The API’s Future of the Property Profession report highlighted sustainability/ESG as one of the main macro trends impacting the property industry and the profession.

The IVSC has made a specific inclusion of ESG/Sustainability consideration into the new International Valuation Standards for 2025 (please see below for more details).   In addition, they have:

  • a global ESG survey open and are requesting consultation from valuation professionals on ESG/Sustainability and the valuation process; and
  • an ESG Perspectives Paper 2024 open for feedback to provide more clarity to VPOs, such as API, about what this means, in practice, for valuers and for valuation advice and valuation reports.

Sustainability is an overarching concept that has evolved over decades and its application into different industries and sectors. More recently ESG (environmental, social and governance) is being utilised across industries and sectors to evaluate sustainability considerations. In essence, ESG provides a framework to assist in the identification, classification and measurement of specific categories that contribute to understanding sustainability.

Many matters concerning environmental, social and governance factors have been considered by Valuers as part of the valuation process for decades.  All the new IVS has done, to be effective as of January 2025, is explicitly directs valuers to consider ESG in valuations, where relevant, and highlights the importance of consideration of any regulation relating to ESG that may affect the asset, the market or stakeholders in the market.

International Valuation Standards (IVS) 2025

In February 2024, the IVSC published IVS 2025. The updated IVS included an appendix to IVS 104 Data and Inputs which states that ESG should be considered in the valuation process.

The updated IVS will come into effect on 31 January 2025.    The IVS Glossary states at 10.08:

Environmental, Social and Governance (ESG)

The criteria that together establish the framework for assessing the impact of the sustainability and ethical practices, financial performance or operations of a company, asset or liability.  ESG comprises three pillars: Environmental, Social and Governance, all of which may collectively impact performance, the wider markets and society.”

The 2025 edition of IVS (effective 31 January 2025) incorporates an Appendix to IVS 104 Data and Inputs which states:

“The valuer should be aware of relevant legislation and frameworks in relation to the environmental, social and governance factors impacting a valuation.”

The Appendix outlines the conceptual framework that valuers should consider as part of a valuation process where the standard states at A10.01, A10.02 and A10.06:

“A10.01     The impact of significant ESG factors should be considered in determining the value of a company, asset or liability.

A10.02       ESG factors may impact valuations both from a qualitative and quantitative perspective and may pose risks or opportunities that should be considered.”

A10.06       ESG factors and the ESG regulatory environment should be considered in valuations to the extent that they are measurable and would be considered reasonable by the valuer applying professional judgement.”

The Appendix provides a non-exhaustive list of examples of environmental factors (at A10.03), social factors (at A10.04) and governance factors (A10.05) that may be considered by market participants when negotiating the price to offer or pay for an asset or to transfer a liability.

What does this mean for valuers providing valuation services?

The API recommends that valuers;

  1. review IVS 104 Data and Inputs: Appendix; and
  2. consider ESG factors (as per the examples provided in IVS 104 Data and Inputs: Appendix, paras A10.03, A10.04 and A10.05) when undertaking research, investigations and inspections for valuations; and
  3. consider ESG factors when analysing market transactions including any adjustments to be made for any significant differences between the market transactions and the subject property; and
  4. have regard to what impact, if any, ESG factors were considered by market participants.

As noted above, the 2025 edition of the IVS outlines the conceptual framework (on ESG) that valuers should consider as part of a valuation process.

The valuer’s role is not to set or lead the market; rather the valuer is required to interpret the market and, in the case of ESG factors, this may include ESG factors that were considered by market participants when negotiating prices.

At present the extent that ESG factors are measurable and quantifiable as components (metrics) that make up market prices is largely unknown in Australia.  Over time as the legislative framework for energy efficiency in the built environment expands (currently under consultation), including widening the scope of buildings that require a Building Energy Efficiency Certificate (BEEC) before a building is offered to the market for sale or lease, and the setting of minimum energy efficiency requirements for existing properties, it is anticipated that increased awareness in the market will be manifested.

Reporting of environmental, social and governance factors impacting on value have and will continue to be identified by valuers, and where applicable valuers should recommend further investigations by appropriately qualified experts.

The API recommends that API member’s valuation reports identify and report on known or observable ESG factors, impacting the value or marketability of property and have been considered in the valuation process.

API Guidance Paper and Education Module

The API is drafting a new ESG Guidance Paper and will consult with key stakeholders in the property industry, including clients, lenders and auditors as well as review the new IVS ESG perspectives paper 2024, to ensure the development of the clear guidance, including sample statements. .  A new API IVS module is also being created and will be released in November 2024 to members to assist with upskilling members with the new international valuation standards requirements.

We are excited about the opportunities that are available to members in this emerging area.  We encourage members to provide, feedback, ideas or suggestions that you feel are relevant.  Please email the committee secretariat at [email protected].