International Valuations to incorporate ESG from 2025

Landlords will need to start preparing for more questions from valuers about an array of different ESG elements for assets following changes to the International Valuation Standards (IVS), according to JLL’s Asia Pacific Head of ESG and Risk Advisory – Georgia Warren-Myers.

The IVS is used as a framework for valuation in markets throughout the world and by valuation professionals in more than 100 countries. IVS brings consistency, comparability and transparency to valuations of all assets and liabilities.

The updated IVS, that have just been released have added additional direction to valuers to consider ESG criteria in their valuation in a global market where disclosures can vary considerably.

“For valuers to successfully incorporate ESG into valuations, they will need reliable ESG metrics and reporting frameworks that can be consistently applied in the markets in which they are valuing. Whilst the International Valuation Standards Council (IVSC) has now directed valuers in the consideration of ESG in their valuation approach, the metrics and detail of ESG may vary in its applicability and level of detail in different markets and sectors,” Warren-Myers said.

The IVSC changes will commence January 2025, and ESG will be explicitly covered where relevant.

“Valuers, globally have a short window in which to upskill their knowledge of ESG relevant criteria in their markets and understand how this may affect different value levers.

“What this means for both valuers and their clients, is that data pertaining to the various aspects of ESG will need to be collected, incorporated, where relevant, and will inform valuation processes and value considerations,” Warren-Myers said.

Warren-Myers said JLL had developed a data collection and analysis process for ESG applicable attributes for real estate, which is being progressively rolled out across valuation teams. An important consideration is the associated program of education to assist valuers in understanding the data being collected, its meaning and implications from valuation context. Whilst providing direction regarding ESG data collection and analysis, its application in the context of real estate needs to be considered in the context of local and global ESG considerations and what type of information availability and benchmarking is available.

Warren-Myers said, “What is apparent, is that ESG is not going away, and the importance of its consideration is growing, with an array of metrics to consider in the process. The reporting landscape for investors, owners and occupiers is escalating and considerations of ESG are informing business and investment decisions, and the mandatory reporting around emissions and climate risks, that is being introduced in many countries will drive a level of transaparency that will have implications for transactions and valuations.

“Valuers will be challenged in terms of understanding the extent, and the knowledge required to consider the various aspects of ESG and consequently how these ESG factors may affect property and the assessment of market value. Further the evolving legislative and regulatory environment will continue to have significant implications for valuations and outcomes of how various ESG aspects may affect value,” she said.

The changes to the International Valuation Standards (IVS) explained:

• The inclusion of ESG comes under Valuation Approaches IVS 103, where the Valuation Approaches are discussed, the Market Approach methods now include ESG, alongside the typical factors like material characteristics, size, quality etc., to be considered and adjusted for when a valuer is assessing comparable transactions.
• The IVS defined ESG as 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 in the wider markets and society.
• Further the IVS provide a list of categories deemed to fall under the elements of E-S-G, yet do not explicitly detail the application of these categories in the various different valuation contexts, for example, like real estate.