What is the Triple Bottom Line and How Does It Work?

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  • What are the benefits of the triple bottom line for hotels?   

In a world where corporate greed and profiteering have been cited as two of the primary drivers behind the ongoing cost-of-living crisis that’s increasing financial hardship across Europe, the idea that businesses could exist for any reason other than profit seems hard to fathom.

However, there’s a school of thought, called the triple bottom line (TBL), which suggests that businesses should be just as committed to improving the lives of people and the planet as they are to boosting their profits.

In this article, we’ll explore:

  • What is the triple bottom line?
  • What are the three Ps?
  • How do they apply to the hotel and hospitality industries?

What is the triple bottom line?

The triple bottom line (TBL) was first coined by a British management consultant named John Elkington in 1994. He believed that rather than one bottom line – profitability – businesses should focus equally on three goals – people, the planet, and profitability – to improve how we think about capitalism and find a better way forward.

Elkington proposed the triple bottom line as a way of measuring the social, environmental, and financial performance of a company over time. The idea was to calculate the total cost of doing business to get a more accurate picture of a company’s overall impact on society.

The three Ps of the triple bottom line

The triple bottom line (TBL) measures business success in terms of its social, environmental, and financial performance, or more simply: people, planet, and profit. Elkington theorized that companies should work towards these three Ps simultaneously and in the following ways:

People

People, in the context of the triple bottom line, is a measure of how socially responsible an organization is. In a traditional capitalist model, companies prioritize the interests of their shareholders. However, the TBL looks at the impact the company has on everyone who comes into contact with it, including:

  • Customers – giving them access to safe and high-quality products at a fair price.
  • Suppliers – supporting small business suppliers run by women and culturally and ethnically diverse owners where possible.
  • Employees – providing a safe work environment with fair pay and diversity, inclusion, and professional development initiatives.
  • Community – supporting local community groups and ensuring residents benefit from their proximity to the business.

Planet

Despite the triple bottom line theory being 30 years old, the environmental element has never been more relevant than today. The key metrics for measuring an organization’s environmental impact are:

  • Carbon Footprint (the Emission of CO2 or Greenhouse Gases)
  • Energy Use
  • Water Consumption
  • Waste Production

Businesses can reduce their reliance on fossil fuels and choose more eco-friendly methods of transport, such as reducing air travel and switching to electric vehicles. Businesses can also improve their waste management, use more ethically sourced materials, and implement energy-efficient IT systems.

Profit

We all understand profit, but profit has a broader meaning when we look at it through the lens of the triple bottom line. Here, profit is not just how much money a company makes but how it makes it.

Income should be derived from ethical business practices and suppliers and customers should be treated fairly. The organization should also make payments on time, meet its financial obligations to employees, and add economic value to the local community.

What are the benefits of the triple bottom line for hotels?

There are many benefits of looking beyond profit in all industries, but the triple bottom line theory is particularly salient in the hotel and hospitality sectors.

Hotels and the intangible nature of their services make them well-suited to social and environmental initiatives. Customers evaluate hotels based on their perception of the service they receive. The goodwill created by social and environmental initiatives can enhance that perception and boost the brand’s image, which is crucial in such a competitive industry.

Studies (study 1 and study 2) have shown that customers are willing to pay a premium (in some cases up to 15% more) for green or sustainable hotels, or hotels with restaurants that only use locally sourced or organic ingredients. That enhanced appeal is particularly prominent among more environmentally and socially aware demographics, such as Millennials and Gen Zs. Creating this type of niche can give hotels a degree of protection from seasonal slumps and unfavorable economic cycles.

Other benefits of the triple bottom line for hotels include:

  • Diversified income streams, such as attracting more guests who want to reduce their environmental impact
  • Better working environments for employees and more engaged workers as a result
  • Reduced energy consumption and costs
  • Increased transparency and sustainability in business operations
  • An enhanced perception of your brand and a reputation that could lead to an increase in sales

What are the key issues associated with the triple bottom line?

One of the biggest challenges with the triple bottom line is measuring it effectively. While profitability is quantitative and relatively easy to measure, determining the societal and environmental impact of a business and its initiatives is more difficult.

The triple bottom line also requires businesses to focus on the three Ps equally and not prioritize one over another. In practice, that can be problematic. Where resources are tight, a company might be able to improve its working conditions or basic pay, but that may come at the cost of other environmental or sustainability initiatives.

There’s also the fundamental concern that focusing on the triple bottom line increases costs and reduces profitability. For example, in a hotel, choosing to pay entry-level staff such as receptionists, porters, and cleaners more to help improve their living conditions will dent your profitability. However, according to the triple bottom line theory, the initial investment you make will be repaid. In this case, your staff will be happier and more motivated, and your hotel will enjoy a better reputation. In turn, that will protect your profits.

Solutions for hotels & hospitality businesses

According to the Global Hotel Decarbonization Report published in 2017, the hotel industry must reduce its emissions by 90% by 2050, which requires fast and far-reaching action. The real question for hotels and other hospitality businesses is where to begin?

An EHL research project devised a framework of the most realistic and implementable steps to choose a triple bottom line action plan and get it started from the hotelier’s perspective. It outlines five steps for choosing a plan:

Choosing the right action for your hotel

Based on a research project led by Dr Steffen Raub, Full Professor of Organizational Behavior at EHL:

1. Consider your geographic location – Every property is situated in a unique geographic location with particular challenges related to the environment, the climate, transportation, employment etc. For instance, rainwater harvesting and water preservation will be a key priority in hot and dry locations, whereas it may be relatively unimportant in, say, a property in the UK. Conversely, more sustainable employment policies may be at the forefront of challenges in many developed economies, where the available workforce is getting increasingly scarce.

2. Be mindful of the ownership structure – What can be done in terms of sustainability will be constrained to some extent by the ownership and management structure of the property. Chain-affiliated properties will often have to follow corporate sustainability programs and guidelines, with limited opportunities for local initiative. Owner-operated properties have substantially more leeway, but may not be equipped with the same amount of resources.

3. Consider your main strategic focus – The selection of sustainability actions can also be related to a strategic focus for gaining competitive advantage. If the property focuses on a cost-leadership strategy, the selected options will differ from those that may be most promising for a differentiation strategy.

4. Evaluate available resources – Sustainability initiatives come in all formats. From simple to complex, from small to large, from cheap to very costly. The amount of available resources (in terms of finances but also management attention) has to be considered.

5. Respect legal and institutional constraints – The local regulatory environment may mandate certain standards (e.g. with regard to water and energy issues) that the property cannot deviate from. An affiliation with a sustainability-oriented label may also involve constraints that need to be respected.

Be the best for the world

Research by KPMG shows that 80% of the largest 100 companies in 52 countries now practice the triple-bottom-line approach to reporting. And it’s not just benefiting people and the planet. A study by the Harvard Business Review found companies that adopt the triple bottom line achieve an average annual ROI of 13.5%, while traditional businesses see an ROI of 9.1%. That’s backed up by research from Dow Jones, which found that organizations focusing on their triple bottom line do better financially than their peers.

This data goes to show that social, environmental, and philanthropic goals can go hand in hand with profitability, rather than coming at the cost of it. While more work needs to be done, it’s encouraging to see that an increasing number of companies are dedicated to not just being the best in the world, but also the best for the world.

Resources & advisory services for your business

The EHL Group offers a wide variety of resources and advisory services to prepare for the future of the industry.

EHL Advisory Services offers bespoke services that analyze performance, identify smart investments and implement people-centric development strategies.

EHL Student Business Projects provide innovative and applicable solutions for diverse business challenges. The student consulting projects are mandated to groups of Bachelor’s or Master’s degree students and coached by faculty members. Here’s an example of a CSR student consulting project.

EHL’s Graduate School offers a range of master’s degrees and MBAs that include courses on CSR & Sustainable Transformation for hospitality businesses.

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