Lack of trust in data hinders widespread adoption of sustainable investment strategies
A recent study by Deloitte and The Fletcher School at Tufts University has revealed that over 90 percent of Indian institutional investors now consider sustainability information essential in their due diligence process. However, the lack of trust in the ESG data available is hindering the widespread adoption of sustainable investment strategies.
The study found that Indian investors are particularly concerned about the inconsistency and incomparability of ESG ratings, the cost of integrating ESG data into investment models, and the lack of measurable outcomes in corporate disclosures. These factors have led to a distrust in the reliability of ESG data and have limited the ability of investors to implement sustainable investment strategies.
To address these challenges, Indian investors are more likely to trust in-house proprietary data systems and audited corporate disclosures. However, compared to global investors, they are less reliant on external data sources and ratings.
Viral Thakker, Partner and Sustainability & Climate Leader, Deloitte South Asia, emphasized the need for improved reporting standards to build investor confidence and facilitate informed decision-making. He called on organizations to strengthen their sustainable governance capabilities, invest in high-quality measurement and reporting systems, and seek third-party assurance for their disclosures.
The study also highlighted the growing trend of sustainable investing in India, with 78 percent of institutional investors allocating up to 30 percent of their funds to ESG-focused organizations. Regulatory requirements, improved social and environmental outcomes, and client pressure are among the key drivers for incorporating sustainability factors into investment decisions.
Shabana Hakim, Executive Director, Deloitte India, stressed the importance of building trust with investors through reliable sustainability commitments and enhanced transparency. By addressing the gap in ESG data reliability, organizations can empower investors to make more informed and impactful sustainability investments.
The survey found that 80 percent of Indian investors have implemented sustainability policies, with 14 percent having a policy in place for more than five years and 58 percent for over two years.