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Ideas for Creating an Index to Measure Triple Bottom Line

Sustainability is often identified as a primary goal of businesses and organizations, but actually measuring sustainability can be a challenge. One way to do this is to create measurements that track more subtle examples of sustainability – and the triple bottom line approach to reporting is ideal for this.

By identifying alternative measurements of impact, organizations can measure sustainability performance as well as methodology. This can result in more efficient processes for an organization to measure non-financial, or qualitative, aspects of a business.

Creating an Effective Sustainability Index

Triple bottom line reporting differs from traditional reporting methods in that it goes beyond commonplace measurements such as profits and ROI. Instead, it attempts to quantify social and environmental dimensions.

Organizations can measure these dimensions by identifying ways to track sustainable processes and performance. After establishing a company’s allowable impact, practitioners of the triple bottom line then turn their attention to close monitoring of sustainability performance through the use of an effective index.

Businesses or organizations should select a sustainability index that is meaningful, measurable, relevant, and comprehensive. Data and target goals need to be established so that success can be determined and documented. While it’s relatively easy to define triple bottom line, tracking its success can be tricky.

For instance, social capital and environmental health are harder to quantify when compared to profits  measured in dollars. This is why the sustainability index should include universally-accepted accounting methods and allow for relevant comparisons based upon established benchmarks.

Making Subjective Measurements Quantifiable

The triple bottom line usually employs non-traditional standards of measurement. This requires organizations to carefully consider and choose measurements based on its specific goals. Once goals are established, the organization can customize the index per their requirements and needs. The impact of projects, policies and geographic boundaries can all be quantified. Some examples of seemingly-subjective things that can be measured include the following categories:

Social Measures

Social variables can embody measurements of education, access to resources, health, equity, social capital, and quality of life. Some specific measurements might include:

  • Median household income
  • Unemployment rate
  • Female labor participation percentage
  • Educational levels/percentages
  • Crime per capita
  • Average life expectancy
  • Average commute time

Environmental Measures

Environmental factors reflect natural resources and viability. Air quality, water quality, available natural resources, energy consumption, waste, land cover and land use can all be measured and tracked. With the advent of the global economy, understanding different environmental regulations is a critical component of an international business career. Coupling this knowledge with an eye towards long-term trends can be valuable in determining that an organization is not exceeding its allowable impact. Such measures might include:

  • Concentration of nitrogen
  • Greenhouse gas emissions
  • Amount of waste generated
  • Use of post-consumer, recycled material
  • Fossil fuel consumption
  • Electricity consumption
  • Water consumption
  • Hazardous waste management
  • Solid waste management
  • Changes in land use

Economic Measures

Economic variables can be easy to track and can impact an organization’s bottom line and money flow. Income, expenditures, taxes, employment rate, diversity factors, and business climate issues all represent measureable variables.  Others to include:

  • Average incomes
  • Underemployment costs
  • Job growth percentages
  • Establishment churn
  • Percentage of firms in each sector
  • Employment distribution by sector
  • Revenue by sector

Changing Parameters and Goals 

It should be noted that measures may have to be adjusted over the life of a project or as a business matures. Goals will naturally be adjusted, and new conditions and parameters will come into play as old ones are phased out.

The triple bottom line method of tracking sustainability has transformed the way businesses and organizations measure performance. Tracking people, planet impact, in addition to profits, can enhance both projects and policies. The flexibility of this approach allows for customizing it for specific business needs now and in the future.

Creating an index is key to measuring sustainability. However, since two-thirds of the triple bottom line definition is subjective, some creativity and flexibility is important when establishing an index. Those businesses that become adept at measuring each of the three categories and finding relevant data will likely be the most effective at using the triple bottom line model to calculate sustainability.

Despite the challenges of subjectivity, the triple bottom line can be an effective and alternative method for a business to maintain awareness of its performance as well as its sustainability. For instance, a manufacturing plant can assess profit and loss, while measuring sustainable attributes in parallel. It can measure its remediation efforts to offset its environmental impact, or track the success it has in helping to place former employees following a layoff.

For more information about how to enact ethical business practices on communities around the world, check out our MBAs Guide to the Triple Bottom Line.