The TBL framework of ISA comprises a large range of environmental, social and economic indicators.
A convenient visualisation of all TBL multipliers is a spider diagram (see figure for the example of the impact of the Australian business management services sector in terms of 10 TBL indicators). The bold line with circles depicts the total (direct and upstream) TBL impacts of the sector. The lighter line in the centre (labelled “1”) represents the economy-wide averages for the TBL impacts of all sectors. Positions inside the economy-wide average represent a better than average performance against the associated indicator and positions outside the centre line are worse than average. In order to be consistent, all indicators are evaluated in an integrated way, using the same method, and covering the entire upstream supply chain (see the boundary problem). Many more indicators can be incorporated into a spider diagram.
Note that better performance for some indicators implies a reduction in the magnitude of the indicators’ value (specifically land disturbance, water use, primary energy, greenhouse gas emissions, and imports), and an increase in the magnitude for other indicators (employment, income, gross operating surplus, exports and government revenue). The energy performance of the business management sector, for example, is better at lower energy consumption than the economy-wide average, while income generated by the sector is slightly better than average at higher earnings.
The Australian business management sector includes a range of professions and in financial terms is dominated by legal services (24%) followed by business management (22%), accounting (18%) and advertising (10%). The integrated overview provided by the spider diagram shows a typical service sector with excellent outcomes for all indicators with the exception of government revenue and exports. The social indicators of employment generation and income are both greater than economy-wide average while all environmental indicators show good outcomes.
Metrics in TBL
In the ISA framework, TBL indicators are reported against in their appropriate units, and per dollar of final demand, or final output. This way of accounting and reporting allows comparisons and benchmarking across a range of scales. For example, the TBL impacts of a large and a small company of the same sector are likely to differ substantially in absolute terms, but they can be compared when expressed in per-output terms, that is, per dollar of output. Appropriate units for economic TBL indicators such as surplus can be reported as “dollars of surplus per dollar of output”. The social indicator of employment would be described as “the minutes of employment generated per dollar of output”. The environmental indicator greenhouse gas emissions can be reported on as “kilograms of carbon-dioxide-equivalent per dollar of output”. Because these quantities have the common metric of one dollar of output, they can be applied to the financial balance sheets of companies and institutions and thus allow Triple Bottom Line reporting at the company level that is commensurate with sectoral, regional and national reporting.
The diagrams below show three TBL accounts for the example of the Australian business management sector. In order to be consistent, all indicators are evaluated in an integrated way, using the same method, and covering the entire upstream supply chain (see the boundary problem). Many more indicators can be depicted as bar graphs. The TBL Reports of this sector on surplus, employment and greenhouse gas emissions is expressed in units of $ of surplus per $ of output, minutes of employment per $ of output, and kg CO2-equivalent per $ of output.
The three bar graphs visualise the total TBL impact in terms of the three TBL indicators. The shaded portions of the bars represent the direct impacts (on-site, in the sector), the first-order impacts (at the suppliers of the sector), second-order impacts (at the suppliers of the suppliers), third-order impacts (at the suppliers of the suppliers of the suppliers), and all remaining higher-order impacts. This type of breakdown is called a production layer decomposition. A production layer diagram gives insights about how “deep” the TBL impacts of a sector or company reach into the economic system.
For example, the business management sector generates 20c of surplus for each $ of GNT. The suppliers of the business management sector generate another 9c of surplus, the suppliers of the suppliers another 4c, and so on. The overall surplus generated by consuming the commodity business management is 36c/$, which is higher than the economy-wide average of 33 c/$. Similar stories can be told for minutes of employment generated, and kilograms of greenhouse gases emitted, and for many more TBL indicators.
The third bar graph demonstrates that significant greenhouse gas impacts and associated financial risks for example from a potential carbon tax occur in higher orders of production a comprehensive assessment of the impact of a sector or company is usually not complete until up to 10 production layers are assessed. These higher-order impacts are overlooked in conventional TBL approaches.
Structural Path Analysis (SPA) – a tool for informed decision-making towards TBL sustainability
A Structural Path Analysis “unravels” TBL impacts into single contributing supply paths. It gives extensive detail of the impact of a sectors or companies’ activities, in TBL terms. It allows investigating the location of impacts within the supply chain. In the case of a company, the control over the input procurement process then provides the possibility of substituting impact-intensive suppliers with more sustainable suppliers.
The table below shows a selection of top-ranking structural paths for the example of greenhouse gas emissions from the Australian business management sector. The Structural Path Analysis computer algorithm developed at the University of Sydney covers the entire upstream supply chain (see the boundary problem). Many more indicators can be analysed in this manner. The Structural Path Analysis of this sector is in terms of greenhouse gas emissions, and is expressed in units of grams of CO2-equivalent per $ of output.
In the table below, each path is be characterised by a line, consisting of
- a description of the path
- the path value (in this case the greenhouse gas impact in grams of CO2-equivalent per $ of final output of business management services),
- the path order (that is, from which upstream supply layer the path originates),
- the path coverage, that is, the relative contribution (in %) to the total TBL impact of the sector.
For example,
- the structural path ‘Black coal > Electricity’ describes the emission of seam gases (mostly methane) from black coal mines that supply power plants that supply the business management sector with electricity.
- the path value is 2.1g CO2-e per $ of final output of business management services.
- the path is of second order, that is originates from production layer 2, that is from a supplier (mine) of a supplier (power plant), and
- constitutes a coverage of 0.68% of the total greenhouse gas impact of the business management sector.
In the example of the Australian business management sector, rank 1 represents emissions from power plants supplying the sector with electricity. Rank 2 are the sectors own emissions from fuel use in buildings and cars. Rank 3 are emissions from planes carrying the sectors employees. Rank 4 are emissions from power plants supplying electricity to business services such as typing, copying or mailing, for the business management sector. There are more paths that relate to emissions associated with electricity for suppliers of the business management sector: these are for entertainment (rank 5, restaurants, hotels, venues), communication (rank 6), electric pumps of water suppliers (rank 7), technical services (rank 10), travel and storage agencies (rank 14), and so on. Rank 8 are (non-energy, methane) emissions from water treatment processes on the sites of water suppliers to the sector. Rank 9 are seam gases (mostly methane) that emerge from coal seams in mines that supply power plants that supply the sector with electricity. Rank 11, 13, 24, 25, and 27 represent energy use, venting and flaring in the fuel refining and distribution sector that makes the fuels used by business management firms. Paths 15 and 22 are of third order, and describe the (non-energy) emissions from land use changes associated with growing conifers for paper and printing for business management services. Rank 19 describes CO2 emitted during the chemical reduction of limestone and dolomite to lime used by the water supply industry (for pH control and sewage sludge stabilisation). Thousands of paths up to 10th and higher order can be identified using this technique.
The boundary problem
The Sydney University team can address this boundary problem by taking a TBL Reporting approach that uses the structure of the Australian economic system as described in the national input-output tables. This structure is best depicted as an ever-expanding “tree of interdependence” that starts at a particular economic entity, and stretches across upstream production layers, containing sectors at different production stages linked together by supply chains (see figure). Thus a particular TBL impact associated with a good or a service cascades from primary industries producing raw materials, via secondary (manufacturing) industries into the sector or company that delivers the final product to the consumer.
The need for capturing impacts across the entire upstream and downstream supply chain (the boundary problem) is of particular importance and has therefore been noted in the Guidelines of the Global Reporting Initiative (GRI) and Environment Australia, as well as by the World Business Council on Sustainable Development and the Green Environmental Management Initiative.
By taking into account TBL impacts throughout the entire upstream supply chains of companies, this quantitative approach can avoid inconsistencies and loopholes, for example in the following cases:
- Demerging and outsourcing: Assume an Australian dairy company “A” that owns the entire production chain, i.e. production of raw milk at the farm, transport logistics from farm to factory and the manufacturing site. This company has significant water usage (mainly at the farm). Assume that the same company A demerges into two companies “A1” and “A”, or outsources to a company “A1”, with A1 consisting of the farm and transport logistics, while the “new A” is responsible only for dairy manufacturing. In a conventional (on-site only, no upstream impacts) TBL reporting regime, A can improve its TBL (water) performance artificially but significantly, despite the fact that the supply chain and hence the impact of the product processed milk is exactly the same.
- Vertical integration: Assume two water suppliers “B” and “B1”, where both B and B1 provide water supply and sewage services, but in addition “B1” owns and manages a catchment. In an on-site-only TBL framework, comparisons between these two water suppliers are not valid because – even though they supply the same product – they exhibit different degrees of vertical integration and a different business structure. In this case B1’s impact is likely to be higher than B’s only because of the additional catchment management activities. In order to provide a fair comparison, the upstream supply chain of B must be taken into account.
- Green supply chain: An Australian manufacturing company “C” uses large quantities of packaging materials for their product. The packaging material consists of HDPE and aluminium. Both materials are energy-, greenhouse-gas- and water-intensive. The management of the company decides to replace the packaging material with starch-strengthened biodegradable plastic that is less energy, greenhouse- and water intense. Under conventional (on-site-only) TBL reporting C is not rewarded for this shift to a more sustainable packaging. However, by incorporating supply chain effects the improved environment performance can be quantified.
- Risk and liability: A manager of an Australian ethical fund assesses the risk that is posed to a construction company “D” and a water supplier “E” when faced with a carbon tax. The manager decides to incorporate E into the ethical portfolio, because D’s carbon emissions from on-site construction machinery are lower than Ds emissions from water treatment processes. However, D may face much higher additional, indirect risks than E, which arise out of price increases of carbon-intensive inputs such as aluminium frames and cement. These risks are ignored in current TBL approaches.