Credibility flow is essential to sustainable finance because capital only keeps moving when investors and stakeholders can see convincing evidence that funds are being used as promised and creating real impact. Across green bonds, sustainability-linked loans, ESG funds and other products, some stakeholders provide cash, while others inject influence: pension savers, campaigners and citizens may not invest directly, but they can still shift behaviour, reputation and demand by voting with their feet.

When claims are credible, cash flows to the investment. Cash flows from retail investors and cash flows from institutional investors. Depending on the product, that cash ends up supporting projects directly related to sustainability goals or supporting corporations and funds with commitments to better environmental or social care.

The problem is there’s ‘credibility friction’.

Credibility friction arises when investors either cannot confidently understand and verify the sustainability case, or remain uncertain that the promised performance will actually be delivered.

What creates ‘credibility friction’? From my research review, there seem to be eight factors fitting into two categories: Communication deficiencies damage the credibility of the case being presented. Performance uncertainties reduce the credibility of the organisation’s ability to deliver what it claims.

Communication Deficiencies

1. Deficient specificity

Investors are actively put off when sustainability propositions remain vague about what the investment will actually do, how it will do it, and how success will be measured. In 2025 research for the UK Investment Association involving 1,080 investors, 46% cited difficulty finding detailed information on how the fund is run, and 45% cited generic targets with little detail about when and how they would be achieved. The key finding is that 53% cited the vague wording about what a fund aims to do as one of the most off-putting features.

The research concluded that investors want to know, in simple terms, what a fund is trying to achieve and broad statements of purpose do not provide enough substance on which to form a judgement.

2. Deficient intelligibility

There can be plenty of information and still be a communication deficit. The Investment Association study found 51% of investors were put off by financial jargon in fund documents, while awareness of terms such as “additionality”, “positive tilt” and “Paris-aligned” was very low.

There’s strong evidence that comprehensibility is not merely a communications nicety: it can affect capital allocation.

Research by Allcott, Egan, Smeets and Yang tested whether making sustainability information easier to process actually changed behaviour. Their 2026 experiment involved 1,465 existing investors making €1,000 fund allocations; standard SFDR information had virtually no effect, whereas a much more intuitive, less complicated presentation increased allocation to funds by 10.1%, and increased their broader weighted sustainable-allocation measure by 22%.

3. Deficient evidence

PwC’s 2024 Global Investor Survey found 44% of investors believed corporate sustainability reporting contained unsupported claims to a large or very large extent, while their 2023 study found 94% believed corporate sustainability reporting contained at least some level of unsupported claims.

Transparency isn’t simply providing more information; it needs to be balanced. Investors suspect that they are being shown selected claims rather than sufficient evidence to judge the whole picture. EY found 76% of institutional investors believed companies were highly selective about the sustainability information they disclosed, while 88% believed companies generally provided only limited decision-useful ESG disclosure unless regulation required them to do so.

4. Deficient verifiability

A claim becomes more credible when investors can check it independently and when different sources tell a consistent story. PwC found (conveniently for them!) that 73% wanted sustainability metrics and KPIs assured at a level comparable with financial statements.

Consistency is part of the same problem. CFA Institute’s examination of sustainable fund disclosures found inconsistency was the most common problem, including discrepancies between documents, fund names and strategies, or stated policies and measured outcomes. Berg, Kölbel and Rigobon’s major study compounds the problem: ESG ratings from six leading agencies correlated only 0.38–0.71, with 56% of the divergence arising from differences in measurement.

An investor may reasonably ask: if different supposedly authoritative sources reach different conclusions, what am I supposed to believe?

Performance Uncertainties

5. Uncertain capability (or “are they capable of actually executing and delivering?”)

When investors accept the ambition, many remain uncertain that companies can turn sustainability commitments into results. EY’s 2024 survey of 815 institutional investors found only 53% thought it very likely that companies in their principal markets would achieve their stated sustainability targets.

There is also concern about competing priorities: 80% of those investors believed executive teams were too quick to pursue short-term profit objectives, potentially at the expense of longer-term commitments.

Investors need evidence of the people, investment, technology, plans and operational progress capable of delivering it.

6. Uncertain governance (or “can I trust them to make good steering decisions?”)

Investors appear to regard governance as one of the mechanisms that turns aspiration into delivery. PwC’s 2024 institutional investor survey found 72% considered governance very or extremely important when assessing companies’ net-zero transition plans.

EY also found that investors want robust governance and board oversight around sustainability strategy. Investors expect boards to challenge management and engage with investors. And 94% believed companies should have a C-suite sustainability role.

The credibility question is therefore not simply “What have you promised?” but “Who is accountable for delivering it, who scrutinises progress, and how are the decisions made?”

7. Uncertain motivation (or “are they actually motivated to do what they said they will?”)

Skill is one thing, will is another. Investors will hold back when they are unsure about the commitment to execute on the promoted plans.

Are incentives aligned? Will the executive team make the hard decisions, the necessary trade offs? Recent news of the removal of ESG-related factors from the executive bonus schemes at a global blue-chip is just the type of retreat that gives rise to suspicion. Which is the next top team to wriggle out of personal skin in the sustainability game?

8. Uncertain impact (or “will it genuinely make a difference at sufficient scale?”)

This may be the most important Performance Uncertainty. Sustainable Finance Observatory research across Europe found 51% of retail investors want their investments to create real-world impact, yet among sustainability-oriented investors surveyed in four EU countries the second-ranked barrier to investing was “I don’t believe that sustainable investments generate a real-world impact”. Ouch!

There is some justification for that scepticism. The Observatory reviewed 450 Article 8 (‘light green’) and Article 9 (‘dark green’) funds and found 27% made explicit environmental-impact claims that were not substantiated. At the same time 76% of investors interpreted such claims as implying real-world impact.

Separate UK Investment Association research found investors specifically want real-life examples of a fund’s sustainability policy making a difference, rather than simply more statements about its intentions.

This friction isn’t only “Is the claim true?” It’s also “Even if it is true, is the effect material enough to matter?”

From friction to solution

So, the sustainable finance sector relies on bi-directional flows and there is friction blocking the trust that gets rewarded with capital. Future pieces will look at how we reduce that friction. It turns out that lessons from fields as diverse as telemetry, cinema and psychology may hold the key.