Guest editorial: Embracing ESG in valuation: a paradigm shift in the International Valuation Standards
| Date | 20 August 2024 |
| Pages | 409-410 |
| DOI | https://doi.org/10.1108/JPIF-08-2024-235 |
| Published date | 20 August 2024 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Georgia Warren-Myers |
Guest editorial: Embracing ESG
in valuation: a paradigm shift in the
International Valuation Standards
Introduction
The past twodecades has seen a strong trajectoryof adoption relatedto green, sustainable and
more resource efficient buildings and property. For many years alongside this increasing
engagementin the sustainability agenda,there has been questions aboutwhat is the “value”of
sustainability? How does it contribute? What is the premium? And why are valuers not
considering it? The difficulties and the challenges have been expanded on in the academic
literature; someindustry bodies have embracedand tried to provide guidelines anddirections
to valuers, like the Royal Institution of Chartered Surveyors (RICS), The European Group of
Valuer Associations (TEGOVA), and the Appraisal Institute (AI) in the USA. Albeit, with
limited success as reported in many academic studies. However, what was lacking was an
understandingof how the market participants were engagingwith the sustainability agenda,
valuers’understanding, knowledge and tools to consider the relationship between
sustainability andvalue drivers and a requirement for inclusion in valuation.
In the last few yearswe have seen a paradigm shift in the industry,with both occupiers and
landlordsbeing affected by voluntary marketdrivers, regulation and legislation, opportunities
for green (or sustainable) financingand the need to respond to changing requirements of both
occupier and investor demands for more sustainable, often associated with the frameworkof
environmental,social and governance (ESG) and net zerocarbon aligned opportunities.
The evolution and c hanges in the market in regard to s ustainability and the framework of
ESG have beenacknowledged by the InternationalValuation StandardsCouncil (IVSC) in their
International Valuation Standards (IVS), by including directions to valuers regardingESG.
The IVS are recognised as a key framework for valuing assets and liabilities in markets
worldwide. These standards govern many countries’valuation practice, and have ensured
consistency, comparability and transparency to the valuation process in over 100 countries.
In response to ESG becoming mainstream in the global markets, it has become imperative to
integrate ESG criteria into valuations. The updated IVS, set to take effect from January 2025,
now include specific guidance for valuers to consider ESG factors in their assessments.
The IVS now recognises ESG as a critical aspect of valuation practices by directing
valuers to consider the impact of sustainability, ethical practices, financial performance and
operations of assets or liabilities. The inclusion of ESG within the Valuation Approaches
section of the IVS, directs valuers in their process of assessing comparable transactions, to
consider ESG factors alongside traditional valuation considerations like size, quality and
other material characteristics. This integration acknowledges the growing importance of
sustainability and ethical practices in today’s business landscape.
The inclusion ofESG in valuations presents both challenges and opportunities for valuers
globally. Whilst the IVS provide a list of ESG categories, to successfully incorporate ESG
criteria intotheir assessments, valuerswill need to identify reliableESG metrics and reporting
frameworks that can be consistently applied. Further, valuers will need to enhance their
knowledge surrounding ESG, including up-skilling and familiarisation with ESG-relevant
criteriaspecific to their regions and local markets.A particularly aspect that willneed localised
examinationis how the IVS defined ESG parameters maymap against existing sustainability
and green rating certifications utilised within local markets. Additionally, the evolving
legislative and regulatory environment is escalating at multiple levels of government.
Journal of
Property
Investment &
Finance
409
Journal of Property Investment &
Finance
Vol. 42 No. 5, 2024
pp. 409-410
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-08-2024-235
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