Bottom Line? Perhaps you should worry about the TRIPLE bottom line

Bottom Line
As most of the readers of this blog know, I work for an asset management company. In that industry, when people look at the viability of a business, they want to know that business' bottom line. In financial terms, that bottom line refers to the net income of the business (the money left over when you subtract all of the business expenses from the revenue). With that bottom line, investors will look at ROE (return on equity), ROIC (return on invested capital), and other returns to see how the money they invested in the company has generated additional capital (they hope!). Though on the surface, a number like net income seems straight forward -- a couple of weeks in an accounting class will quickly show you how this number can be manipulated! And a day reading a financial newspaper will demostrate cases of companies who fradulently reported to their investors. Despite government regulation and intervention, it seems this bottom line that we all rely on is only a gray indication of the sturdiness of the business.

Double Bottom Line
Coming to Grameen Foundation, I became aware of something social investors call the double bottom line. As a social investor, not only do you want to know that you will be getting a return on your investment in a financial sense, but you also want to know that the money is actually making a social difference. In the world of microfinance institutes (MFIs), that can be measured via something like the Progress Out of Proverty Index (PPI). This index was created by a statistician who calculates the likelihood that a given individual is under a poverty line based on a few simple questions. By measuring over time, you can see trends whether a program is effective at lifting out of poverty. It can also be useful to the MFI to make sure that their programs are targetting the appropriate populations. And this measurement can be used to show investors that their investment dollars are touching the population by which they are most interested by using observable measures such as:

• How many children are in school?
• What type of roof is on the families house?
• Is the floor made of dirt, concrete, wood, or something else?

In some ways this double bottom line is more tangible than our traditional financial bottom lines. Maybe, that is why the return of principal for these microfinance loans are still in the high 90%. Moreover, perhaps our banks should start using a similar system to assess their own clientele!

Triple Bottom Line
This evening, I was invited to a donor dinner for Grameen Foundation. Although I am donating my time, I was there as a filler for someone who was unable to make it to the dinner. Perhaps at a later date my donations will be more valuable. ;-) In any event, it was quite interesting. Grameen Bank, in Bangladesh, has created an offshoot called Grameen Shakti. This offshoot is bringing solar power to the rural power of Bangladesh, thereby

• reducing carbon emissions,
• improving the quality of air (and thereby increasing the quality of life of the women),
• reducing long-term energy costs for the rural power

This improvement on the environment is in turn being turned back into financials in multiple ways: through organic certifications that allow for higher prices of products sold, through carbon credits sold to Europeans, and as an energy service sold to fellow Bangladeshi people. It's becoming such a viable business that others are starting to enter the marketplace as competition to Grameen. An excellent opportunity to the poor. All of this combined to form the triple bottom line. While it's still a relatively early model and I'm sketchy on the details of how that third bottom line can be objectively measured, it's doesn't seem to be any worse than the first bottom line that got us into this economic crisis. Ha!