Theoretical Basis of the Triple Bottom Line

The idea of the Triple Bottom Line is simple and elegant. Traditionally, businesses have focused on profit as their first and (often) only real objective. That focus has served our culture very well since Adam Smith first framed it in The Wealth Of Nations, 1776. Smith was basically right: most of us live better today than royalty lived just a few hundred years ago.

But increasingly, the hidden downsides of Smith's model have encroached upon our commercial world and our culture as a whole. Economists would say that Smith's model EXTERNALIZES certain very real costs; society as a whole bears these costs, not just the business community. For example, who pays for the cancer caused by air pollution; who pays for the depletion of our natural resources; who pays for wars fought over energy-rich areas of the world? These are externalities; they are VERY real and they impact our lives every single day.

The Triple Bottom Line focuses on two of these externalities as well as on basic profit. The first externality is, of course, global ecology. If we understood the actual costs associated with our ecological footprint, we'd enthusiastically work to reduce those costs, financial, environmental and human. The world is figuring this out, and legislation is beginning to catch up with our emerging understanding of ecology.

The second externality is the human side. In many cases (certainly not all), business has not honored the full potential of its people (its employees, customers, suppliers, and community). People seek meaning and contribution in their work, and, given the chance, will make large and significant contributions to their companies. But if they are mistreated, or even just marginalized, they will hold back and fall far short of their potential. Economists call that a dead-weight loss; psychologists might call it angst.

The Triple Bottom Line idea is, therefore, to pay attention to all three of these important aspects of a business: the profit, the planet, and the people. In particular, to pay attention to the interaction of the three, and to the fact that they form a strongly-interacting system. If a business ignores or externalizes any of the three, things will eventually go out of whack.

Said differently, those businesses that attend to the three bottom lines, and their interactions, will have a competitive edge, a survivability edge and a culture of sustainability that the others will not. That is the essential focus of TBL 21.