Triple bottom line and sustainable performance measurement in industrial companies.

AutorHourneaux, Flavio, Jr.
  1. Introduction

    Sustainability, despite its inherent difficult to be properly defined (Lele, 1991; Glavic and Lukman, 2007), has become a major issue when seen from an organisational perspective. As previously pointed out by several authors (e.g. Atkinson et al., 1997; Neely et al., 2002; Epstein and Roy, 2003), since sustainability has had its role increased in several aspects of management, one issue has arisen: how to better understand the way sustainability has been taken into account in terms of performance measurement by the firms? In order to find an answer to this question, numerous studies have dealt with how companies could turn firm's sustainability performance into a systematic and effective way (Veleva and Ellenbecker, 2001; Warhust, 2002; Azapagic, 2004; Singh et al., 2012; Krajnc and Glavic, 2005; Searcy, 2009).

    Once it has become clear the need for a paradigm shift towards a sustainable performance measurement, a new way to define organisation's sustainable performance has advanced, the triple bottom line (TBL) approach (Elkington, 1998; Harris etal., 2001; Pava, 2007; Norman and McDonald, 2004; Colbert and Kurucz, 2007). The TBL adds both social and environmental dimensions to the traditional economic results to measure a firm's performance from a sustainable perspective.

    Accordingly, many studies that aim to study sustainability and performance in organisations use TBL as their conceptual basis, mentioning Elkington's proposal as their conceptual reference (e.g. Cinelli et al., 2014; Deng, 2015; Ekins and Vanner, 2007; Krajnc and Glavic, 2005; Padua and Jabbour, 2015).

    Given the importance of the theme and the need for differentiation for unequal realities, several scholars have tried to shed some light on how to integrate sustainability measurement in organisations from different sectors. Thus, studies depict sectors such as minerals (Azapagic, 2004); textiles (Zamcope et al., 2012); agricultural (Guttenstein et al., 2010); oil and gas (Infante et al., 2013; Hourneaux et al, 2017); and steel (Singh et al., 2007).

    In this fashion, this paper aims to propose a minimum set of indicators to be measured by industrial companies to represent their performance according to the TBL approach. To do so, the instrument for data collection was threefold: for the economic dimension, we used 20 BSCs typical indicators, according to Henri (2009); 9 and 22 indicators from Global Reporting Initiative (GRI) (2008) for environmental and social dimensions, respectively. The empirical research had a sample that summed up 149 companies in Brazil.

    The paper is structured as follows. Section 2 enfolds the main concepts of sustainability, sustainable performance measurement and indicators, followed by the study hypotheses. In the subsequent part, we describe the research methodology. In the sequence, we show the main results and analyses that were carried out and the paper ends with the conclusions and recommendations.

  2. Theoretical background

    2.1 Sustainability and the triple bottom line approach

    Possibly the most known definition related to this theme is the Brundtland Commission's, that states that sustainable development "meets the needs of the present without compromising the ability of future generations to meet their own needs" (World Commission on Environment and Development, 1987). Despite its importance, there have been some difficulty and controversy in defining what sustainability is (Lele, 1991; Doppelt, 2008), especially on how to translate it into business frameworks and practices.

    Possibly, due to its complexity, organisational sustainability is most known as represented by the "TBL". According to Elkington (1998), the TBL approach could lead an organisation to perform economic prosperity, environmental quality and social justice simultaneously. McDonough and Braungart (2002) emphasise that many executives are getting to know these three concepts, including TBL issues as a way to add value to their products or services. Later, Lacy et al. (2010) and Berns et al. (2009) reinforce the importance of TBL as the main proxy to represent and measure sustainability in organisations.

    In the search for a consensus, among countless definitions and terminologies, the three-pillar approach called the TBL has been a widely accepted perspective for sustainability not only by scholars but also by society and organisations (Lacy et al., 2010), although the TBL has not been exempt from criticism and contention (Norman and McDonald, 2004; Macdonald and Norman, 2007).

    Despite some researchers' resistance to this concept, to whom the concept is impossible to be put into operation (Norman and McDonald, 2004; MacDonald and Norman, 2007; Hubbard, 2009; Smith and Sharicz, 2011), the TBL has gradually been accepted among organisations (Elkington, 1998). Some studies reinforce this movement (Ho and Taylor, 2007; Hubbard, 2009).

    2.2 Sustainability performance through indicators

    In some sense, performance measurement has been noticed as a fundamental key to the managerial control process in any business (Olson and Slater, 2002). One point of departure for measuring organisation's--whether sustainability-oriented or not--performance is the use of indicators. As seen before, they can be split into economic, social and environmental, according to the TBL approach.

    2.2.1 Economic indicators: the balanced scorecard. The balanced scorecard (BSC) was created by Kaplan and Norton, in the early 1990s. The BSC is defined as a way to integrate strategy and action, through a communication process, including objectives, goals, initiatives and indicators, both financial and non-financial (Kaplan and Norton, 1996). Kaplan and Norton (1996) created the BSC as a new management system that "emphasises that financial and non-financial measures must be part of the information system for employees at all levels of the organisation" (p. 8).

    BSC consists of four perspectives, setting the interrelationships among performance indicators that could lead to a complete view of a company's activities (Kaplan and Norton, 1996). As per Kaplan and Norton (1996, p. 150), "[a] good Balanced Scorecard should have a mix of outcome measures and performance drivers. Outcome measures without performance drivers do not communicate how the outcomes are to be achieved". Simons (2000) also stresses that a well-designed BSC should allow a balance between short and long-term objectives and outcome (lagging) and process (leading) measures, besides establishing both objective and subjective measures for firm's performance.

    Some authors explored BSC through statistical analysis, assessing the validity and reliability of the model (Bouliane, 2006; Henri, 2009). In one of these studies, Henri (2009), investigating 383 top management teams of Canadian manufacturing firms, establishes a set of 20 indicators that would be representative of a typical BSC composition. Table I presents these indicators, according to Henri's (2009) proposal, used as a proxy for representing economic indicators in this study.

    2.2.2 Social and environmental indicators: Global Reporting Initiative. The Global Reporting Initiative (GRI) Reporting Framework is intended to perform as an accepted framework for reporting on an organisation's economic, environmental and social performance (GRI, 2008). The GRI is a network with experts and representatives from various sectors of society present in over 40 countries around the world, and it has been determining the guidelines to sustainability reporting with the participation of several important stakeholders (GRI, 2008).

    Table II presents the social and environmental aspects defined by the GRI guidelines. These aspects are "the general types of information that are related to a specific indicator category, e.g., energy use, child labour, customers" (GRI, 2008) and will be used as a proxy for the data gathering in this research.

  3. Study hypotheses

    This study aims to describe how TBL approach has had been taking into account regarding the firm's performance measurement. Figure 1 presents the research's conceptual model and the hypotheses.

    Two hypotheses refer to the relationship among the different types of indicators, commonly presented as the three dimensions of the TBL. These hypotheses are:

    H1. There is a positive association between the degree of use of environmental indicators and social indicators in industrial firms.

    H2. There is a positive association between the degree of use of environmental and social indicators and the use of economic indicators in industrial firms.

    A third hypothesis refer to an overall analysis of the TBL and challenges the common understanding that the three dimensions would be equal. This hypothesis is:

    H3. Economic, environmental and social indicators have different degrees of use in industrial firms.

  4. Methodological aspects

    This sections aims to define and describe the main methodological aspects considered in the empirical research. Besides the content of this section, a detailed explanation on the statistical procedures was given also in Section 5.

    4.1 Research definitions

    The study is both descriptive and quantitative, using a survey-type research approach, conducted with managers of industrial companies. Despite the non-probabilistic sampling, this can be considered as a homogeneous group, with at least one common characteristic, as belonging to the same industry, as recommended by Flynn et al. (1990).

    The research universe was the set of companies associated with the Centre of Industries of Sao Paulo State (CIESP). To each company, an invitation letter was sent by the board of social responsibility from CIESP with instructions to access the electronic questionnaire.

    In order to reach the purposes of the study, the instrument for data gathering was threefold: for economic dimension, 20 BSCs indicators, according to Henri (2009); 9 and 22 indicators from GRI (2008) environmental and social dimensions...

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