Earn investor trust through sustainability disclosures

Deloitte and The Fletcher School at Tufts University embarked on a global study (including respondents from India), executed between January and December 2023, to understand how companies can enhance investor trust in their sustainability disclosures by delving into the minds of…

• Chief Sustainability Officers looking to navigate increasingly complex regulatory environments, which require sustainability disclosures.
• Chief Financial Officers who want to understand the impact of the organisation’s sustainability commitments and disclosures on investor behaviour.
• Asset owners, investment managers, and investment advisers who seek access to trustworthy sustainability data.

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.