Has Tripple Bottom Line managed to keep up with climate change?

Dieter Dambiec explores the question.

Impact of global warming on validity of triple bottom line reporting

The triple bottom line (TBL) process involves identifying, assessing and reporting an
organisation’s activities in terms of their impact on the environment, society, and the
economy (Elkington 1980). TBL covers ‘planet, people and profit’ (de Gruchy 2006). In
TBL it is important to use environmental, social and economic parameters when it comes
to measuring an organisation’s activities and impacts. Only by understanding and acting
in relation to all three of these parameters, can an organisation enhance its short and long
term interests, thereby creating greater opportunities and reducing risks. Accordingly, a
TBL approach ensures the organisation’s success.

That success (or failure) must now take place in the era of global warming. Global
warming can be defined as “the observed increase in the average temperature of the
Earth's atmosphere and oceans in recent decades and its projected continuation” (Effects-
of-Global-Warming.com 2007).

TBL bolstered by reporting indicators

To support the ‘three pillars’ of TBL and to ensure they are viable and useful, a range of
related concepts come into play which need to be considered by an organisation. These
include corporate governance, corporate ethics, corporate social responsibility or
corporate citizenship, and importantly sustainability or sustainable development.
Sustainable development is that which seeks to meet the needs of the present generation
without compromising the ability of future generations to meet their own needs (WCED
1987). Sustainability reporting will always include a forward-looking and holistic
approach (de Gruchy 2006). This is evident (GRI 2006:1) in the Sustainability
Reporting Guidelines (Guidelines) issued by the Global Reporting Initiative (GRI), which
is the leading approach in this area, aiming at a worldwide framework for sustainability
reporting.
Part of these Guidelines oblige organisations to report on how they aim to contribute in
the future to the improvement (or deterioration) of environmental developments and
trends at the local, regional or global level (GRI 2006:1, 11). This concept is often
articulated in terms of limits on resource use and pollution levels (GRI 2006:1, 11).
Clearly, with the advent and recognition of global warming, the impetus and ability to
reduce greenhouse gas emissions, which is a major cause of global warming, as well as
ozone-depleting substances and other significant air emissions, are measures to take into
account in sustainability reporting.

To assist in reporting of measured outcomes, the Guidelines include the Environment

Performance Indicators (GRI 2006:1 28; GRI 2006:2), the aspects of which are structured
to reflect the inputs (e.g. energy), outputs (e.g. emissions), and modes of impact that an
organisation has on the environment (GRI 2006:2 3). In this regard, indicator EN16 (GRI
2006:2 22) deals with total direct and indirect greenhouse gas emissions by weight, and
generally sets out methodologies for use of data and making calculations on this matter
for sustainability reporting purposes. Direct emissions are those owned or controlled by
the organisation. Indirect emissions are those resulting from activities of the organisation
but are generated at sources owned or controlled by another organisation. Indirect
emissions are also further covered by indicator EN17 (GRI 2006:2 24).

This type of reporting should assist in an understanding of, and positively change, an
organisation’s practices thereby leading to significant reductions in emissions. Indicator
EN18 (GRI 2006:2 25) then deals with reporting on the setting and monitoring of
reduction targets. All of indicators EN16, 17 and 18 of the Guidelines seem to support
the United Nations Framework Convention on Climate Change (UNFCC) to protect the
climate system for present and future generations and the subsequent Kyoto Protocol to
limit and reduce greenhouse gas emissions in order to promote sustainable development.

While the Guidelines and their environmental performance indicators are fairly general, it
should be remembered that these and related initiatives such as greenhouse gas
accounting and reporting practices are still evolving (WRI & WBCSD 2004). Since TBL
was espoused the concept of public environmental reporting has emerged and evolved
from the United Nations Conference on Environment and Development held in Rio de
Janeiro in 1992, followed by the GRI’s Guidelines. The basic principles and aspects of
methodology have been established through a collaborative process involving
stakeholders from a wide range of environmental, technical and accounting disciplines.
This has lead to an even more developed corporate accounting and reporting standard for
greenhouse gas emissions called The Greenhouse Gas Protocol: A Corporate Accounting
and Reporting Standard (WRI & WBCSD 2004). Linked to this is The Greenhouse Gas
Protocol: The GHG Protocol for Project Accounting which is a guide for quantifying
reductions from greenhouse gas mitigation projects (WRI & WBCSD 2005).

These documents seek to help organisations represent a faithful, true and fair account of
their greenhouse gas emissions and reductions, while ensuring consistency and
transparency (WRI & WBCSD 2004 3, 6; WRI & WBCSD 2005 5). This goal is in line
with generally accepted accounting principles. Accordingly, the validity of TBL has been
bolstered by these initiatives, as the point has been reached whereby certain practical
components of implementing TBL (in relation to a particular environmental matter) have
been integrated into the mainstream accounting framework. From that perspective it can
hardly be said that TBL has rendered itself invalid since the recognition of global
warming as an important and high priority environmental and socio-economic
phenomena that has to be grappled with.

In Australia, the Federal Government has also produced its Triple Bottom Line Reporting
in Australia: A Guide to Reporting Against Environmental Indicators (Environment
Australia 2003). Similarly, this Guide calls for transparency and accountability
concerning environmental impacts produced by organisations, and states that non-
financial disclosure is likewise important, not just financial disclosure (Environment
Australia 2003 6). The Guide contains simple methodologies to enable organisations to
measure performance against environmental performance indicators. These
methodologies are either developed or widely used or adapted to Australia (Environment
Australia 2003 11). Again this shows that serious consideration is given to the validity,
and to both the substance and form, of TBL reporting in terms of a particular country’s
circumstances and requirements. This demonstrates that TBL is a flexible mechanism.
Such flexibility makes it dynamic, allowing it to evolve over time and withstand the
passage of time.

TBL and economic modelling

To ensure robust outcomes, TBL has to be applied to particular environmental impacts.

In regard to the impact of greenhouse gas emissions (the major cause of global warming)
or their reductions, economic modelling can be used to try to verify results in some kind
of ‘real’ terms. Economic modelling has been developed to produce two basic
approaches to calculating the value of incremental emissions reductions. These are the
‘direct damage estimation’ and the ‘cost of abatement’ methods (Koomey & Krause 1997
6). The results of these methods can be used for reporting purposes and to give some
semblance of economic worth to reduction programs.

The direct damage estimation method involves calculating damages that can be
definitively linked to emissions of a particular pollutant (Hohmeyer 1988; Ottinger et al.
1990). This is done in dollar terms, e.g. human health and environmental effects, but it is
extremely difficult to do. Mainly, it is difficult because practically it has to be applied to
a region and regional forecasts of climate change are even less certain than global
predictions, yet regional forecasts are necessary to estimate the damages (Koomey 1990
4). Once that is known, organisations can assess the necessity to reduce the relevant
pollutants.

The cost of abatement (or revealed preferences) method involves assessing the use of cost
of pollution controls that are imposed by regulatory decisions (e.g. mandated by
regulators). This is a proxy for the true externality costs imposed by a pollutant
(Chernick & Caverhill 1989; Marcus 1989). This method is simpler and takes the
marginal mitigation costs incurred solely to reduce emissions of a single pollutant. This
assumes there are no other benefits to a pollution reduction investment. Therefore, such
proxy approaches present difficulties since many global warming mitigation measures
have multiple benefits (Krause & Koomey 1989) which can make it difficult to assess
where the benefits actually lay. Also many such measures await detailed, consistent
tabulation.

Nevertheless, progress in the building and acceptance of this type of economic modelling,
as an aid to assessing impacts or reductions of greenhouse gas emissions, and thereby the
impact or alleviation of global warming, are important for reporting purposes. They
provide pragmatic tools for the mathematical synthesis of the best, currently available
data for the purpose of informing a healthy policy decision by an organisation. Even if
the tools are not yet the most robust, they still assist in building a TBL compliance
culture, and so do not derogate (at all) from the validity of TBL reporting.

Attention of business to TBL

The necessity for useful environmental performance indicators, reporting methodologies

and economic modelling that have and continue to be developed and improved, can only
assist a business, or any organisation, in better determining its social responsibility in a
world that is now undergoing global warming. It is essential to have these tools so that
TBL reporting can move through into management thinking and management systems
and all the processes of an organisation. This will then impact on what and how an
organisation produces its products. In turn, there are flow-on effects on the actual day-to-
day reality of consumers in the way they behave. For example, what sort of light bulb
(energy efficient) to use, what sort of car (fuel efficient) to purchase, or what sort of toilet
(full-flush or half-flush facility) to use, and so on.

Accordingly, TBL assists an organisation in its aim of corporate social responsibility,

which requires that an organisation not only abide by the law, but also abide to product
and other standards, codes and requirements, as well as a good sense of ethics in being a
good corporate citizen. Unless an organisation has good TBL tools it is more difficult to
cement organisational commitment towards the outcomes that are desired by the
imposition of environmental reporting and environmental aspirations.

Viable and workable TBL tools assist an organisation to perform towards a higher
standard than that which is required by the law. Such tools help an organisation to
develop a framework for social responsibility and commitment, demonstrate to
stakeholders that the organisation is guided by principles of social responsibility, and to
accept accountability for not measuring up to any of the organisation’s social
responsibilities (de Gruchy 2006). They are important in transforming strategy into
action (). The impact of global warming must surely have heightened the need for an
organisation to develop and understand its social responsibilities, and that is surely
assisted by a range of TBL tools for TBL reporting.

Attention of government to TBL

As TBL represents a balance between ecological, social and economic elements, it does
rest on the philosophy that profits are not the only measure of the success of an
organisation. This may pose some problem for organisations, and particularly businesses,
in implementing TBL reporting and of seeking to fulfil social obligations inherent in a
TBL compliance culture. But to ensure environmental sustainability (now absolutely
necessary since the advent of global warming), which is inherently an integrated
outcome, organisations and businesses will have little option but to adopt TBL and
sustainability policies and processes. This means they will have to measure their
activities and impacts against environmental performance indicators and monitor
progress over time.
For businesses and organisations to move towards a more comprehensive TBL approach
there will have to be legislative and other pressures from government. This requires
governments to adopt a TBL perspective, which can be done by governments (RTSA
2004 3):

adopting ‘user pays’ principles in providing services that have pollution impacts, unless
there are clearly defined Community Service Obligations (CSOs) that need to be
satisfied;
moving towards a ‘polluter pays’ principle that applies to producers and consumers
generally; ensuring better integration of National Competition Policy (NCP) principles
with Ecologically Sustainable Development (ESO) principles; and
seeking a reduction of imported oil inputs and greenhouse gas emissions, e.g. by a carbon
trading scheme.

Bringing this together requires governments to understand TBL reporting and to regulate
for the imposition of environmental performance indicators and use of methodologies
that are needed for TBL reporting. This has to be done in a solid policy framework.

Conclusion

The impact of global warming on the validity of TBL reporting has been such that it has
more than ever heightened the need for thorough environmental reporting indicators,
methodologies, economic modelling and reporting tools (the suite of TBL tools)
consistent with the TBL approach. While businesses and organisations and, of course,
the community and its consumers, have generally woken up to the impact of the
externalities caused by producers on the environment, which has been reinforced by the
advent of global warming, it is still essential that governments give more attention as to
how to implement the TBL approach in our society and to make it part of our socio-
economic consciousness.

In order for businesses and organisations to comply, mandatory or legislative steps will
need to be taken because TBL represents a balance between ecological, social and
economic elements. In that sense it looks at total welfare, in which profits are not the
only measure of success. Consequently, organisations and businesses will have to
understand that a TBL approach is ultimately better for them, just as it is better for
society as a whole. This understanding has certainly increased since the advent of global
warming, which has resulted in the need to develop a suite of good TBL tools. That also
proves the continuation of the validity of the TBL approach.

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