Green accounting – should your business be doing that?

If your company is like most, you define profit as the difference between revenues and expenses. In recent years, however, there has been a growing trend to look beyond the traditional definition of profit and include the social and environmental impacts of operating a business.

The term ‘triple bottom line’ was coined in the mid-1990s and is a way of accounting for the effect a business has on people and the planet. Triple bottom line accounting, sometimes abbreviated as TBL or 3BL, is a way for organisations to attempt to go beyond measuring traditional profit and account for their impact on society and the environment. The term ‘sustainability’ is now commonly used to explain this holistic approach to looking at an organisation’s overall impact.

Is triple bottom line accounting the choice for your business?
Let’s look at how your business might apply a TBL to its operations; we’ll consider three key areas - people, the planet and profit.

People

A business attempting to improve its TBL will have fair and beneficial practices towards its workers, its local community and the region in which it operates. For employees, practices might include fair salaries and wages, a safe and clean work environment, and flexible working hours when possible. A company following a triple bottom line will go beyond staff needs and contribute to the community in the form of sponsorships, donations, volunteering and educational initiatives.

Unlike measuring traditional profit, there is not a generally accepted way to measure this part of the triple bottom line. One standard that is gaining acceptance has been created by the Global Reporting Initiative (GRI), whose mission is to make sustainability reporting by all organisations comparable to and as routine as financial reporting.

Planet

Sustainable environmental practices that minimise its negative impacts on the environment can in achieved in many ways. You can reduce energy use by upgrading equipment and using alternative energy sources, such as solar. Toxic waste can be reduced by refining manufacturing methods.

A printing company for example, can choose to purchase recycled paper or paper produced from sustainable sources such as plantation trees. A growing number of computer companies now offer to recycle the products they produce to prevent filling landfills with more computer waste. The environmental impacts of the triple bottom line need to be viewed across your entire supply chain - this means choosing partners and vendors who are willing to adopt similar behaviours to minimise their environmental impacts.

As with societal impacts, there is not a common way to measure an organization’s triple bottom line. Several alternatives for quantifying environmental impacts of operations have been created by the Global Reporting Initiative, CERES and Institute 4 Sustainability.

Profit

Profit under a triple bottom line is not the same as traditional profit, which doesn’t consider the impacts on people or the planet. Profit under a TBL is seen as the economic benefit a business creates for the entire society, not only for its owners. In seeking to maximise traditional profit, a business measuring a TBL will need to also look at its impact on workers, communities and the environment.

Choosing to follow the triple bottom line

The benefits of TBL seem to be strong; however there are many points to consider when deciding if it’s right for your business. Some experts believe that adopting a TBL will increase traditional profits in the long run. They argue, for example, that the favourable publicity gained by adopting a TBL will improve the image of the business among customers and increase sales. Studies of Gen Y and Gen X suggests that these new generations of workers place a high value on companies that commit to good social and environmental practices, and thus the companies benefit from the perception that they are more desirable places to work.

Others argue that TBL can hinder a company in the market when competitors are only looking at traditional measures of profit. Another potential drawback is that a TBL adds another layer to their accounting system.

Companies that are socially responsible can adopt environmentally sustainable and community friendly practices without using a TBL. But these businesses won’t be able to measure and track their progress over time.

As the TBL grows in popularity, more companies will need to choose whether to follow it. We are also likely to find that in time many governments introduce legislation that forces companies to be more socially and environmentally aware. It can deliver many benefits, but you need to plan carefully and seek advice from your accounting business advisor before implementing a TBL in your business.

For more information contact your RAN ONE business professionals at
Academy of Business Excellence Limited