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August 04, 2010

Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?

Posted by Dimitar Vlahov

It’s common knowledge that today’s global economy is facing multiple challenges and imbalances. From the recent financial crisis, to concerns about distribution of wealth, to the ever-more-dangerous clashes between economy and environment, there are many reasons to pause and examine the whole system. Some experts have suggested that a large chunk of this ill condition can be attributed to the same cause – the problem of bad performance measurement. Businesses and governments alike, the argument goes, have been employing short-sighted measures of success that do not account for all medium- and long-term consequences of their organizations’ activities. Therefore, they need to expand their reporting to include social and environmental indicators of performance, and not just financial ones. With a better warning system, many of the present-day issues could be mitigated or avoided altogether. This post serves as a basic introduction to this approach and its main applications to date.

The broader sustainability reporting framework is centered on three dimensions of performance – economic, social, and environmental – and that is why it is widely known as the triple bottom line (TBL or 3BL) or the people, planet, profit (PPP) principle. Corporate social responsibility (CSR) usually involves some form of TBL reporting and is often used as a synonym. So is the concept of environmental, social and governance (ESG) reporting.

There are some crucial differences between TBL and conventional financial reporting. Businesses and government entities pursuing a successful TBL focus on maximizing stakeholder value. The term “stakeholder” in this context refers to anyone who is affected, directly or indirectly, by the actions of the business or government in question. Examples of stakeholders are customers, shareholders and providers of capital, communities, civil societies, suppliers and employees. Furthermore, unlike traditional accounting, TBL reporting does not necessarily need to express all reported data in monetary terms, as it is understood that some performance indicators cannot be priced with reasonable accuracy. Instead, there is a comparability requirement – information presented should allow stakeholders to analyze changes in the organization’s performance over time and support comparative analyses between similar organizations. For instance, data on a certain kind of pollution could be reported in total numbers (i.e., absolute data such as tons of waste) or ratios (i.e., normalized data such as waste per unit of production).

The world’s most popular sustainability reporting framework has been developed over the last decade or so by The Global Reporting Initiative (GRI), an international non-profit network-based organization residing in Amsterdam. Collaborators represent stakeholder groups including business, civil society, academia, government, international organizations and other professional institutions. GRI’s reporting guidelines set international standards for TBL reporting, aiming at being “applicable to organizations of any size or type, and from any sector or geographic region.” Earlier this week GRI joined forces with London-based Prince's Accounting for Sustainability Project (A4S) to announce the formation of a new organization, the International Integrated Reporting Committee (IIRC), serving to further promote integrated sustainability reporting and help turn it into a dominant practice on a global basis. You can read more about IIRC's members here and also here.

In practice, so far the GRI and its partners have attracted thousands of participants from the private sector, but not many from the public sector. GRI reporting standards for government entities are still considered too rudimentary and difficult to implement, as discussed in their recent report “GRI Reporting in Government Agencies.”

An initiative that has captured a lot of public sector attention, on the other hand, is ICLEI - Local Governments for Sustainability, a UN-based international association of national and local governments which have made a commitment to sustainable development. Boasting more than 1,000 members in several dozen countries – mostly cities – ICLEI exercises a case-by-case approach to target setting, monitoring and public reporting along the three TBL dimensions. The association assists local government bodies around the world by facilitating the exchange of ideas and experience through training and advisory services. In early 2007 ICLEI ratified TBL as the broad standard for urban and community accounting. However, ICLEI doesn’t seem to be pursuing a universal set of rules or regulations; rather, it is simply encouraging governments and communities to be more self-aware and decide on their own how to track their TBL progress.  Details on more than a hundred relevant projects can be found on their website’s Case Studies section.

All in all, over the last decade the triple bottom line has gained considerable popularity but remains very far from being universally accepted.  One major reason for this is that the respective rules are taking many years to standardize and straighten out, due to the consensus-seeking gradual evolutionary nature of the approval process by movements such as the GRI and ICLEI. And then there is the question of adoption by the International Accounting Standards Board (IASB) and other official accounting governing bodies, which are yet to act on sustainability reporting in any decisive way.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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You are on to something here. TBL reporting has met cultural barriers in the private sector. Milton Friedman's "the business of business is business" mantra has made reporting on people and planet difficult. On the other hand, government is all about people and increasingly, about sustainable development. These 2 bottom lines may be effective starting points for government performance management.

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