The Triple Bottom Line

In his seminal text book Ecological Economics, Herman E. Daly discusses three macroeconomic problems associated with sustainability: allocation, distribution and scale.

The term allocation is meant to describe the neoclassical concept of economics: the efficient allocation of resources among alternative and competing ends. Market forces offer an excellent method for performing the allocation process. Economists measure the size of the market in terms Gross National Product.

By distribution is meant the apportionment of resources among different individuals or groups of individuals. Market forces do not enable a just distribution of resources.

By scale is meant the physical size of the human presence in the ecosystem, humanity’s “footprint”. Economists measure this in terms of population times resource use per capita. Again, currently market forces do not help in achieving an optimum scale, one that recognizes the limited carrying capacity of the earth’s ecosystems. Daly makes the point that neoclassical economics ignores the opportunity cost of increased “growth” because it assumes that nature is a subset of the economic system, rather than the other way around, where the economic system is a subset of a the Earth’s ecosystem. As such, Daly discusses the need for policies for dealing with the problems for distribution and scale.

What is interesting to note is the connection between the problems of scale, distribution and allocation at the macroeconomic level, and the sum of the microeconomic opportunities associated with a broad based (i.e. global) pursuit of the triple bottom line: social, environmental and financial performance. The connection is intriguing. Social performance, which is focused on people, aligns with the problem of equitable distribution of resources. Environmental performance aligns with the problem of optimum scale and concerns itself with the planet. This includes consideration of the ecosystem services it provides, as well as with the opportunity costs of growth in the flow of energy and materials. Finally financial performance aligns with profit.

All three are systemically linked to the organization’s processes and products. It is not hard to imagine how a paradigm shift in economic theory and its attendant methods of accounting would enable the achievement of sustainable development and the improvement in the welfare of all mankind. What it takes is for widespread pursuit of the business imperative of the 21st century: sustainable design.