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Does My Triple Bottom Line Look Big In This?

Sustainable New Zealand

Does My Triple Bottom Line Look Big In This?


By Stephen Knight

New Zealand's Mighty River Power recently confronted promoters of a corner-stone of corporate sustainable development, the triple bottom line. In essence, it said TBL reporting is just single bottom line reporting in tart's clothing. Providing credibility for this view, academics debate the extent to which TBL is a sham and note that, anyway, New Zealand companies aren't particularly good at it.

Cynicism over TBL reporting is not new, and is a good thing. Corporate sustainable development and TBLs generally do not deliver what people expect. That is partly because there is confusion between useful, consciousness-raising concepts, and tools. Sustainable development is most definitely not a tool to save the planet, and TBL reporting can be as much about image as substance.

The importance of this is to highlight the risks of wasting large amounts of time and effort on such things.

To put it in context. New Zealand and its companies studiously ignored sustainable development for a decade. The 1991 Resource Management Act clearly addresses sustainable management. In intent, it concentrates on biophysical issues, not social and economic ones (the working definition of sustainable development requires the accounting for all three). While it can be argued the RMA is an ersatz sustainable development act , given the requirement to take account of economic and social issues (section 5; http://rangi.knowledge-basket.co.nz/gpacts/actlists.html), this is not the intent.

An example of how weird it got was the National Government's 1995 Environment 2010 Strategy which spoke of the need to address economic, ecological and social issues, while managing to mention sustainable development not at all. This was a superhuman effort, given that, post the 1987 Brundtland report and the 1992 United Nations Conference on Environment and Development (the Earth Summit), sustainable development was the phrase de jour among (admittedly predominantly left-of-centre) Western governments.

Then, after what could be described as the Simon Upton-induced decade of trolling about looking for biophysical and environmental bottom lines, it all seemed to shift in 1999-2000. The New Zealand Business Council for Sustainable Development was formed, and Prime Minister Helen Clark began to talk of the need to align government thinking with sustainable development. The floodgates were opened. The New Zealand public was fair drenched in governmental and corporate speak using the phrase.

In late 2001, the Government announced its intention to develop a sustainable development strategy for the country. By August 2002 this was re-termed a Sustainable Development Programme of Action. ( http://www.mfe.govt.nz/issues/susdev) In essence, the Prime Minister wanted action, not discussion, showing sensitivity to a criticism of sustainable development, that there is too much talk, and too little on-the-ground commitment.

A particular interest here is the corporate response. There is growing interest among business to reduce their negative ecological and societal footprints while making money, ( http://www.nzbcsd.org.nz/, http://www.sustainable.org.nz/). Indeed, some companies are established on the grounds that they can provide goods and services more sustainably than a competitor, as opposed to just being able to make money more efficiently. So, not surprisingly, there is growing interest in reporting their progress to shareholders and the wider community. However, Otago University's associate accounting professor Markus Milne, and Glasgow University accounting professor Rob Gray, maintain that substantive moves towards sustainability would require companies reducing their total environmental impact, and reducing inequity between the rich and poor. Both are unlikely outcomes for successful, growing companies, and they conclude there is no sustainability reporting in the public domain anywhere in the world. Essentially, the economic system is itself unsustainable, and companies operating within that system must contribute to that condition. True sustainability reporting would require a detailed and complex analysis of the organisation's interactions with ecosystems and societies, and interpreting this in the light of the cumulative effect of all impacts within the carrying capacity of given ecosystems. This is beyond the capacity of most countries, let along companies.

But there is a difference between sustainability reporting and TBL reporting. That is, the moral imperative that drove some companies to 'add on' ecological and social reporting streams as part of TBL reporting is just a variation of corporate responsibility - as noted by Mighty River Power (MRP) in April this year. Thus McDonald's supporting community initiatives such as the Starship children's hospital (or whatever they've decided to call it by now) does not improve McDonald's sustainability.

MRP is blunt. It cares about sustainability because it makes money out of a natural, renewable resource which it must take care of in order to ensure it maintains its mandate from society to keep using it. Anything it does outside that - such as support local community activities - has nothing to do with how sustainable it is as a company. This seems a fair observation. MRP supports ideas promoted by ECOS ( http://www.ecoscorporation.com) , which are to make the drive for sustainability a core feature of the corporate habit of the 'creation of value and the pursuit of growth'. In other words, embed sustainability within the core function of a company.

But then MRP makes statements such as 'Every business has to focus on maximising shareholder value in the long run. Ecological and societal sustainability is central to our business.' ( The Single Bottom Line: Might River Power and Sustainability 2003 - http://www.mightyriverpower.co.nz) Such juxtaposition is highly misleading - saved possibly by the rider in the first sentence, in the long run. The positive feedback loop for the financial sustainability component is far clearer and more rapid than those operating for ecological or societal sustainability. So companies, even those which genuinely believe in sustainability, are forced to react to financial needs with more alacrity than they do to ecological or societal ones.

ECOS recognises this, as one suspects does MRP, but neither successfully explain how they overcome what remains a central contradiction within sustainable development. Ultimately, companies will pursue sustainability as long as it does not compromise the business. Trying to be sustainable in a highly competitive market might well add overall value to your bottom line, but usually over time. The competition might not want to give you that time.

What the MRP report does do, however, is make it clear that society needs to decide the sustainability framework within which companies operate. Society is pretty slack at doing that. Messages to consumers to reduce power consumption have been going on for well over a decade, and we've ignored them. The market responds by assuming we just want cheap power, not efficiency. This is compounded by the State not supporting drives towards efficiency and alternative sources of energy - that is, until recently. Power crises concentrate the mind wonderfully.

Essentially, MRP says it will use the standard financial metrics to measure the single bottom line, while valuing, or at least considering, intangibles including environmental issues, brand and image and the cost of mitigation measures. ECOS argues that such a single value focus drives change towards sustainability more effectively because it uses the market place to do the job. This is presented as a refinement of the older argument, that many environmental goals can be achieved by harnessing market mechanisms. The refinement is that, given mounting research-based evidence that companies pursuing sustainability also register good business performance, then companies should be able to report business value arising from pursuing sustainability. Once that message gathers traction in the market place, the rapid financial feedback mechanism will reinforce the value of companies creating value from sustainability.

Or, at least, I think that is what they are saying. It's not entirely clear. And the cause-and-effect of the pursuit of sustainability (ie major changes in the way things are done) and profits is not necessarily proven. (Mangers of companies good at adding value are probably good at other things. The pursuit of chess may be associated with a high value company, but it is not a causative relationship).

Overall, the argument is that this new, improved single bottom line may come closer to delivering what TBL was supposed to deliver, because it doesn't confuse being a corporate citizen with improving sustainability. True corporate sustainable development should directly address the financial bottom line by doing what you do best. In the case of MRP, it is by being the best at supplying energy. Other approaches prostitute the idea of sustainable development.

It's possible to quibble over just how different MRP's approach really is, and whether it is an attempt to excuse a lack of commitment to sustainability. But the report does hit some targets. It talks of the need for society to factor in the real environmental costs of resource use. This has long been a message promoted by sustainability proponents. Higher energy costs would make the supplying of energy efficiency as a service more competitive. The analogy is that instead of using a V8 to get around, you use a well-tuned straight six, better still a four cylinder, and eventually a hybrid electrical-petrol car. These things become competitive when all externalities are factored in, such as pollution and extraction impacts. So alternative fuel sources - wind farms, small scale solar heating and the like - can only compete on such a manipulated playing field. The difficulty in doing this in a deregulated market are immediately apparent. Yet arguably it is within just such a political atmosphere that such manipulation is best justified. Big energy has been effectively subsidised by getting environmental 'free goods'. And of course, this redress is beginning to happen. Wind power became more feasible once developers received Kyoto carbon credits.

Which brings us to the nub of MRP's discussion. All corporate sustainable development initiatives take place within a particular society at a particular time. Ultimately, the extent to which sustainability (as opposed to sustainable development) is pursued depends upon society's mandate. In New Zealand, as in many other countries, that has yet to be made clear.

********* ENDS ***********

Author Note: Stephen Knight - Environmental Scientist (B.Sc. (Hons); M.Sc. (Hons); Dip. Jour.), e-mail: sj.knight@auckland.ac.nz, Planning Department, University of Auckland, Private Bag 92019, Auckland, New Zealand

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