Cities and the Triple Bottom Line

Abstract: Cities are experiencing substantial population growth, they generate about 80 percent of global GDP and they are in power of local legislation. This makes them crucial actors in facing sustainability challenges. A framework that allows for a holistic approach to sustainability is the triple bottom line, which advocates for joint consideration of social,economic, and environmental development. In practice, these three dimensions are mostly considered separately without paying attention to causal relationships among each other. However, understanding these causalities is necessary for designing effective sustainability strategies and accurately assessing city sustainability. This study provides evidence for the causal effects of social and economic sustainability on environmental sustainability. To avoid simultaneity bias, this study applies a shock-based instrumental variable approach, which isolates the causal effect of socio-economic on environmental sustainability from the causal effect in the reverse direction. The study sample encompasses 60 German cities, for which data was collected for 30 indicators between the years 2000 and 2013. The chosen shock is the financial crisis of 2007, as it has strongly and directly affected socio-economic indicators, but not environmental indicators. The empirical analysis of the data confirms the presence of causality from social on environmental sustainability, as well as from economic on environmental sustainability. This implies that changes in one socio-economic sustainability do not translate into equivalent changes in overall sustainability, but are accompanied with further changes, that need to be considered.