Analysis of Measurement Issue in TBL Reporting

ccording to John Elkington( ), triple bottom line reporting has been defined as follows: (i) At its narrowest, the term triple bottom line is used as a framework for measuring and reporting corporate performance against economic, social and environmental parameters. (ii) At its broadest, the term is used to capture the whole set of values, issues and processes that companies must address in order to create economic, social and environmental value. This involves being clear about the company's purpose and taking into consideration the needs of all the company's stakeholders.

From the above, the measurements of performance have to consider the needs of all the company's stakeholders and company's own purpose as well. According to(world business council ) , stakeholders encompass all individuals and bodies who have an interest in or are affected by (or potentially affected by) an activity. On the other hand, based on the extended generally accepted accounting principles (GAAPs), the measurements should also have the following characteristics: relevance, reliability, comparability and materiality().

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Therefore, to measure the company's impact on economic, social and environmental parameters, all the above mentioned have to be followed. However, in reality, there have a lot of practical problems to measure the company's performance comparably, reliably and relevantly due to the impact of a series of factors. Environmental performance normally includes impacts through processes, products, or services. These may include air, water, land, natural resources, and human health. However, in practice, accountants always face the problems of cost allocation.

According to Steven Schilizzi(2002),this is because it is often difficult to decide how much of an investment is "environmentally" related.

On the other hand, in determining the indicators such as air quality for organization to measure its impact on external environment, as Steven Schilizzi(2002) mentioned, it is not easy to add up different physical quantities. Furthermore, every industry has their specific environmental performance, so there is variability of environmental reporting indicators across industries and geographic region due to the natural difference.

(Anne Papmehl, 2002) Therefore, it is difficult to standardize and measure them consistently and relevantly according to the GAAPs. Social performance includes treatment of minorities, equality, involvement in shaping local, national and international public policy, employee issues and community concerns. To measure the organizations' social performance relevantly and reliably, conceptually all the stakeholders' interests have to be considered. However, in reality, it is impossible.

According to (greenwash), quantifying issues or impacts on a scale that would satisfy all stakeholders is probably impossible given the likely divergence of their perceptions and needs. Therefore, it is important for organizations to identify the key stakeholders' response and perception about their performance. In determining the key stakeholders by organizations, it is often underpinned by corporate values and ethical conduct (). Furthermore, failure to consider the wider collection of stakeholders can result in extraordinary risks being ignored (Derek H. T. Walker,2000).

At the meantime, the broad range of key stakeholders will have varied and sometimes conflicting interests and demand. Thus, as Steven (2002) stated, all the above factors could lead to a contingent liabilities with respect to organisations' social impacts, and it is very difficult to measure and quantify a contingent liabilities. There is always a subjective element in measuring the performance. In the case for organizations to keep up with global trends in measuring the performance, it will be more complicated and different culture background between countries have to be considered as well().

Therefore, it is very difficult to measure the organizations' performance against social activities due to the great uncertainty. Economic performance includes financial performance, activities related to shaping demand for products and services, employee compensation, community contributions, and local procurement policies etc. Economic performance is probably one of the most commonly used business performance measures such as Return on Average Capital (ROACE).

However, in measuring the social and natural capital, it is also a great challenge due to their intangibility. From the above analysis, due to the impacts of stakeholders, culture, geographic region and specific industry, it is not easy to measure the performance with respect to environment, society and economy. Furthermore, it will be more complicated in measuring the combined impact of the social, environmental and economic performance. There is still a long way to go.