How can a business build trust with investors through sustainability disclosures?

Deloitte and Tufts University have delivered a global study exploring how businesses can strengthen investor confidence in their sustainability disclosures.

Investors are increasingly looking to embed sustainability measures into investment plans and new opportunities, with a predicted worth of $43 trillion in global economic growth expected between 2021 and 2070 if the global economy shifts towards a net zero economy. 

In the study, over 80% of investors have incorporated sustainability data into critical analysis. An additional 79% of respondents have created sustainability policies, compared to only 20% five years ago.

While there is a rising demand for sustainability details, investors have highlighted several barriers with clarity, consistency and reliability. Despite new regulations emerging to strengthen data consistency, they are still in their infancy and are yet to provide sufficient reliability for investors. As a result, investors are likely to depend on the data and sources they trust, which generally are in-house systems and assured disclosures.

Building trust with investors is a critical strategy for businesses looking to remain competitive, strengthen their market value and secure capital. Corporate leaders have an opportunity to build investor relationships as capital markets reach a defining stage, fuelled by the shift towards a more sustainable future.  

According to a recent survey, 20% of businesses have had a sustainable investing policy in place for over five years, and over 20% are yet to implement a sustainability plan. The study found that the three main drivers for implementing sustainability and ESG into investment plans are regulatory requirements (39%), Improved financial performance (37%) and Stakeholder pressure (34%).

-Barrier to integrating sustainability data – The three main barriers to integrating sustainability data include a lack of clarity on how to integrate sustainability (65%), inconsistency or incomparability (64%) and over or under regulation (64%).

-Trust to data sources and usage – The three sustainability data sources investors trust and use most include in-house data systems (70%), audited or assured corporate information (69%) and external data sources and ratings (63%).

There are steps which can help secure investor trust in corporate sustainability commitments. 

• Strengthen sustainability governance plans by enhanced coordination within the C-Suite – Each leader has a vital role in consistently performing their sustainability commitment. While the Chief Sustainability Officer may be responsible for the business sustainability strategy, all C-Suite leaders and the executive board have a role to play.

• Invest in sustainability analysis – Investing in reporting and compliance solutions can deliver more accurate and quality disclosures. Many large businesses prioritise their reporting solutions to ensure they remain on track and ahead of new regulatory requirements. Businesses failing to acknowledge emerging policies risk falling behind their competitors.

• Combine sustainability disclosures with 3rd party assurance.

Audited or assured disclosures provide transparency in sustainability details that investors are looking for. These sources are more trusted, and sustainability investors are more likely to use assured or audited data over others. As investors gain more experience in this field, they will increasingly depend on these data sources.

• Prioritise investor engagement to promote your sustainability journey

As sustainable investing increases, businesses are likely to find investors willingly engaging with companies to understand their sustainability plans and progress. The study suggested that those with a few years of operating a sustainable investment policy are more likely to apply an active sustainability investment strategy. Investor engagement allows businesses to manage potential challenges, create transparency, and accountability and build trust.