Need to move from “single bottom line” accounting to “triple bottom line”?
– We need to question performance accounting systems that systematically hide social and environmental effects from view.
– An accounting framework that utilizes triple bottom line accounting is available.
None of this comes as any surprise. ESG has never been about sustainability performance and has always been ad hoc and inconsistent within its own ranks, not to mention opaque. If you really want to know how well a company is doing in, say, authentic triple bottom terms, you need to look at it through a context-based lens, as noted in this article.
Mark is a co-author with Martin Thomas in that article entitled “Time to Declare a Planetary Accounting Emergency.” The authors argue that we are relying on a single bottom line accounting framework in a triple bottom line world. The article is replete with examples – using their “MultiCapital Scorecard Methodology.” Here is an excerpt from the conclusion:
We began this discussion by calling attention to what we and others are now referring to as a planetary accounting emergency. Indeed, if the overall performance of an organization is best thought of in terms of not only its financial impacts, but its social and environmental effects as well, why exclude consideration of people and planet in favor of focusing only on profit? We do not believe that ultimate investors (e.g., savers and members of pension funds) are asking for accounting systems that ignore companies’ social and environmental externalities.
Even the apparently strong financial performance of organizations that continue to promulgate social and environmental harms in the world will suffer the consequences of such neglect. We need to question, therefore, performance accounting systems that systematically hide them from view. Not only are many companies that seem strong and secure in the world demonstrably unsustainable, so too are the very accounting concepts they rely on to measure and disclose their performance.
This, then, is the essence of the accounting emergency we speak of – our reporting systems are no longer fit for purpose. Far from faithfully revealing the truths of our impacts in the world, they systematically misrepresent them to us – and yet still they prevail. The time has come, therefore, to renounce them and to usher in a new era of authentic triple bottom line accounting; an era in which our performance accounting systems unreservedly tell us the truth in all of its dimensions, not just one of them.
With this in mind, it should be clear that triple bottom line performance accounting is now a management necessity and not just a metaphor. The key to making it possible as a practical matter is to realize that just as capital maintenance can serve as a criterion for assessing economic performance, so can it serve for assessing social and environmental performance. The nature of the capitals will simply differ, as will the identities of the stakeholders involved.
Performance, in turn, reduces to maintaining the carrying capacities all vital capitals at whatever levels are needed to ensure stakeholder well-being. The triple bottom line thereby evolves from metaphor to methodology.