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The Triple Bottom Line

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69 views2 pages

The Triple Bottom Line

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ON MY MIND

By S t e v e n R H a y w a r d F.K. WEYERHAEUSER FELLOW AT THE AMERICAN ENTERPRISE INSTITUTE

The Triple Bottom Line


Social justice? Environmentalism? Let's judge a company on how well it grinds out profits.
LIKE WIDE TIES AND POLYESTER SLACKS, MANAGEMENT ENTHU- depending on industry variations.
siasms come and go. The fad of the moment is tbe "triple bottom Tbe DISI adds and deletes companies more frequently tban
line." It is not sufficient, say converts to this religion, to judge a most indexes (more than 70 companies—almost a quarter of tbe
corporation's performance merely by tbe traditional metrics of DTSI—were recently replaced on the index), which also reduces its
assets, liabilities, profit and loss. Companies also need to measure usefulness as a consistent comparative tool with tbe broad mar-
their environmental and social performances. Companies must ket. Even with its many changes, the D)S1 is down 37% from its
now be "sustainable" and dedi- level in December 1998, whereas
cated to "social justice." Dozens of tbe Dow Jones industrial average
corporations, sucb as Monsanto is oft" 13% in the same period.
and British Petroleum, have em- This is not to say that envi-
braced these concepts, and Wall ronmental or social concerns are
Street is paying attention. irrelevant to the management of
A Dow Jones Sustainability a corporation. If trashing the
Index tracks the economic, envi- environment costs you in govern-
ronmental and social perfor- ment fines or in consumer sales,
mance of more than 300 global you don't trash the environment.
companies (such as Siemens, If you are competing for talent,
Nokia and Home Depot) whose you don't abuse workers. To ad-
business practices have received mit as much, however, is not to
the green seal of approval from a waver from the classic model of
Swiss outfit known as Sustainable business economics, which says
Asset Management. Pricewater- that corporations are in business
houseCoopers recently published to maximize profits.
a survey of 140 U.S. corporations,
Here's one way Dow Chemi-
arguing tbat companies tbat
cal is helping its bottom line.
ignore the triple bottom line are
It took friendly advice from
"courting disaster." (PwC does "One reason for skepticism íéout the triple the Natural Resources Defense
not, however, offer names of the bottom line comes to mind in relation to that Council on 17 low-cost pollu-
strong and weak performers.) Tbe former favorite among environmentalists: Enron" tion-reduction changes to Dow
triple bottom line, PwC concludes,
plants. The result was a 43%
"will increasingly be regarded as an important measure of value."
reduction in pollution discbarges and a $5 million annual sav-
Tbis is doubtful. It requires tbe artful torture of financial ings in production costs.
data to come up with evidence that triple-bottom-line compa- The idea becomes murkier, bowevcr, when companies con-
nies are more profitable. A closer look at the composition of the template changing tbeir business models wholesale in order to
Dow Jones Sustainability Index shows why there is reason to be get cheers from the greens. BP's newspaper ads suggest that
wary of the efforts to shoehorn sustainabiJity into bard-nosed BP now stands for "Beyond Petroleum." BP is going to reduce
financial analysis. its contribution to carbon emissions by sbifting from crude oil
Companies selected for the DISI not only meet criteria for to natural gas. Does this make business sense or is it just
sustainability but also are leaders witbin their respective indus- grandstanding?
tries. This by itself will bias the index's performance relative to a A final reason for skepticism about the triple bottom line
random cross-section of all publicly traded companies. Factors comes to mind in relation to tbat former favorite among envi-
like basic financial strength, relations witb suppliers and rela- ronmentalists: Enron. An internal Enron memo in 1997 boasted
tions with customers count the most for acceptance in the of how it was winning plaudits from Creenpeace. tbe World
index—in other words, the usual factors tbat matter to investors. Wildlife Fund and Worldwatch. If tbat memo made Kenneth
Environmental and social performances account for only a frac- Lay think his company was more sustainable than most, it did a
tional share of the index's total weighting—about 25% to 35%, lot of damage. F

42 F O R B E S - March 17,2003
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