growth of businesses is necessary for the growth of the economy, the economic
category begins with an organization's need for income to survive. Traditional reporting
typically focused on a company's financial statements: calculating income, expenses, assets,
and liabilities. TBL reporting, however, has a broader approach. It goes beyond the
financial statements and can include other indicators to show how a business is performing.
Changes to the number of employees, for example, can indicate either job growth or
company downsizing. The size of a business, revenue by sector, and research and development
costs can also provide other information affecting the company's bottom line and
cash flow. The amount of taxes paid is another economic indicator companies can use to
show a company's growth or decline.
Social Factors
Social equity (or the social category) refers to fair and equitable business practices toward
employees and the community. What is a fair and equitable business practice? Some examples
include fair salaries, a safe workplace, reasonable working hours, and adherence to all employment laws. Respect for diversity and human rights is also an important part of social equity. For companies that outsource some of their business functions to overseas suppliers, a fair business practice would mean not using child labour, even in countries where it may legally
be acceptable. Although lower wages are paid, businesses with equitable practices would
ensure that workers and their communities are not exploited, harmed, or negatively affected
by their business operations. Subsequently, business ethics plays a role in social equity.
Besides employee welfare, the social category includes a company's commitment to
helping the communities it operates in. Charitable donations and volunteer time are two
traditional ways an organization can help society. However, many organizations are
becoming more involved in meeting specific needs of communities and preserving the
long-term sustainability of their businesses. For instance, a company may support education,
health care, housing, or other needs that are vital to a community
Environment Factors
Businesses much understand how their activities affect the environment and how changes to the environment can affect their business. Certainly, changes to weather, natural disasters and other environment-related occurrences can stop production, raise costs and impact businesses negatively damaging profitability.
The environment (or the planet) is the category that refers to the need for sustainable
practices that protect our water, land, and air. The environment is what needs to be preserved
for future generations to enjoy and for the economy to prosper. What currently threatens the planet? Two key concerns are the depletion of natural resources by overconsumption and the ongoing release of greenhouse gas emissions. Depletion of Natural Resources The depletion of natural resources by humans is one of the greatest environmental problems that exists today. Human demand for resources is increasing as the earth's population continues to grow. However, the demand for resources is growing 1.5 times faster than the earth has the ability to regenerate them. While the global population exceeds 7 billion people, the United Nations expects the global population to exceed 10 billion by 2050, furthering the need for water, land, and other raw materials.

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The Genuine Progress Indicator (GPI):
-considers a country or region's economic growth and social well-being.
-includes all variables calculated under the GDP, but subtracts the negative effects of economic growth that cause social harm to a community. The cost of crime, pollution, and resource depletion are a few examples. How does the cost of crime normally increase GDP? Let's consider a family injured in a home break-in. In calculating GDP, lawyer's fees, property damage repairs, and medical fees are treated as forms of revenue; however, since the action does harm to a society, in calculating GPI these revenues are subtracted.
-considers positive contributions of the family and the community that are not included in the GDP because no money changes hands. For example, the value of housework, volunteer work, and unpaid childcare all contribute to a society's well-being. Under the GPI, these actions are calculated at the approximate market value of hiring someone to do the work.
-helps us understand why a population may feel unhappy or dissatisfied despite economic growth.

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Benefits of the TBL Approach
1. Improves transparency: In addition to financial statement reporting, the TBL allows
an organization to voluntarily report its impact on society and the environment. This
can improve accountability as the organization provides information on its nonfinancial
activities and exposes itself to both public criticism and praise.
2. Allows flexibility: The TBL is also a framework any organization can use. Whether you
are a corporation, the government, or a nonprofit organization, the framework is general
enough for most organizations to easily adopt. An organization of any size or any industry can use the TBL method. It can also be used broadly to assess an organization's overall performance or be applied to an individual project, policy, or geographic area. On an annual basis, organizations can use the framework to assess performance, identify necessary changes, and assist in future decision making.
3. Aims to satisfy more stakeholders: The approach also recognizes the impact of the organization's actions on all its stakeholders. Stakeholders can include shareowners,
employees, the community, and even the environment. As a result, this methodology
uses a long-term perspective to improve the impact of an organization's activities on
all the people and groups being affected by it.
Limitations of the TBL Approach
1. No measurement standards: Unlike generally accepted accounting principles (GAAP) used in accounting, there are no widely accepted standards or rules for measuring, verifying, or auditing TBL data. The mixture of both quantitative and qualitative data means that there is no common unit of measure that can allow all three categories to be added together to arrive at a net figure. Each component-economic, social, and environmental-is unique. While the economic category can use a dollar-based measure, it can also use additional measures to track other indicators other than profits. For example, job growth and employee turnover are two variables. Similarly, the social and environmental categories have other unique indicators that cannot simply be added together.
2. Too subjective: Another limitation of this qualitative method is its subjectivity. The
social category, for instance, is subjective and requires more personal judgment than
the economic category. For example, what is a positive social action that a company
can take to improve the well-being of its employees, the community, and other stakeholders? Is it a monetary donation to a charitable organization, or will a company allowing its employee's to volunteer their time to a worthy cause also suffice? What meets the needs of employees and the community may depend on a variety of factors: The region, the culture, the values, and the expectations of its stakeholders are just a few.
3. Lack of comparability: Since the TBL approach is not legally required, not all organizations voluntarily use this approach. For organizations that do use it, each organization has the flexibility to choose what data to collect, measure, and include for reporting purposes. For instance, companies can decide to exclude negative activities and only include positive ones. Cost and time constraints may also create obstacles for some organizations in tracking data. There are no consequences if there is missing data or a lack of information, and there is no legal requirement to have a third-party audit. Other factors such as the size of the organization or the type of industry can affect what indicators organizations decide to use. A construction company, for instance, may use a lot of environmental indicators to track waste and other environmental impacts, whereas a nonprofit health group may have more social indicators aimed at helping people.