Triple bottom line

Triple bottom line is the single auditable summary of natural deficit, social deficit and financial deficit.

It is an expression used in debates around accounting reform, especially that motivated by human development theory. According to that theory, current accounting and especially measures of national income and economic growth are prone to lead to uneconomic growth, actual losses in ecological health and human well-being even as such strictly financial numbers as GDP rise.

Fiscal policy of any government, in any nation, already depends on identifying social and natural deficits on a less formal basis. However, in a democracy at least, such choices are usually guided more by ideology than by economics. The primary benefit of embedding one approach to measurement of these deficits would be first to direct monetary policy to reduce them, and eventually achieve a global monetary reform, e.g. Global Resource Banking, by which they could be systematically and globally reduced in some uniform way.

The primary arguments against this seem to be either strictly nationalistic, based on indefensible notions of growth (even its own creators decry the use of GDP as a general purpose growth measure), or inertial or competitive in nature. The difficulty of achieving global agreement on simultaneous policy in this regard, critics argue, renders such measures at best advisory - and thus not enforceable. People would be unwilling, they argue, to undergo a depression or even sustained recession in order, for instance, to remediate lost ecosystems.

However, balanced against this is the argument that the Earth's carrying capacity is itself at risk, and that in order to avoid catastrophic breakdown of climate or nature's services, there is a need for a comprehensive reform in global financial institutions similar in scale to that undertaken at Bretton Woods in 1944, and not since. This argument has been made most coherently by Marilyn Waring, probably the only individual to have actually read all the documents that arose from that meeting.

Her view has steadily grown more mainstream. With the emergence of an externally-consistent green economics and agreement on definitions of potentially contentious terms such as full-cost accounting, natural capital and social capital even among non-aligned economists, the prospect of formal metrics for ecological and social loss or risk has grown less remote through the 1990s.

In the United Kingdom in particular, the London Health Observatory has undertaken a formal program to address social deficits via a fuller understanding of what "social capital" is, how it functions in a real community (that being the City of London), and how losses of it tend to require both financial capital and significant political and social attention from volunteers and professionals to help resolve. The data they rely on is extensive, building on decades of statistics of the Greater London Council since World War II. There are some similar studies in North America, although with less rigorous methods, less uniform data, and which tend to be more regionally based.

Studies of nature's services and assessments of the value of Earth have been the most concrete step towards determining what might constitute an ecological or natural life deficit. Once ecosystem valuation and biodiversity metrics are more widely accepted, there will be less difficulty determining when a baseline value for an ecosystem has been reduced. The Kyoto Protocol relies on some measures of this sort, and actually relies on some value of life calculations that, among other things, are explicit about the ratio of the price of a human life between developed and developing nations (about 15 to 1). While the motive of this number was to simply assign responsibility for a cleanup, such stark honesty opens not just an economic but political door to some kind of negotiation - presumably to reduce that ratio in time to something seen as more equitable. As it is, people in developed nations can be said to benefit 15x more from ecological devastation than in developing nations, in pure financial terms. According to the IPCC, they are thus obligated to pay 15x more per life to avoid a loss of each such life to climate change - Kyoto simply seeks to implement exactly this formula, and is therefore sometimes cited as a first step towards getting nation-states to accept formal liability for damage they do to ecosystems shared globally.

Advocacy for triple bottom line reforms is common in Green Parties. However, the principle is increasingly popular among those of other stripes, e.g. in Islamic economics and in creditary economics. It is increasingly common also in United Nations circles as well. Some of the measures undertaken in the European Union towards the Euro currency integration standardize the reporting of ecological and social losses in such a way as to seem to endorse in principle the notion of unified accounts, or unit of account, for these deficits.