The world in which we live and work is changing faster than ever before. This is, in part, fuelled by our recognition of unsustainable economic activities and their accelerating consequences. We now understand that our environmental, social and economic well-being are interdependent and concurrent. 

The challenge gripping companies and finance professionals is the recognition of what it means to be sustainability minded; embracing the changes required and acting with purpose and integrity, as humans and business leaders. Easier said than done – so, how do we do it?

The success of this paradigm shift depends on a reset of our thinking, operating models and processes, and data needs. An important manifestation of this shift is the evolution towards standardised and digitised corporate sustainability reporting practices that are also regulated and externally assured. The result is a global, albeit gradual, shift towards sustainability-driven capital allocations and responsible business practices, underpinned by regulation.

This evolution will inevitably drive greater alignment between sustainability and financial information. Reporting requirements aside, the fundamental transformation return on investment for companies lies in their ability to leverage the combined power of the finance function and insights provided by sustainability information. With this, they can better manage material impacts, risks and opportunities (sustainability performance) that convert into value creation (financial performance). 

This can only happen if there is a meaningful connection between sustainability and financial information. Understanding and cultivating this connectivity is a challenge with great potential for rewards. 

We have written guidance that unravels the connection between sustainability and finance by shedding light on differences in performance measurement, the distinction between performance measurement and disclosures, and where the connectivity between sustainability and financial information begins.

Before we even begin to explore the connection between sustainability and financial information, we must set the context by clarifying the distinction between the acts of reporting and disclosing. 

Reporting includes the process of measuring performance according to a prescribed set of accounting and reporting standards, usually through formats such as the balance sheet, income statement and statement of cash flows. It may also take other forms depending on the needs of the user. It generates performance information intended either for internal management purposes or for external user purposes. When shared externally, it becomes a disclosure. 

Disclosing is the process of converting internal performance information into an external output and format. Corporate disclosure is effectively the act of providing relevant and reliable performance information to external stakeholders. 

It may be helpful to think of disclosure as a subset process of reporting, usually defined by a regulatory body. This helps to explain why there is also confusion between accounting, reporting and disclosure standards, which are distinct concepts through the content of our paper.

This paradigm shift towards sustainability is fostering much welcomed interaction and collaboration between the sustainability and finance departments. This collaboration offers promise for companies to unlock the value-creating potential of embedding sustainability within their strategy and business model.