Indian investors value sustainability but struggle to access trustworthy data, according to a survey by Deloitte and The Fletcher School at Tufts University 

Mumbai, 13 August 2024: Over 90 percent of Indian institutional investors now consider sustainability information essential in their due diligence process. Per a study titled “Investor trust in sustainability data” from Deloitte and The Fletcher School at Tufts University, 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 percent), cost constraints on integrating ESG data into investment decision models (71 percent) and lack of measurable outcomes in corporate disclosures (70 percent) reduce the trust factor of available sustainability data, inhibiting their ability to implement ESG investment strategies.

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 percent of Indian institutional investors invest up to 30 percent of their funds to finance organisations that aim to achieve specific and measurable ESG objectives. About 1 percent invest more than 60 percent of their funds in organisations that meet definitive ESG objectives.

About 41 percent 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 percent 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 percent of investors experience pressure, with about 15 percent 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 percent of Indian investors have implemented sustainability policies. Of these, 14 percent have had a policy in place for more than five years and 58 percent have had a policy for over two years.

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About the study

The report, a joint effort between Deloitte and The Fletcher School at Tufts University, surveyed over 1,000 institutional investors globally, including asset owners, asset managers and investment advisers in North America, Europe and Asia, from January 2023 to December 2023. 10 interviews with sustainability investors supplement the quantitative data. The Indian portion of the sample size included 78 respondents across investor categories.

Notes to the editor (for reference purposes only)

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”), its global network of member firms, and their related entities (collectively, the “Deloitte organisation”). DTTL (also referred to as “Deloitte Global”) and each of its member firms and related entities are legally separate and independent entities, which cannot obligate or bind each other in respect of third parties. DTTL and each DTTL member firm and related entity is liable only for its own acts and omissions, and not those of each other. DTTL does not provide services to clients. Please see www.deloitte.com/about to learn more.
This press release has been issued by Deloitte Touche Tohmatsu India LLP.

Currently, about 78 percent of institutional investors spend up to 30 percent of their funds to finance organisations that aim to achieve specific and measurable ESG objectives. However, only about 1 percent spend more than 60 percent of their funds to invest in organisations that meet definitive ESG objectives.

This may be due to the fact that despite a growing focus on incorporating sustainability factors into investment decisions, Indian investors face multiple challenges with accessing trustworthy data. The inconsistency or incomparability of ESG rating data, cost constraints on integrating ESG data into investment decision models and lack of measurable outcomes in corporate disclosures reduce the trust factor of available sustainability data.

This trend demonstrates that while regulations and standards are emerging both nationally and globally to drive data consistency, they are not yet implemented broadly enough to provide fully reliable data to investors.

Therefore, investors are most likely to use the information, data, and sources they trust, which include in-house proprietary data systems and audited or assured corporate disclosures as investors prioritise credible ESG disclosures to accurately gauge risk and avoid greenwashing.

Strategically building trust with investors is critical for corporations seeking to stay ahead of the competition, grow market value, and gain access to capital. Therefore, corporate leaders have a strategic opportunity to strengthen their relationship with investors as the capital markets arrive at an inflection point driven by the transition toward a more sustainable world.

Four actions which can help earn investor trust in corporate sustainability commitments

Each leader has a critical and unique role to play for an organisation to reliably execute on its sustainability commitments. While the Chief Sustainability Officer (CSO) may drive the organisation’s sustainability strategy, all C-suite leaders and the board have a role to play.

Investing in reporting systems and compliance solutions may enable more robust, higher quality disclosures. Establishing trust with investors is not a “one and done” objective. Many large corporations have already begun developing sophisticated reporting capabilities to get ahead of impending regulatory requirements. Companies that continue to wait on the sidelines risk playing catch up and competitive disadvantages. 

Investors trust audited and assured disclosures as much as their own propriety data.

Audited or assured disclosures provide the transparency in sustainability information that investors seek. Not only are these sources more trusted, but more experienced sustainability investors from our survey were more likely to employ audited or assured and in-house data. This suggests that as other investors gain experience, they too will increasingly rely on these data sources.

Tell your sustainability story by proactively engaging with investors on your sustainability actions.

As sustainable investing grows, corporations can expect more investors to seek engagement with corporates to understand their sustainability strategies and outcomes.

Respondents to our survey with a minimum of two years implementing a sustainable investment policy state they are 1.5x more likely to regularly use an active sustainability investment strategy, meaning they may vote their proxies, engage in dialogue with corporate leaders and make shareholder proposals.

Investor engagement provides corporates the opportunity to address potential issues, foster transparency and accountability, and earn trust.