A recent study by Deloitte and The Fletcher School at Tufts University revealed that over 90% of Indian institutional investors now view sustainability information as a crucial part of their due diligence process.
The study also noted that as sustainability continues to play a more important role in investment management, there is a lack of trust in the ESG data used to make these decisions, which poses challenges in obtaining reliable 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 research also highlights that Indian investors are more inclined to have confidence in internal proprietary data systems and audited (or assured) corporate disclosures for conducting sustainability analysis. However, in contrast to global investors, Indian investors are not as inclined to depend 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.
Roughly 41% of Indian investors identify regulatory requirements as the primary motivator for including sustainability factors in investment decisions, closely followed by the pursuit of better social and environmental outcomes (36% each). This differs from global standards, where investors prioritize financial performance and risk diversification.
The growing awareness of climate change, social issues, and corporate governance standards has resulted in increased pressure on investors from their clients.
Close to 40% of investors feel this pressure, with approximately 15% experiencing significant pressure to integrate ESG strategies into their investment decisions due to demands from clients and asset managers. This demand driven by clients underscores the substantial impact of external expectations on integrating ESG factors into 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 that about 80% of Indian investors have implemented sustainability policies. Of these, 14%t have had a policy in place for more than five years, and 58% have had a policy for over two years.
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