Integrating sustainability into traditional financial analysis

Abstract

The management of environmental, social as well as economic issues has become a key element to guarantee the survival of a company in the medium to long term, and to contribute towards its ability to generate shareholder value. As a consequence, the economic theory of the firm has started to integrate sustainability issues into the accounting and finance areas and to develop new tools and instruments, as well as to adapt those that already exist, to permit the strategic management of sustainability by companies and the capital markets. The translation of the environmental and social impacts of business activities into accounting and financial terms allows not only to manage these impacts, but also to reveal their effects over businesses risks, profitability and value creation ability to all the economic agents that interact with the firm. Management and information systems based on performance indicators, such as the Balanced Scorecard and other models trying to identify cause and effect relationships between indicators, seem particularly well suited to this process. In this paper we review some of the lacks of these performance measurement systems and propose the development of an integrated framework for the financial analysis of the creation of sustainability-oriented value in companies.