Lack Of Reliable Sustainability Data Is Affecting Investor Confidence: Deloitte

A lack of trustworthy sustainability data is dampening investor interest in India, according to a new report by Deloitte and the Fletcher School at Tufts University. The study, titled "Investor Trust in Sustainability Data," highlights that 78 percent of institutional investors in India allocate up to 30 percent of their funds to organisations with clearly defined and measurable Environmental, Social, and Governance (ESG) objectives. However, the scarcity of credible data is becoming a significant barrier to sustainable investment. 

Though sustainability is playing an increasingly important part in investment decisions, Indian investors struggle with limited access to reliable data.

The decline in trust is attributed to factors such as the inconsistency and incomparability of ESG rating data, the high costs associated with incorporating ESG data, and the lack of measurable results in corporate disclosures. These challenges are causing investors to rely on proprietary data systems, audited disclosures, and other sources they consider credible rather than the inconsistent ESG ratings currently available. 

Although frameworks like India's Business Responsibility and Sustainability Reporting (BRSR) and the international Corporate Sustainability Reporting Directive (CSRD) are being developed to enhance data reliability, they have not yet been implemented to a degree that satisfies investor needs. The report suggests that until these frameworks are more widely adopted, investors will continue to struggle with measuring risks and avoiding greenwashing. 

Viral Thakker, Partner and Sustainability & Climate Leader at Deloitte South Asia emphasised the urgent need for improved reporting standards to bolster investor confidence.

"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," he said. 

The study also reveals that corporate leaders play a crucial role in strengthening relationships with investors as capital markets increasingly shift towards sustainable investments. Nearly 40 percent of investors report feeling pressure from clients and asset managers to integrate ESG strategies into their investment decisions, with around 15 percent feeling extensive pressure.

Shabana Hakim, Executive Director at Deloitte India, stressed the importance of trust in maintaining competitiveness and accessing capital. "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," she stated. 

As the demand for sustainable investments grows, the need for reliable ESG data becomes more pressing. The report concludes that without significant improvements in data transparency and reporting standards, the potential for sustainable growth in India could be hindered.