> > > >
Making business decisions that balance returns to the enterprise (profit), the environment (the planet), and social equity (people) helps to meet the triple bottom line (TBL). TBL accounting is one of many emerging tools that facilitate a new, values-based model for business success. It is a response to the recognition that when decisions focus solely on profitability, they almost always penalize long-term economic health and quality of life.
Practices such as TBL accounting stem from a broader conversation about sustainability. We now live in a world where rising population growth and per capita consumption and declining resources are colliding. My definition of sustainability, which has evolved over time, is “a state of perpetual vitality supported by resources local to a place.” Think of a well-established forest ecosystem. It is always vital and growing. It is populated with diverse, interdependent species that are constantly adjusting their relationships in order to maintain and sustain the ecosystem.
This manufacturing facility in Coatesville, PA, uses half the energy of conventional factories its size and is one of the first manufacturing facilities in the U.S. to receive LEED gold certification from the U.S. Green Building Council.
This is an ideal model for communities, which are made up of diverse, interdependent people such as bankers, bakers, and builders. Of course, the model breaks down when people upset the natural balance in pursuit of their own self-interests. This can contribute to a focus on short-term profits at the expense of long-term, sustainable economic health.
Bankers can play an important role in changing this trend. In our communities, banks act as the conduits for the flow of financial capital between depositors and creditors. Ideally, this service creates value, builds prosperity, and improves the quality of life. The outcome depends entirely on making the right decisions about where the flow of capital is directed, that is, deciding who or what is creditworthy.
Credit decisions made with an eye toward TBL returns are fundamentally different from business-as-usual banking. They direct the flow of money toward sustainably oriented enterprises and lifestyles. Importantly, such credit decisions don’t fly in the face of good risk management. Screening for sustainability, in addition to adhering to traditional standards of creditworthiness, actually improves the risk profile of a loan.
Take real estate lending as one example. TBL underwriting requires that a building’s life cycle, environmental impact, and operating costs be included in the loan decision. Successful green buildings dramatically reduce operating costs, increasing the cash flow that a business or homeowner has available to repay a loan. They provide healthier environments for the occupants, eliminating problems such as mold and sick building syndrome. They are more durable and adaptable than conventional construction, reducing future capital requirements. Studies, such as the recent report by CB Richard Ellis and the Burnham-Moores Center for Real Estate at the University of San Diego, document that productivity goes up and absenteeism goes down, increasing profitability.1 In response, the market is setting higher rents and resale values on green buildings.2 Loan policy that favors green buildings accelerates this trend by sending the market a signal that sustainability matters.
To build real, lasting prosperity, our business decisions need to keep enterprise, environment, and social equity in balance.
For more information, contact Sandy Wiggins at 610-647-4658 or