The Triple Bottom Line, Inclusive Business and Shared Value

October 1, 2015

Today’s highly competitive, globalized, world requires organizations and businesses to think differently about how they are going to stay in business. They can no longer afford to focus on profits alone as other factors, such as social and environmental sustainability, are becoming more present – both in real terms as well as from a regulatory perspective. The hyper-connectedness of our modern world also means that customers now have more information about businesses than ever, as well as a greater number of choices, meaning that businesses that fail to understand all of what their customers are looking for will be substituted quickly.

Organizations must therefore think about ways to build sustainable business that incorporates more than just short term thinking on profits. The Triple Bottom Line, Inclusive Business and Shared Value concepts push for this sustainability (in the environment and the community) alongside monetary success, or even as potential drivers of financial success.

Let’s look at different ways organizations are thinking beyond their traditional bottom line.

Reporting on sustainability

Triple bottom line (TBL)

Triple bottom line is basically the measuring and reporting of a business’ performance with respect to People, Planet and Profit, or the triple bottom line as it is called. Often it is not an easy thing to incorporate such considerations and measures into existing businesses that had to date only considered their one bottom line, as it requires a fundamental shift in strategy and approach.

Although all of the triple bottom line indicators do not have a common unit of measure, this allows a user to adapt the general framework to the characteristics of different entities. Finding a common unit of measurement is a challenge, but there are typical areas organizations may focus on in terms of measurement such as some of the ones listed below:

Economic Measures	Environmental Measures	Social Measures
Personal income	Sulphur dioxide concentration	Unemployment rate
Cost of underemployment	Concentration of nitrogen oxides	Female labour force participation rate
Job growth	Selected priority pollutants	Median household income
Employment distribution by sector	Fossil fuel consumption	Relative poverty
Revenue by sector contributing to gross state product	Hazardous waste management	Health-adjusted life expectancy

In South Africa, there is often a need for corporates to have integrated reporting as a result of the King III and the New Companies Act (2009). It is now mandatory, for example, that all JSE listed companies report on all three facets of a sustainable business as part of good corporate citizenship and governance.

In this case, many of the businesses are following regulatory requirements however, and are not necessarily seeing value in this beyond ensuring they are compliant with all laws and regulations in a given country context.

Sustainability incorporated into Core Business:

Shared prosperity through inclusive business models

Companies in emerging markets like South Africa do business with people who live at the “base of the economic pyramid” (BOP). Globally, 4 Billion people who earn less than USD 3260 per year sit in the BOP – they are thus often a huge but underserved market.

The fundamental idea behind the concept of ‘inclusive business’ is that of integrating less fortunate people into the production process as consumers, producers/suppliers, employees and business partners. Although seemingly a nice thing to do, the profit potential can also be significant given the very size of this largely untapped market.

Shared value

Shared Value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Thus both sides ‘’share’’ in the value created.

This can be done through:

Products and markets – providing products and services that address social environmental issues. In this way, they create good products while potentially expanding to new markets.
Value chain – rethinking productivity in the value chain and investing in local producers to help them increase production, thus creating employment and decreasing costs by creating economies of scales and less risk.
Creation of Clusters – developing a highly talented labour force and employment reduction (the best example perhaps being Silicon Valley in the USA).

Practically applied

In 2004 Coca cola recognized that something needed to change. They wanted “reconnect” with the ethos of the company and re-invent how they looked at their business. Coke therefore created the Manifesto for Growth, focusing on the 5Ps (People, Portfolio, Profit, Partnership and Planet). These are guiding principles for thinking about its business, given that amongst other things, Coca-Cola’s relationships with its customers, the environment, and local communities are integral to the company’s success.

Due to this shift in strategy, Coca Cola has gained greater competitive advantage and strengthened their earning potential. It has also given them a strong brand position, which reflects positive brand image and perceptions amongst customers.

Another good example of using a Shared Value approach is the case of Unilever India, specifically in the hygienic product market of detergents, shampoos and tooth pastes. Unilever realized that if they were able to package smaller quantities of their products and sell them a lot cheaper, the daily wage earning population would find it easier to afford these products. This helped Unilever boost its profits but also led to better health improvements at the BOP.

Our opinion

By focusing beyond financial targets and profits, companies have the ability to impact our world and still operate successfully, if not better than before.

This is the objective. But what is the intention? Do companies focus on the environment and the people who live in it because they actually care and want to make a difference? Or is it just a strategy or game plan to achieving higher profits and returns through window dressing and creating brands that give them access to more markets to make money?

Maybe it’s both, or maybe it does not matter. After all, a business’ primary objective is wealth maximization of its shareholders and it wouldn’t be a business otherwise. So if companies are able to take advantage of integrated Shared Value approaches and help the lives of people in their communities while doing less harm to the environment and make good money doing it surely the intention is less important? We would love to know what you think, dear readers.