What are Triple Bottom Line Companies?
And why is it important for you to know about the triple bottom line investing thesis?
We want to make sure your portfolio is well positioned to profit from the megatrend of the triple bottom line. We discuss specific triple bottom line examples that will perform well in 2021 and the years ahead. Also, we discuss why these companies are considered triple bottom line companies in the industries they serve.
The term “triple bottom line” was first used by John Elkington in 1994.
Elkington defined triple bottom line companies as those that focus as much effort on having positive impacts on people and the planet as they do on making bottom line profits. Thus, the idea of focusing on all three areas came the idea of the “triple” bottom line. A business focused equally on people planet and profits has become quite attractive for investors and provide an excellent way to diversify a new portfolio for those just learning how to invest. Today, Impact Investing is considered a way to access the Triple Bottom Line Companies through the market.
It took some time for the idea of investing in companies that were not only profitable, but were doing good for society to catch on, but it has picked up significant momentum during the last 25 years.
Today based on some recent reports, there are almost 2,000 organizations managing more then $715 billion in assets under management geared towards investing in triple bottom line companies.
This type of investing that cares for more than just shareholder returns sometimes goes by other names (impact investing, ESG investing, etc.), but the concept is generally the same. The idea of all of these investing concepts is that it is just not good enough to invest in profitable companies. Instead, you want to invest in profitable companies that are doing good things for people and the planet.
Chevron and NextEra Energy are two large energy companies that serve millions of customers every day.
Their business models and environmental impact are vastly different.
Chevron harms the land and sea while extracting fossil fuels from the ground. And then Chevron’s customers pollute the planet when using the fossil fuel end products like gasoline. Chevron is clearly not a triple bottom line company. Despite being a very profitable company most years, their impact on people and the planet is quite negative.
NextEra Energy is a large utility that operates primarily in the southeast. However, NextEra Energy is the largest generator of renewable energy, primarily using wind and sun. NextEra Energy is clearly a triple bottom line company because they have a business model that allows them to be very profitable, while also doing good for the planet and its inhabitants.
So if you could only invest in one these two profitable companies, which one would it be? The one that pollutes the planet while it makes its profits, or one that harnesses our natural resources in a way that is good for the environment?
When you look at the much higher price earnings ratio for NextEra Energy vs Chevron, I would say the market has spoken by paying a premium for NextEra Energy.
Salesforce is a fantastic technology company that enables businesses to create a great digital experience for their customers.
Salesforce has been growing its revenues by at least 20% a year for quite some time. With fiscal year 2021 revenue (ending January 31, 2021) of $21 billion and a market capitalization of $200 billion, Salesforce is substantial. And while it has done well historically, the future seems quite bright for Salesforce as they should continue to be a market leader. This combined with the tailwinds of companies investing in technology to improve the digital experience for its customers should propel the stock price of the Salesforce stock higher in the years ahead.
But Salesforce is about more than just making a profit. They are led by founder and chief Executive officer Marc Benioff who is a big believer in giving back to the communities that Salesforce serves.
Specifically, Benioff has instilled a culture at Salesforce that has a pledged to donate 1% of their product, time and resources to philanthropic causes. This is the exact kind of culture that creates a triple bottom line company.
Now is a good time to buy a few shares of Salesforce. Although the stock has done incredibly well historically over the long run, the stock price has pulled back about 20% in the last couple of months. This is likely due to Salesforce’s announcement to acquire Slack at a premium price.
Salesforce has a history of successfully integrating acquired companies and I expect nothing different this time.
Use the current softness in the Salesforce stock price to buy a few shares.
Another triple bottom line company that we like very much is Nvidia.
Nvidia is another very successful technology company with a market capitalization of $330 billion.
Led by found and chief executive officer Jen Hsun Huang they operate a large visual computing company that makes (among other things) many of the graphic cards used in gaming consoles.
Similar to Salesforce, Nvidia is not just about making money for its shareholders.
Nvidia has a dedicated recruitment group for the sole purpose of making sure it has a talent pipeline that is diverse. This is important given that many technology companies are behind the times on gender and racial parity.
Nvidia also has a procurement policy that prohibits raw materials being sourced from certain conflict zones, so as to not let the wrong groups profits from their purchases.
Neither the dedicated recruitment group or the procurement restrictions are necessary, but Nvidia gets high grades from triple bottom line enthusiast for doing the right thing.
Nvidia stock price has pulled back about 12% from its all-time high after reporting stellar earnings. This makes it a good time to pick up a few shares at a discount.
You can make good money investing in triple bottom line companies and feel good about doing it.
These kinds of companies worry about people and the planet as much as they worry about profits.
Consider these kinds of companies for your portfolio the next time you are researching for a business to invest in.
Use our examples of Salesforce and Nvidia to help you get started on your way to profitable investing.