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As sustainability becomes a more common consideration for investment management professionals in the United States, trust in the environmental, social and governance (ESG) data used to inform investment decisions by asset owners and managers is lagging, according to a new global study titled “Investor trust in sustainability data” from Deloitte and The Fletcher School at Tufts University.
The survey found that sustainable investing has grown significantly in the U.S. over the past five years, with 83% of U.S. investment management professionals surveyed reporting that they have a sustainable ESG investing policy in-place (e.g., any policy that takes environmental, social or governance concerns into consideration when measuring the sustainability impact of a business or investment). That is a considerable shift compared to just 27% five years ago, according to the recent survey. In fact, just 1% of respondents indicate that their organizations have no plans to adopt a sustainable investing policy.
The use of ESG information — including ESG disclosures and ESG-related reports, communications, third-party ratings, and other information — to support fundamental analysis is also widespread among polled U.S. investors, with 81% reporting they occasionally or regularly seek out sustainability information as part of due diligence efforts.
“Many factors, including evolving regulatory requirements, financial performance pressures, and stakeholder expectations, are driving the U.S. movement toward integrating sustainability and ESG into investment decision-making,” said Chris Ruggeri, a Deloitte Risk & Financial Advisory principal and sustainability, climate and equity leader, Deloitte Transactions and Business Analytics LLP. “As such, company leaders and their boards have an important opportunity to take actions that can improve investor confidence and trust levels in those investments, such as making enhancements to the sustainability information, disclosures, and other sources that inform buy, sell, and hold decisions.”
ESG data concerns from investment managers
Despite the growing demand for sustainability information, U.S. investment management professionals expressed concern over the availability of and access to clear, reliable and trustworthy ESG data to incorporate into their investment approaches. According to respondents, lack of measurable outcomes discernible from corporate disclosures (60%), lack of clarity on how to integrate ESG information (63%), and inconsistency or incomparability of ESG ratings data (63%) are inhibiting their organizations’ abilities to effectively implement ESG investment strategies.
“There is considerable room for improvement in how organizations collect, measure, report on, and validate sustainability data to earn investor trust,” said Michael Bondar, a Deloitte Risk & Financial Advisory principal and global enterprise trust leader, Deloitte Transactions and Business Analytics LLP. “But, more consistency and dependability in sustainability reporting for measurement and analysis purposes should help enhance confidence for stakeholders throughout the corporate ecosystem.”
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Added Bhaskar Chakravorti, dean of Global Business at The Fletcher School at Tufts University: “The focus on sustainability data is growing globally. India’s Securities and Exchange Board requires top public companies to disclose ESG related activities, and the European Union now requires sustainability disclosures under the Corporate Sustainability Reporting Directive starting from periods beginning in 2024. And as of this month, rules were adopted in the United States as well.”
You can access the full report here.