of the GPI and GNP for the last 50 years, for example, shows a significant difference in their measures (see Figure 2.1).
Figure 2.1.
GNP vs. GPI.
Putting all of these measures together requires a new model for accounting. Where organizations only need to track financial measures currently, new instruments like the triple bottom line require organizations to track measurements across all three categories. But, this is still not enough. Simply tracking the numbers doesn’t mean they will be consulted. The integrated bottom line attempts to combine these values so that environmental and social values aren’t easily ignored. However, not only are there no standards for how to account for these other measures, but most companies don’t even track the data necessary to do so—yet.
Another approach is called total cost assessment. This calculation requires a team within an organization to generate and share data from all areas, including manufacturing, design, R&D, engineering, transportation, marketing, facilities, purchasing, external affairs, inventory, strategy and management (insurance, legal, accounting), and so on. In addition to current accounting of revenues, costs, employees, supply chains, etc., it proposes adding value criteria from market and competitors, governments, NGOs, and other stakeholders, as well as currently unaccounted values for things like product disposal (both costs and savings).
Other, new measures are being proposed (such as the Sultan of Bhutan’s Gross National Happiness indicator), but we need more proposals. We’ve yet to establish satisfactory measures that calculate total social and environmental costs in relation to traditional monetary costs, and until we do, we won’t have the tools necessary to make smart decisions about our futures.
Integrated Bottom Line
In the late 80s, environmentalists started urging companies to use a “triple bottom line” to manage profit while also protecting people and the planet. Unfortunately, this approach simply bolted the promotion of environment and social issues onto standard balance sheets as cost centers, reducing the traditional measure of profit.
A more useful approach is the “integrated bottom line,” a term coined by socially responsible investment expert, Theo Ferguson. This recognizes that profit is an important measure, but only one of many criteria that helps organizations provide enduring value. The Integrated Bottom Line approach integrates costs and benefits for social and environmental criteria into the traditional structure of the income statement and balance sheet, eliminating the separation of these issues and directly highlighting where the value of sustainable business impacts business performance and value:
Raise profitability by cutting energy and materials costs in industrial processes.
Drive innovation, leading to increased top-line revenues.
Improve facilities design and management, and fleet management to increase effectiveness.
Lead the effort and have first-mover advantage.
Reduce risk and unbooked legal liabilities.
Improve access to capital.
Improve corporate governance.
Enhance core business value through better government and stakeholder relations.
Build brand equity by differentiating product and service offerings and enhancing reputation.
Build competitive advantage through increased market share.
Increase a company’s ability to attract and retain the best talent and detract from lost knowledge and expertise or increased training costs from replacement personnel.
Increase employee productivity and health.
Improve communication, creativity, and morale in the workplace.
Build better supply chain and stakeholder relations.
Companies on the Dow Jones Sustainability Index have outperformed the general market by integrating the thinking behind the integrated bottom line across all aspects of their business. Recently, Goldman Sachs found that leading companies in environmental, social, and good governance policies outperformed the MSCI world index of stocks by 25 percent since 2005. Seventy-two percent of the companies on the list outperformed industry peers.[1]
[1] Alderton, Margo, “Recent report finds corporations that lead in corporate responsibility also lead in the market,” Socially Responsible Investing. 07-11 17:57, also at www.csrwire.com/companyprofile?id=4489.
Putting It All Together
One way to test these concepts is to consider how they interact with real questions people have in the world. We’ll look quickly at two—not necessarily to answer them definitively but to uncover, in a real-world context, the complexities encountered when asking such seemingly simple and obvious questions.
Quick, which bag is better for the environment, paper or plastic (see Figure 2.2)? Are you sure?
Figure 2.2
Paper or plastic—the eternal question.
Because even the experts can’t agree. The ubiquitous question asked of shoppers by grocery baggers has been turned around in the past few years as it pertains to environmental choices. These are exceedingly simple options, most often comprising one part and fairly simple manufacturing processes. Their function, too, is incredibly simple and obvious in almost all cases. This makes it an easy question to start with. Let’s look at the pros and cons of each.
| Paper | Plastic | |
| Pros | Made from a renewable resource (trees) Biodegradable |
Much lighter than paper bag
Despite being made from fossil fuels, uses considerably less material and releases significantly less greenhouse gas in the manufacturing and transportation
|
