Over 90 per cent of Indian institutional investors now regard sustainability information as crucial in their due diligence process, a recent study by Deloitte and The Fletcher School at Tufts University disclosed. Despite this growing emphasis on sustainability, the study highlights significant challenges related to the reliability of Environmental, Social, and Governance (ESG) data.
According to the study titled "Investor Trust in Sustainability Data," Indian investors face several issues that undermine their confidence in ESG data. These include the inconsistency and lack of comparability in ESG ratings 73 per cent, the cost constraints associated with integrating ESG data into investment models 71 per cent, and the absence of measurable outcomes in corporate disclosures 70 per cent. These challenges hinder the effective implementation of ESG investment strategies.
The report also notes that Indian investors tend to trust in-house proprietary data systems and audited corporate disclosures more than external data sources and ratings. This contrasts with global investors, who are more inclined to rely on external data.
The study also highlights a trend towards sustainable investing, with about 78 per cent of Indian institutional investors allocating up to 30 per cent of their funds to organizations pursuing specific ESG objectives. Conversely, only 1 per cent of investors commit more than 60 per cent of their funds to such organizations.
Regulatory requirements are the primary driver for incorporating sustainability factors into investment decisions for 41 per cent of Indian investors, followed closely by the desire for improved social and environmental outcomes for 36 per cent. This differs from global trends, where financial performance and risk diversification are more prominent factors.
The increasing awareness of climate change and social issues has led to rising pressure on investors from their clients. Nearly 40 per cent of investors report feeling pressure to integrate ESG strategies into their investment decisions, with 15 per cent experiencing significant pressure due to client and asset manager demands.
The survey also reveals that about 80 per cent of Indian investors have implemented sustainability policies, with 14 per cent having had such a policy in place for some time. This underscores the growing importance of sustainable investing in India, even as challenges related to data reliability persist.
