by Glenn Cheney

The movement has already started: the triple bottom line, or, as some refer to it, the “10-K of the corporate conscience.”

And it has a fair amount of impetus behind it.

Here’s the theory: Business serves several purposes in the economy. One, of course, is to generate a profit for investors. To judge from the focus of financial reports, profit is the only purpose of business.

Corporations have far broader impacts on the economy and the society that it sustains.

Corporate reports, some say, should therefore report on those impacts. One answer may be the triple bottom line.

The financial bottom line is the traditional conclusion of annual reports. It shows how the company has benefited its investors.

A social bottom line shows how the company has benefited society, an entity including customers, vendors, communities, governments, future generations and everyone else.

An environmental bottom line would show how the company has contributed to the sustainability of its environment (including the environment of its suppliers, customers, investors, communities and so on) by minimizing contamination and ensuring a sustainable inventory of natural resources.

Many companies are already producing individual variations of the triple-bottom-line concept. In some countries, financial analysts are already cogitating questions of comparability, and auditors are wondering how they would audit legally mandated non-financial reports.

Mary Tribble, co-founder of the Forum on Corporate Conscience, said that the process of producing triple-bottom-line reports actually helps companies recognize their integral role in society and the environment.

As Tribble sees it, irrelevant, untargeted do-good contributions do not fulfill the function of the triple bottom line. Charity is fine, she said, but that’s not what the triple bottom line is about. A company needs to assess its relationship to society and the environment and recognize how both relate to the company’s self-interest.

“In many cases, a company’s giving program isn’t really integrated into the way they do business and the way that their employees interact in the community,” Tribble said. “It all needs to connect. If these issues remain in the corporate communications department, they will die.”

She cited a Louisiana bank that was approached by an environmental group seeking help to save local wetlands. The bank president realized that his bank had branch offices in all the communities where the wetlands were disappearing. The disappearance of the wetlands would affect local economies and, consequently, the bank.

Though the bank had not caused the problem, the president realized that, for the bank’s own good, it had to deal with the problem. The bank’s subsequent remedial actions could be considered an “asset” that would appear in an environmental report but not in a standard financial report.

As they work toward a triple bottom line, Tribble said, companies will find themselves asking important questions that boil down to self-interest. At this nascent stage of the concept, accurate and consistent methodology is of secondary importance.

“It’s about backing up and looking at the corporation in a different way and figuring out how the ways that they do business might be, for instance, leaving a footprint on the environment,” Tribble said. “Are there any ways that the company does business that are somehow creating social injustice? Are there any steps that we can take to minimize it? It’s all about how they do business, not just about doing good.”

Tribble sees the demand for triple-bottom-line reporting coming from government, investors, consumers and the internal needs of corporations. The latter, she says, may be the most pressing and significant.

Before social and environmental bottom lines attain the external significance of the financial bottom line, they need to clear a major hurdle: They need to be measurable and standardized.

Much of the world has already moved a long way toward standardized measurement and presentation. The Global Reporting Initiative, an agency of the United Nations working out of Amsterdam, has issued an initial framework of “Sustainability Reporting Guidelines.”

The guidelines are far from the meticulous standards established for financial reporting. They serve successfully, however, for companies that want to provide comprehensive narratives on relevant social and environmental issues.

Several countries and companies are using or referring to GRI guidelines. The Netherlands requires public companies to report, and it refers to GRI guidelines. France mandates sustainability reporting by corporations, but does not provide a reporting framework or principles. Australia has aligned its environmental guidance with that of the GRI. Japan has just announced that it will mandate environmental reporting and is working with the GRI to develop a compatible framework.

Alyson Slater, associate director of the GRI, said that some 450 public companies have issued triple-bottom-line reports using the GRI framework. That number is three times the number of 2002. Half of the companies are in Europe, but Japan is the country with the most companies reporting.

“The next stage will be to increase comparability across industry sectors and across companies,” Slater said from her office in Amsterdam. “This will require more consistent reporting and more consistent responses to indicators. The GRI is working to ensure the tools, such as technical protocols, exist for this. Some observers predict that this sort of reporting will become more mainstream, especially as Web-based reporting develops in the coming years.”

In an article on sustainability reporting, which she said is synonymous with such concepts as triple-bottom-line and corporate responsibility reporting, Slater explained that sustainable development can directly drive or limit value creation. Reporting, the article says, “can help investors distinguish companies that are efficient now and well-positioned to protect their market competitiveness from those which are headed for a bumpy ride.”

The big accounting firms are seeing increasing business from consulting on sustainability reports, and participation by industry leaders indicates an interest in the concept. Samuel A. DiPiazza, chief executive officer of PricewaterhouseCoopers, has participated in a Forum for Corporate Conscience panel, and James H. Quigley, CEO of Deloitte & Touche USA, is on the forum’s board of advisors.

KPMG has formed a global sustainability services consultancy. It involves some 400 people worldwide. About a third of them are CPAs. Another third have backgrounds in corporate governance. Another third are engineers and technical specialists in fields relating to sustainability.

Eric Israel, a partner with the group, said that Europe and Japan are way ahead of the United States in developing internal systems that provide useful, quantitative information that relates to sustainability and related risk.

“Sustainable development started as a niche, but it is so closely connected to corporate strategy,” Israel said. “With the current demand for more transparency, sustainable development might be an element of the answer. We’re already seeing an impact on external reporting, but it can also impact the debate on corporate governance.”

Israel said that he sees sustainability reports of both high and low quality. The low-quality reports, he said, come across as nothing more than public relations efforts that are ultimately dangerous to the company producing them. They provide only an image, rather than a substantive assessment of real risks.

The Conference Board, a not-for-profit business research and advocacy organization, recently issued a series of reports on sustainability. One, “The Road to Sustainability: Business’ First Step,” explains how the original sustainability agenda has expanded from environmental awareness to include social and economic issues. Thus the concept of the triple-bottom-line strategy was born.

“An appreciation of this interconnectedness ... also brought increased emphasis on [corporate social responsibility, or CSR],” the paper explained. “The result is an increasingly complex — if not confusing — terminology. Is sustainability the overarching concept where environment, economics and [CSR] reside (the three-legged stool concept)? ... Or is ‘sustainable development’ a part of [CSR]?”

The paper suggested an answer: “‘Sustainability’ is the desired end. ‘Sustainable development’ is the means of achieving that end.”

Later this year, KPMG expects to issue a worldwide survey of the use of sustainability reports. Israel expects that it will reveal significant increases around the world.

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