Triple bottom line: noun. A business principle that measures corporate performance along three lines: profits, environmental sustainability, and social responsibility.
One of the unsung achievements of the federal government is that it has succeeded to some extent in rolling back the Orwellian concept of political correctness, or PC, in public discourse.
Consequently, I was surprised to discover only last week that the government has, with seeming insouciance, institutionalised a most pernicious form of political correctness in the nation's savings system. My background paper outlines the implications of amendments accepted by the government from the Labor, Democrats and Greens parties and incorporated in the Financial Services Reform Act.
The bill, some 600 pages long, was presented to parliament by then-financial services minister Joe Hockey and became law in March, although full implementation will take up to three years. Under the provisions of the new law, Australian superannuation, life insurance and managed funds will have to follow a form of triple bottom line (TBL) accounting.
As with most PC mantras, the triple bottom line sounds innocuous, almost motherly in character, but it has come to disguise a political agenda. In its original formulation, TBL was employed as a voluntary framework for measuring and reporting corporate performance against economic, social and environmental parameters. Even in this narrowest of definitions, it is apparent that it is impossible to come up with a standardised measure of environmental and social outcomes that would apply across all corporations.
But there is a good public relations case and sometimes a compelling economic case to be made that TBL is a worthwhile exercise and some companies have recognised this. There is quite an international consulting industry involved in pushing TBL. Highly active in this lucrative and competitive business are many different interest groups. A web search on Google of TBL threw up 334,000 references, many of which identified it with the anti-globalisation lobbies. Not surprisingly, these interest groups have been pushing for TBL to become compulsory so that the rights of "stakeholders" will be treated equally with those of shareholders. When stakeholders are defined in the widest possible terms to include people with no financial exposure either directly or indirectly to a company's operations there is almost inevitably a conflict between the "stakeholders" and "shareholders".
The federal government, courtesy of Hockey, has gone further than anyone else down this path of creating a legal framework that offers the practical prospect that stakeholders will be in a position to demand equal, even superior, rights to shareholders. Under provisions of the act, the custodians of a significant proportion of Australia's household saving will be obliged to report the labour standards, environmental, social or ethical considerations they take into account when they invest those savings. Responsibility for defining the standards to be applied has been handed over to the Australian Securities and Investment Commission. That's a real hospital pass for ASIC.
Just think of the vexed question of labour standards, ranging from unionised or non-unionised workplace to specifics such as paid maternity leave, before you get to the far fuzzier area of environmental and social standards. The potential writ of the TBL extends way beyond the financial institutions covered explicitly in the bill. Would, for example, it be socially responsible for a superannuation fund to invest in a tobacco company, a casino or a farming operation that used genetically modified seeds? Theoretically, it would be possible for the super fund to simply say it did not take non-financial factors into consideration; that it was fulfilling its mandate to maximise investors' returns. In practice, that would invite yourself to be targeted by special interest groups and the media.
Even if the required data is given in the most general of terms, the act provides a degree of legitimacy for "stakeholders" to argue that this falls short of the community service requirements implied by the law. The government has provided the ideal avenue for activist interest groups to leverage their case by providing soft targets in financial institutions that trail the pack in terms of non-financial performance. The savings institutions covered by the legislation have more than $600bn under management. They represent the single most important source of external investment capital for Australian industry.
There is a danger that application of this law will distort the pattern of investment in a deleterious fashion. This conclusion is backed by the Good Reputation index published by The Sydney Morning Herald and Melbourne's The Age last year. The criteria employed were based largely on the views of interest groups that compete for the claim to be the most environmentally or socially active and sensitive. The newspapers looked at Australia's top 100 companies and found not one of the top 10 in the index ranked in the top 10 in terms of financial performance. Only one, Foster's, made it into the top 20.
The impact of this act will be to further reduce the retirement benefits going to Australians through compulsory super. Not only has super become a cash cow for the tax system, it has become an arm of social engineering. The tragedy is that it is beyond repeal. The critical amendments were written and supported by a coalition of Labor, Democrats and Greens, who are destined to retain a majority in the Senate and be in a position to block any return to sanity on the part of government.
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