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New Delhi: More than 90 per cent of Indian institutional investors now consider sustainability information essential in their due diligence process, a study by Deloitte and The Fletcher School at Tufts University said, adding as sustainability becomes more integral to investment management, trust in the ESG data used to inform these decisions is lacking, posing challenges in accessing trustworthy data.
"According to Indian investors, the inconsistency or incomparability of ESG rating data (73 per cent), cost constraints on integrating ESG data into investment decision models (71 per cent) and lack of measurable outcomes in corporate disclosures (70 per cent) reduce the trust factor of available sustainability data, inhibiting their ability to implement ESG investment strategies," Deloitte said citing its study titled 'Investor trust in sustainability data'.
The study further highlights that Indian investors are more likely to trust in-house proprietary data systems and audited (or assured) corporate disclosures for sustainability analysis. However, as compared with global investors, Indian investors are less likely to rely on external data sources and ratings.
Viral Thakker, Partner and Sustainability & Climate Leader, Deloitte South Asia, said, "While the focus on sustainable investing is commendable, the lack of access to trustworthy data remains a significant hurdle for Indian investors. There is a critical need for improved reporting standards to build investor confidence and facilitate informed decision-making.
"Organisations must strengthen sustainable governance capabilities, invest in high-quality measurement and reporting systems, and seek third-party assurance for their disclosures. By prioritising transparency and engagement, companies can align with investor expectations and contribute to social and environmental outcomes, fostering a sustainable future for all."
Highlighting the growing trend of sustainable investing, the report states that about 78 per cent of Indian institutional investors invest up to 30 per cent of their funds to finance organisations that aim to achieve specific and measurable ESG objectives. About 1 per cent invest more than 60 per cent of their funds in organisations that meet definitive ESG objectives.
About 41 per cent of Indian investors cite regulatory requirements as the top driver for incorporating sustainability factors into investment decisions, closely followed by the pursuit of improved social and environmental outcomes (36 per cent each). This contrasts with global benchmarks, where investors prioritise financial performance and risk diversification.
The increasing awareness of climate change, social issues and corporate governance standards has led to more pressure on investors from their clients.
Nearly 40 per cent of investors experience pressure, with about 15 per cent feeling extensive pressure to integrate ESG strategies into their investment decisions due to demands from clients and asset managers. This client-driven demand highlights the significant influence of external expectations on incorporating ESG factors in investment strategies.
"Building and maintaining trust with investors is vital for corporations to stay competitive, grow market value, and gain access to capital. Trust can be built through actions that demonstrate a high degree of competence and positive intent. Our study highlights a significant gap in ESG data reliability, challenging investors who seek to incorporate sustainability into their decisions."
"To bridge this gap and foster greater trust, organisations must reliably deliver on their sustainability commitments and enhance transparency through standardised reporting and robust data verification. By doing so, we can empower Indian investors to make more informed and impactful sustainability investments, ultimately driving positive social and environmental change," said Shabana Hakim, Executive Director, Deloitte India.
The survey shows about 80 per cent of Indian investors have implemented sustainability policies. Of these, 14 per cent have had a policy in place for more than five years and 58 per cent have had a policy for over two years.