As we start a new calendar year and start to look towards the end of another financial year, it's always good to consider some predictions of what the next reporting requirement that could be forced onto accountants from regulators might be. I predict that at some point in the not too distant future you may need to consider Triple Bottom Line (TBL) reporting as part of your year-end processes.
TBL reporting is a framework that goes beyond traditional financial reporting by considering three key dimensions: social, environmental, and economic; it fits in with the current ESG framework that many local authorities are considering and whilst many of our clients are currently concerned with ESG in respect of their investment activity, will they soon need to be concerned with reporting on their own financial performance in terms of this important area, so as to provide comfort to their local residents that they are also playing ball in the ESG game?
Introduced by business author and sustainability advocate John Elkington in 1994, TBL provides an integrated approach to evaluating an organisations performance and impact on multiple stakeholders.
Traditional financial reporting is normally only concerned with profit and/or loss, reporting is therefore only one dimensional at present, TBL looks at things in a different way.
Firstly it looks at an organisation’s performance from an economic dimension, this is the traditional financial metrics, encompassing profitability, revenue, and shareholder value. Local authorities are not so concerned with the more corporate dimension of this type of reporting but have to prepare accounts providing information on financial performance nonetheless.
Next TBL considers the performance from a social dimension, this aspect evaluates an organisations commitment to social responsibility, inclusivity, and community engagement. Metrics may include employee satisfaction, diversity and inclusion initiatives, and community development projects. This will include many of the key services provided by local councils so should be fairly easy to report on and may already form part of the regular communication with its local residents.
The final part is report on performance from an environmental dimension. Environmental sustainability is a crucial element, focusing on the organisation’s ecological footprint and resource management. The measurement involves tracking energy consumption, waste generation, carbon emissions, and initiatives for environmental conservation.
So what are the perceived benefits of TBL reporting? Well it is suggested that it improves stakeholder engagement. It is suggested that TBL reporting promotes transparency, fostering trust and engagement with various stakeholders, including investors, employees, customers, and the wider community, this is key from a local authority’s point of view and is probably something elected members would be keen to promote.
Advocates of this added reporting state that it improves the long-term sustainability of an organisation by considering social and environmental impacts alongside financial performance, organisations can make informed decisions that support long-term sustainability and resilience.
It is can also identify and address social and environmental risks to help organisations mitigate potential legal, regulatory, and reputational challenges, safeguarding their overall stability.
But as with any change in direction there are schools of thought that are not so keen on the concept and highlight problems of this method of reporting on an organisation’s overall performance.
It is hard to produce a standard approach to establishing consistent metrics for social and environmental factors as there is no universally accepted framework for TBL reporting. Whilst it may be possible to produce metrics in the corporate world will they be suitable for the public sector? If we have different reporting and measurement requirements, how can we tell which part of the economy is doing more to save the planet?
Some also considers it to have just a short-term focus, some critics argue that certain organisations may prioritise short-term financial gains over long-term sustainability, compromising the integrity of TBL reporting. This should not worry local authorities but in the current economic climate anything is possible!
And finally it is also just more pages in an already overpopulated annual report! Officers would need to pull together all of the relevant information and already over stretched auditors may have to ensure any approved reporting metrics have been produced correctly.
As our clients increasingly recognise the importance of sustainability and responsible business practices, TBL reporting could serve as a valuable tool for balancing financial success with social and environmental responsibility. Despite challenges, the concept continues to evolve and who knows my prediction might come true!