Triple Bottom Line, or Quadruple Bottom Line?
We recently put the finishing touches on our upcoming book Energy Efficiency and the Future of Real Estate. In the conclusion to the final chapter, we discuss some of the differences in how companies can report their sustainability efforts. Before the increased focus on social and environmental reporting, companies focused on a single “bottom line” – profit (or loss). What we see today is a shift toward the accounting framework known as “triple bottom line” reporting, which operationalizes “sustainability” in terms of social, economic (or financial), and environmental factors. Such a shift makes sense if you consider that, for example, it is wise for a mining company to maintain a high level of environmental and healthcare standard to prevent unnecessary healthcare cost for both its own employees and local communities who provides its long-term source of labor and closely impact its operational environment. The single bottom line approach will not capture the full societal benefit-cost tradeoff in this scenario and hurts long-term economic stability.
In Chapter 2, Devine discusses certification as a signal that is incorporated into property markets with an application to apartments. She also discusses how green certification enhances corporate image and helps to attract and retain talented employees. Finally, she discussed the operational benefits of green construction. Much of the empirical research surveyed by Devine, and augmented in Chapter 7 by Yoshida et al., has commonly used certification labels as metrics for the impact of sustainable building characteristics on this triplex. However, as the results of Yoshida et al. show, certification is but a means to an end, and we can in fact discover changes in the actual environmental bottom line of green building certifications. Their additional finding, that “the economic bottom line is directly discernible from the environmental bottom line, additionally suggests that with time certification may cease to be necessary as a metric.” This future outcome would have widespread implications on the green building industry, including the organizations that proffer various degrees of environmental certification. Also, as shown in Chapter 6, Stanley and Wang provided econometric evidence supporting a positive rental premium for green buildings, but a negative policy effect. Their chapter implies that it was the benefit of the features of green buildings and competitive market forces that improved the economic prospect for property owners, not the “green” label.
Research like this, we think, will eventually lead to even greater measurement and reporting of multiple bottom lines in corporate reports and filings, as corporate social and environmental responsibility becomes ever more important to the financial bottom line in a highly connected world.
N. Edward Coulson is Professor of Economics and Public Policy in the Merage School of Business at the University of California, Irvine. He is also Co-Editor of the Journal of Regional Science, and he served as President of the American Real Estate and Urban Economics Association in 2016.
Clifford A. Lipscomb is Vice Chair and Co-Managing Director at Greenfield Advisors. He is the Chair of the American Real Estate Society’s Practitioner Research Award committee, an Associate Editor of the Journal of Real Estate Literature, and a Visiting Scholar at the Federal Reserve Bank of Atlanta.
Yongsheng Wang is Associate Professor of Economics and Director of Financial Economics at Washington and Jefferson College, USA. His research focuses on energy economics and real estate economics.