The only thing certain in this world is change, and the real estate sector is faced with the reality that more is now expected of the valuation profession beyond number crunching to ascertain building value. The accountability and transparency wave has transcended the valuation profession with the 2025 International Valuation Standards (IVS) introducing a paradigm shift in valuation practices, with Environmental, Social, and Governance (ESG) considerations emerging as a central theme. Recognising the growing significance of sustainable and ethical business practices, the 2025 IVS embeds ESG factors deeply into the valuation process, reflecting an evolving landscape where stakeholders increasingly prioritise corporate responsibility and long-term viability.
One of the most transformative changes is the explicit inclusion of ESG considerations in various standards sections. For instance, in the “Bases of Value” section, the 2025 IVS provides detailed guidance on incorporating ESG factors into the valuation analysis. Valuers are now required to assess and document the impact of ESG characteristics on the value of assets, ensuring that these elements are factored into the assumptions and methodologies used. This includes considering environmental consequences, such as carbon footprint and resource sustainability, social factors, like community engagement and labour practices, and governance aspects, including corporate ethics and regulatory compliance.
The emphasis on ESG extends to the “Documentation and Reporting” section, where valuers must provide a transparent account of how ESG factors have influenced their valuations. This comprehensive approach enhances the comprehensiveness of valuation reports and aligns with broader trends towards greater transparency and accountability in business operations. Introducing new documentation requirements ensures that all significant ESG considerations are recorded, facilitating a more thorough and responsible valuation process.
Moreover, the “Valuation Process Quality Control” section underscores the importance of integrating ESG factors into quality control procedures. This involves rigorous assessment and monitoring to adequately address ESG-related risks and opportunities. By mandating the inclusion of ESG factors, the 2025 IVS fosters a holistic approach to valuation that aligns with the growing emphasis on sustainable and ethical investment practices.
In the context of the “Market Approach Methods,” the 2025 standards introduce adjustments for differences in ESG considerations. This inclusion acknowledges that ESG factors can significantly influence market comparables and, consequently, the derived value of an asset. By standardising the incorporation of ESG adjustments, the 2025 IVS ensures that valuations reflect the actual market dynamics and stakeholder priorities.
Overall, integrating ESG considerations into the 2025 IVS represents a significant advancement in valuation standards. It responds to the increasing demand for sustainability and ethical business practices and enhances valuations’ credibility and relevance in a rapidly changing world. By embedding ESG factors into the core of valuation methodologies, the 2025 IVS set a new benchmark for responsible and forward-thinking valuation practices.
The 2025 IVS introduces significant structural changes to its framework, enhancing clarity and usability. Unlike the 2022 version, which categorised standards into sections like Compliance with Standards, Assets and Liabilities, Valuer, Objectivity, Competence, and Departures, the 2025 IVS reorganises these into more coherent and principle-based categories. These include Valuer Principles, Valuation Process Quality Control, Use of a Specialist or Service Organisation, and Compliance.
This reorganisation aligns the standards with modern valuation practices by focusing on fundamental principles such as ethics, competency, compliance, and professional scepticism. The shift from a rules-based to a principles-based framework emphasises ethical conduct and the professional judgment of valuers, reinforcing the integrity and reliability of the valuation process.
The scope of work in the 2025 IVS has been significantly expanded and refined compared to the 2022 version. While maintaining the core elements of defining the valuation engagement’s terms, the 2025 version elaborates on the nature and extent of the valuer’s work, sources of information, and the involvement of specialists. It introduces a comprehensive section on valuation reviews, distinguishing between valuation process reviews and value reviews. This detailed guidance ensures that the scope of work is clearly defined, appropriately communicated, and agreed upon by all parties, enhancing the precision and reliability of valuations.
The “Data and Inputs” section in the 2025 IVS underscores the importance of using relevant and observable data, prioritising transparency and professional judgment in data selection. Valuers are responsible for assessing and documenting the data sources, ensuring accuracy, completeness, timeliness, and transparency. The introduction of the “Use of a Specialist or Service Organisation” section allows valuers to engage external expertise when necessary, provided the specialist’s capabilities align with the valuation’s requirements. This comprehensive approach ensures valuations are based on robust and relevant data, enhancing their credibility and accuracy.
The 2025 IVS offers a more detailed and structured approach to addressing depreciation and obsolescence. It expands on the types of obsolescence, providing subcategories and examples of physical, functional, and economic obsolescence. The detailed guidance on measuring obsolescence and incorporating market evidence ensures that valuations accurately reflect the asset’s condition and market dynamics. This comprehensive approach enhances the accuracy and reliability of valuations, accounting for all relevant factors affecting the asset’s value.
The 2025 IVS introduce market and income approach refinements, providing more detailed guidance and incorporating new considerations like ESG factors. Adjustments for ESG considerations, size adjustments, and other market-approach considerations ensure valuations reflect current market realities and stakeholder priorities. The enhanced guidance on the income approach includes detailed documentation requirements and considerations for discount rates, reflecting a more nuanced understanding of valuation scenarios.
Conclusion
The 2025 IVS represent a significant evolution in valuation standards, emphasising ethical conduct, competency, quality control, and compliance. The integration of ESG considerations, comprehensive documentation and reporting requirements, and detailed guidance on valuation approaches and models ensure that valuations are aligned with current best practices and market realities. These updates enhance valuations’ credibility, transparency, and reliability, reflecting the evolving landscape of valuation practices and the growing importance of sustainability and ethical business practices. As the real estate industry and valuation professionals adapt to these new standards, they will be better equipped to meet the challenges and opportunities of a dynamic and complex market environment.
Article by Dr Mike Eric Juru: CEO: Integrated Properties
