This chapter provides the theoretical basis for understanding sustainability and innovation as interconnected factors in contemporary business transformation. It traces the historical evolution of sustainability, from early environmental concerns to multidimensional frameworks that incorporate social equity and long-term value creation. The chapter examines milestones such as the Brundtland Report, the Rio Declaration, the SDGs, and the Paris Agreement, and discusses the emergence of CSR, ESG performance measurement and the shift to mandatory sustainability reporting. From an innovation perspective, the chapter analyses classical, neoclassical, and evolutionary theories, and defines technological and non-technological innovation, distinguishing between radical and incremental, modular and architectural innovation. Finally, the chapter introduces the circular economy as a regenerative model that integrates design, resource efficiency, and systemic transformation, complemented by an overview of recent European regulations such as the CSRD and the ESRS.