BRIAN BENFIELD | The delusion of the triple bottom line

At the turn of the century, Canadian-born’ US economist David Henderson offered a warning that was unfashionable then and is assiduously ignored today: that the doctrine of corporate social responsibility (CSR) and “sustainability” is not merely confused; it is corrosive.

More than two decades later that doctrine has been rebadged, expanded and institutionalised as ESG, shorthand for environmental, social & governance issues, each of these concepts with vastly different areas of focus, origins and applications.

At the centre of this edifice sits the beguiling fiction of the “triple bottom line” — the claim that firms should pursue not one objective, being profit, but three: profit, social good and environmental virtue, accompanied by impeccable corporate governance credentials. It is a phrase of considerable rhetorical charm. It is also a conceptual error.

In truth, there is only one bottom line. Profit is not a moral indulgence; it is an informational necessity. It aggregates dispersed knowledge about costs, preferences, risk and time. It disciplines managers, signals scarcity and directs capital to its most productive uses. Without it, economic calculation becomes guesswork.

Having parallel “bottom lines” does not enrich this process; it obscures it. Social and environmental outcomes, however important, are not commensurable with profit. They cannot be combined into a single metric without arbitrary weights and subjective judgments.

The inevitable result is not broader accountability, but its dissolution. When everything counts, nothing can be measured, and then anything can be justified.

Moral conceit

This is the moral conceit at the heart of ESG. It presumes that corporate executives should arbitrate among competing social claims, balancing wages against emissions, local employment against global supply chains and present costs against speculative future benefits.

Yet “society” is not a unified actor with a single will. Its interests are plural, often conflicting and properly reconciled through democratic institutions. To assign that task to corporate management is to privatise political choice, without mandates, without transparency and without recourse.

The consequences are not merely theoretical. They are patently visible in the way capital is being allocated. Investment decisions, once guided primarily by expected return, are increasingly filtered through ESG criteria: scores, ratings and frameworks that are inconsistent, opaque and frequently contradictory.

Capital flows not necessarily to where it is most productive but to where it is most “compliant”. In developing economies this is highly destructive, for the burden of ESG falls most heavily on those least able to bear it.

Emerging markets depend critically on inflows of capital, technology and enterprise. Their comparative advantage often lies in precisely those sectors of energy, mining and manufacturing that ESG frameworks penalise. A coal-fired power station in South Africa, a textile factory in Bangladesh or a copper mine in Zambia may fail to meet the environmental or labour standards demanded by investors in London or New York. The result is not that these activities cease; rather, they are displaced by less regulated competitors found elsewhere.

Moreover, ESG imposes values that reflect the priorities of wealthy societies. In countries that have already industrialised, it is politically and economically feasible to prioritise emissions reductions, workplace conditions and governance refinements. In countries like ours, grappling with mass unemployment, energy scarcity and fragile institutions, growth is not a luxury; it is a pressing imperative.

To insist that developing economies like South Africa’s conform to the standards of the developed world, without regard to their stage of development, is to deny them the very pathways that enabled first-world development in the first place. It is in effect to pull up the ladder, to wind up the drawbridge.

Entrenching disparities

This is not conjecture. Today’s advanced economies were industrialised through processes that would today fail every contemporary ESG screen. To impose, ex post facto, a set of constraints that those economies themselves did not face is to entrench global disparities under the guise of “moral” progress.

ESG enforcement is driven externally by asset managers, ratings agencies and multilateral institutions whose accountability lies elsewhere. Decisions that shape the economic prospects of millions are made in distant boardrooms, guided by metrics that are neither locally grounded nor democratically sanctioned.

Governments set the rules; firms operate within them. When environmental or social harms arise, the appropriate response is to address them through law, subject to public debate, legislative scrutiny and judicial oversight.

ESG subverts this architecture. It invites firms to assume quasi-governmental functions, internalising responsibilities that properly belong to the state. In doing so, it weakens both. Governments are relieved of pressure to enact coherent policy; firms are burdened with mandates that they are neither equipped nor authorised to fulfil. The result is a diffusion of responsibility and a collapse of accountability.

The much-vaunted triple bottom line plays a central role in this confusion. By suggesting that firms can optimise across multiple, incommensurable objectives, it provides cover for discretionary decision-making. Managers can justify almost any course of action by invoking one or other dimension of “value”. Performance becomes a matter of narrative rather than measurement.

In practice, this invites inefficiency and opportunism. Companies engage in highly visible ESG initiatives, rebranding, reporting and target-setting, while the underlying allocation of resources becomes far less disciplined. Activist groups, recognising the leverage afforded by “reputational risk”, exert pressure directly on firms, bypassing the more accountable processes of public policy. The result is a form of ad hoc governance, driven by visibility rather than effectiveness. Accountability dissolves into a haze of competing claims and unverifiable assertions.

Misplaced responsibility

None of this is to deny the importance of environmental stewardship or social progress. It is to insist that these objectives are best pursued through institutions designed for that purpose. If emissions are too high, price carbon. If labour standards are inadequate, legislate and enforce them. If governance is weak, strengthen the legal framework.

What ESG proposes instead is a system in which these responsibilities are dispersed, informal and selectively applied, guided by norms that are fluid, contested and often detached from local realities.

Dr Henderson saw clearly where this leads. His critique was not an argument against ethics in business but against the conflation of ethics with ill-defined and unaccountable mandates. It was a defence of institutional integrity, of the idea that good intentions are no substitute for sound structures.

When the boundaries between economic and political institutions are blurred, both are weakened. Markets lose their efficiency; governments lose their authority.

The pursuit of profit within a clear and consistent legal framework is the foundation upon which modern prosperity has been built. To dilute it with ill-defined and unaccountable mandates is not to encourage and elevate the virtues of private enterprise, but to destabilise it. Nowhere is that destabilisation more consequential than in the developing world, where the margin for error is smallest and the need for growth the greatest.

The triple bottom line does not broaden the purpose of the firm. It dissolves it. Its dilution risks denying billions the very progress that its proponents so confidently proclaim. The challenge is not to make capitalism more virtuous by decree. Ultimately it is not the proclaimed virtue of corporations that will determine societal outcomes but their capacity to create wealth and generate opportunity within a framework of clear, consistent and democratically determined rules.

That, one might suggest, is responsibility enough for any single business.

• Dr Benfield, a retired Wits University professor of economics, is a senior associate and board member of the Free Market Foundation.