Episode 10: Why Businesses are looking to a Triple Bottom Line to remain profitable
Triple bottom line, sustainable, fashion, circular economy, environmental profit and loss.
Welcome to the Fashion Unearthed podcast. If you need help navigating the fashion industry sustainably, you have come to the right place. I'm your host Belinda Humphrey and my hope is to simplify the fashion industry so that businesses can make the best decisions for people, planet and product.
Hello, and welcome to Episode 10 of the Fashion Unearthed podcast. I'm recording this in Melbourne, Australia and we're still in lockdown. But we have been getting some lovely weather which has made everything feel so much lighter and optimistic. Especially with the thought we should have a relatively normal Christmas and holiday season to look forward to. And I've been getting into the holiday spirit actually and added a new little freebie into my shop. It's an A-Z dictionary, a guide on how to speak fashion. Just head to belindahumphrey.com to grab yours.
So today I wanted to talk about a triple bottom line, what it is and why you might be hearing that more businesses are looking to it to remain profitable. The concept of a triple bottom line expands business success metrics to include people and planet as well as profit. The term was conceived by entrepreneur and business writer by John Elkington in 1994 and it's often used as a framework to help businesses and other organisations to move towards regenerative and more sustainable future. The theory is that if an organisation is only focused on profit, ignoring people and the planet, it cannot account for the full cost of doing business and will consequently not succeed long term.
But before we go into each section, it's important to note that these categories overlap and are not separate silos. They're all interconnected and decisions in each area will affect the others. So much so it's been reported that companies who place equal importance on all three categories enjoy stronger, more cohesive teams, improved recruitment, higher employee morale, and increased brand loyalty than those run from a profit first model. And companies that make improvements in one area will nearly always see positive improvements in another, which is why the triple bottom line is often referred to as a "win-win-win" strategy.
So let's talk about the people component first. The people category in this model considers all people involved, employees, communities, individuals in the supply chain, future generations as well as customers. This component often links to a corporate social responsibility or CSR. A CSR is defined as a responsibility among organisations to meet the needs of their stakeholders, and a responsibility among stakeholders to hold organisations accountable for their actions. Some goals that a business might include in this section are advancing human rights, ending poverty and hunger, diversity, equity and inclusion, ensuring a healthy and safe work environment and community engagement and volunteerism. There has also been a recent trend where businesses are sharing their knowledge to help other businesses and organisations.
The second focus is Planet and in this framework, its goal is to measure how environmentally responsible a business has been. Climate change is front and centre of everyone's mind and consumers are in a position to hold organisations accountable for their actions. This is seen in spending with businesses making a positive impact and avoiding the ones who are making a negative impact. This as well as public opinion, the speed and transparency of social media and even activism is behind the many companies now striving to not only do less harm and be carbon neutral, but to actually do good by being carbon positive. But there can be difficulty in reporting on the environmental aspects as there can be qualitative aspects as well. One article posed the question, "How do you quantify the positive benefit of not having an oil spill?" The key to making positive changes is having transparency on where you're at now within all areas of your supply chain, which is a task in itself for some businesses.
But recently, I heard that head of Kerings Materials Innovation Lab Christian Tubito, I hope I'm saying that right. He spoke of how their business has an environmental Profit and Loss report. And for those who aren't familiar, Kering is the parent company that owns luxury brands such as Balenciaga, Gucci, Saint Laurent, to name a few. It is also a publicly listed company. The report measures and tracks things such as carbon emissions, water consumption, air and water pollution, land use and waste production along the entire supply chain. Its aim is to make the various environmental impacts of the group's activities visible, quantifiable and comparable. According to Kerings website, these are then converted into monetary values to quantify the use of natural resources and then guide its sustainability strategy, improve its processes and choose the best adaptive technologies. They are also sharing this methodology with other companies to encourage the movement to sustainability.
Finally, Let's talk about the last component profit. Traditionally, profit is the revenue or sales of new goods minus expenses. These new goods are often created from new resources in a linear take make waste model. The problem comes when there are no resources to keep creating in this way, resources are finite. This awareness is touching all parts of the world, in particular the investment industry. Finite resources mean a risk to shareholders profitability, this links into the concept of the circular economy and Paul Boonar, I hope I'm saying that one right too, Global Head of sustainable investment company BlackRock states that "if you are an investor who is focused on long term value creation, and you live on a planet with finite resources, you have a vested interest in the circular economy". And Audrey Choi from Morgan Stanley, a global financial services firm reports that "we have seen an increasing trend in investors being more and more interested in not just sustainability generally, but more specific and targeted themes with the top three being climate change, plastic waste reduction, and the circular economy".
What these quotes are pointing to is a growing global realisation that profitability can't come from creating new things all the time. Businesses and their shareholders have also been financially exposed particularly during the pandemic by this take make waste model. It's like only having one revenue stream and recent events, which are part of a climate crisis are forcing businesses to diversify.
I just want to bring up another interesting interview I read recently with Caroline Rush, Chief Executive of the British fashion council (BFC), who within hours of London Fashion Week finishing told fashion firms that their reliance on customers buying new clothing is unsustainable. She has said that brands should cut the consumption of new clothes by half and pivot to making money by offering clothing rentals, repairs and upcycling services in store, which are all components of a circular economy too. The BFC believes that within a decade or two 50 percent of the average person's wardrobe could be made up of new clothes 25% bought secondhand, and 10% will be rented clothing, and the remainder 15% of virtual clothing existing solely online from social media or gaming avatars. They believe the customer will still spend the same, but it will be distributed over these new areas.
So going back to Kering if you were a sceptic, you might say that because they're a listed company to protect its shareholders and not lose investment, It pays for them to really start paying attention to the environment and social aspects and what that means for profitability. But what about the companies that aren't listed on the stock exchange.
Many brands that are following these principles such as Patagonia and Aesop and Citizen Wolf here in Australia, are B Corp certified. In the words of John Elkington, B corporations are a type of business legally required to consider impacts on all stakeholders, including employees, customers, suppliers, community and environment. They're all configured around the triple bottom line dedicated to be not just best in world, but best for the world.
So I hope today's episode wasn't too heavy on definitions or jargons and simple enough for you to get your head around to what the triple bottom line is, and why businesses big and small, are turning towards it to I guess, still be profitable, because that's what a capitalistic society defines as success, but also address the negative impact on people and planet if we only focus on this. And that's not to say there won't ever be individual trade offs along the way, with some activities weighing slightly heavier in one area than another. But the ultimate aim of a business run on triple bottom line principles is to hit that sweet spot of sustainability in the middle.
I hope you enjoyed today's episode, and if you did, I'd love to hear what you got out of it. You can DM me on Instagram or send me an email at email@example.com and let me know. Again a reminder there is that new little freebie in the shop on the website, the A-Z dictionary on how to speak fashion. Just head to my website belindahumphrey.com and as always, you'll find the links in show notes there as well in the podcast section. Thanks so much for listening. See you next time.
Disclaimer: Whilst every effort is made to ensure that information is accurate at the time of recording, much like the fashion industry itself, this information may change.