Monday, July 6, 2009

Triple Bottom Line: What Does TBL Mean?

"An invasion of armies can be resisted...But not an idea whose time has come..." - Victor Hugo

In Real Estate, the concept of a 'Triple net lease' is fairly common:

'A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three 'Nets') on the property in addition to any normal fees that are expected under the agreement (rent, etc.).
In such a lease, the tenant or lessee is responsible for all costs associated with repairs or replacement of the structural building elements of the property.'

Why not extend this concept more widely?
For example, to our Waterfront?

Likewise, in economics, an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction.
In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service.

Why not also use this concept in trying to help estimate a full cost accounting approach to Waterfront Redevelopment?
Think that might mean a different mind-set for the Port of Bellingham?

This is where the TBL concept can be helpful, not just a idle talk and shallow promises, but as a purposeful strategy.
Here, I've paraphrased several points from Wikipedia:

The so-called triple bottom line ("TBL" or "3BL") refers to "people, planet, profit" and captures an expanded set of criteria for measuring success; not just counting economics, but also impacts on ecological and social values.

With the ratification of the United Nations and ICLEI* TBL standard for urban and community accounting in early 2007, this became the dominant approach to public sector full cost accounting.
In the private sector, a commitment to corporate social responsibility and ecological issues implies a commitment to some form of TBL reporting.

[• ICLEI was founded in 1990 as the 'International Council for Local Environmental Initiatives']

The concept of TBL demands that a company's responsibility be to stakeholders rather than shareholders, where "stakeholders" refers to anyone who is influenced, either directly or indirectly, by the actions of the firm.
According to the stakeholder theory, the business entity should be used as a vehicle for coordinating stakeholder interests, instead of just maximizing shareholder (owner) profit.

"People, planet and profit" succinctly describes the triple bottom lines and the goal of sustainability.

"People" (human capital) pertains to fair and beneficial business practices toward labour and the community and region in which a corporation conducts its business.

A triple bottom line enterprise seeks to benefit many constituencies, not exploit or endanger any group of them, but trying to actually quantify this different bottom line is relatively new, problematic and often subjective.

"Planet" (natural capital) refers to sustainable environmental practices.
A TBL endeavor reduces its ecological footprint by, among other things, carefully managing its consumption of energy and non-renewables and reducing manufacturing waste as well as rendering waste less toxic before disposing of it in a safe and legal manner. Literally, this implies a responsible "cradle to grave" approach.

"Profit" is the bottom line shared by all commerce within a sustainability framework, and the economic benefit enjoyed by the host society.

Not to be confused with the limited internal profit made by a company or organization, it is the lasting economic impact the organization has on its economic environment.
A true TBL approach can't be interpreted as traditional corporate accounting tempered with social and environmental impact reports

The following business-based arguments support the concept of TBL:

• Reaching untapped market potential: TBL companies can find financially profitable niches which were missed when money alone was the driving factor. Examples include:

• Adding ecotourism or geotourism to an already rich tourism market such as the Dominican Republic

• Developing profitable methods to assist existing NGOs with their missions such as fundraising, reaching clients, or creating networking opportunities with multiple NGOs

• Providing products or services which benefit underserved populations and/or the environment which are also financially profitable.

• Adapting to new business sectors: Since many business opportunities are developing in the realm of social entrepreneurialism, businesses hoping to reach this expanding market must design themselves to be financially profitable, socially beneficial and ecologically sustainable or fail to compete with those companies who do design themselves as such.

• Fiscal policy of governments usually claims to be concerned with identifying social and natural deficits on a less formal basis. However, in a democracy at least, such choices may be guided more by ideology than by economics.

With the emergence of an externally consistent green economics and agreement on definitions of potentially contentious terms such as full-cost accounting, natural capital and social capital, the prospect of formal metrics for ecological and social loss or risk has grown less remote through the 1990s.

While many people agree with the importance of good social conditions and preservation of the environment, there are also many who disagree with the triple bottom line as the way to enhance these conditions.
Imagine that!

Some main arguments against TBL are:

• Division of labour is characteristic of rich societies and a major contributor to their wealth, leading to the view that organisations contribute most to the welfare of society in all respects when they focus on what they do best. .

• Effectiveness: It is observed that concern for social and environmental matters is rare in poor societies (a hungry person would rather eat the whale than photograph it).
Thus by unencumbered attention to business alone, Adam Smith's 'Invisible Hand' will ensure that business contributes most effectively to the improvement of all areas of society, social and environmental as well as economic.

• Nationalism: Some countries adopt a nationalistic approach with the view that they must look after their own citizens first. This view is not confined to one sector of society, having support from elements of business, labour unions, and politicians.

• Libertarian: As it is possible for a socially responsible person to sincerely believe that the triple bottom line is harmful to society, the libertarian view is that it would be arrogant to force them to support a mechanism for the improvement of society that may, or may not, be the best available.

• Inertia: The difficulty of achieving global agreement on simultaneous policy may render such measures at best advisory - and thus not enforceable.

• Application: According to Fred Robin's The Challenge of TBL: A Responsibility to Whom? one of the major weaknesses of the TBL framework is its ability to be applied in a monetary-based economic system. Because there is no single way in monetary terms to measure the benefits to the society and environment as there is with profit, it does not allow for businesses to sum across all three bottom lines.

Legislation permitting corporations to adopt a triple bottom line is reportedly under consideration in some jurisdictions, including Minnesota and Oregon.
Some businesses have voluntarily adopted a triple bottom line as part of their articles of incorporation or bylaws, and some have advocated for state laws creating a "Sustainable Corporation" that would grant triple bottom line businesses benefits such as tax breaks.

A few years ago, a group of about 75 community leaders assembled for the purpose of hearing about the new proposed LEED Standards for Neighborhoods from its author, a Seattle architect.
The presentation was very well received, building as it did on the more limited LEED standards for single buildings, and extending the sustainability concept to entire areas.

After the presentation, each table of attendees was given the assignment of rating Bellingham's Waterfront Redevelopment Project's potential for achieving the proposed new LEED* standard.

[The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, developed by the U.S. Green Building Council (USGBC), provides a suite of standards for environmentally sustainable construction.]

The results were nothing short of astonishing!
Every table saw that the Waterfront Redevelopment had the clear potential for meeting the highest LEED Standard - Platinum!

I don't know what happened to that finding, because it is hard to find it among the things the Port has said and done since then.
Briefly, the idea did reappear when the developer of Victoria, BC's 'Dockside Green' Project came to Bellingham to explain how that undertaking had been conceived.
Fortunately, it's first phases have now achieved the highest LEED standards yet seen anywhere - 63 out of a possible 70 points!
Again, nothing but dead silence from our Port about even trying to put similar goals into practice.

Except, I do recall some claims about the Waterfront becoming a model 'green' redevelopment that would attract national and international attention, become a learning center and generate new businesses.
Such hopeful talk now seems only a fading echo, with the stance our Port has taken with advancing its 'partnership' with the City.

Hey, I know doing a big TBL project ain't easy, especially one that will require major clean-up costs, and still be over 10 times the acreage and 2 to 4 times the developed square footage of Dockside Green [a mere 15 acres].
And, I know the current economic hard times don't help either.
But, externalizing excessive costs to the City, seeking exemptions from developers for impact fees, and trying to cut corners in applying the Waterfront Futures Group Recommendations are NOT the solution!

The Port needs to change its thinking on how to go about achieving its Waterfront Redevelopment using true TBL concepts.
Thank goodness we have an opportunity to elect 2 of 3 new Port Commissioners this year!
Hopefully, a new Commission majority can then search for and find a new Executive Director with the experience and vision to get the Waterfront job done in a true TBL fashion.

I'm voting for John Blethen and Mike McAuley to replace Scott Walker and Doug Smith as Port Commissioners.
I hope you will do likewise.

" While an upgrade that cuts energy use in half can save one dollar per square foot in annual energy costs, it can generate more than ten dollars per square foot in new profits every year if it boosts productivity even five per cent!" - Joseph Romm

" One reason we are in so much trouble is that our modern culture is paradoxically behind the times, still assessing the world the way it did in the nineteenth or even eighteenth centuries: as a place of inexhaustible resources, where man is at the pinnacle of creation, separate from and more important than anything around him." - David Suzuki


• The LEED rating system currently has 6 categories:

1 - Energy & the Atmosphere - 17 points maximum

2- Water Efficiency - 5 points maximum

3- Materials & Resources - 13 points maximum

4- Indoor Air Quality [most complex] - 15 points maximum

5- Sustainable Sites [adjacencies] - 14 points maximum

6. Innovation [ideas outside the box] - 5 points maximum