The future of real estate valuations: The impact of ESG

How can we truly embed ESG requirements into real estate valuations? Written by experts from the RICS Europe Leaders’ Forum, this paper and its accompanying data list examine the current legislative situation and market drivers around ESG and valuation in Europe.

Given the huge climate and social challenges we are facing globally, we need to move to a market where ESG is firmly embedded and reflected in valuations.

On 12 October 2023, RICS in Europe established a Leaders’ Forum, ‘Future of valuations: The impact of ESG’. It is chaired by Joël Scherrenberg MRICS, chair of the RICS Dutch Advisory Board, and led by RICS staff members Sander Scheurwater and Gina Ding.

The aim of the Leaders’ Forum is to ‘embed ESG requirements into valuations and the valuation process’. To help facilitate this, it is important to understand both the composition of the Leaders’ Forum and the workstreams. To truly embed ESG requirements into real estate valuations, both valuers and financial clients need to have an open discussion on progress, challenges and opportunities. This is why the Leaders’ Forum is composed of the main European actors, both at the corporate level and through their representative associations: valuation service providers, investors and banks, with the European Central Bank (ECB) and European Banking Authority (EBA) as observers.

RICS member-led thought leadership paper

To fully comprehend the steps still needed to ensure ESG requirements become embedded in valuations, we need to understand the current state of play. RICS members in the Netherlands have taken the lead by composing the expert group responsible for the thought leadership paper The future of real estate valuations: The impact of ESG. The content is based on the views of the expert group, combined with conversations held with RICS valuers across Europe. It does not intend to be a research paper, but rather a starting point for further debate. It is complemented by separate national appendices on the current legislative situation and market drivers in various European countries.

ESG and valuation data list

The Leaders’ Forum has worked on an ESG and valuation data list, containing core indicators that valuers can discuss with their financial clients and take up in their terms of reference and valuation report. The data list will not assume data availability, but is meant to raise awareness of ESG requirements and create consistency and transparency across Europe, following the ‘comply or explain’ principle. Alongside the core indicators will be a list of future potential indicators that the Leaders’ Forum members have reason to believe will become relevant in the near future, such as through future EU legislative developments.  Valuers are not expected to discuss future potential indicators with their financial clients, but rather to familiarise themselves with them.

For more information, please contact Gina Ding (gding@rics.org) and Sander Scheurwater (sscheurwater@rics.org)

National Best Practice

Markets can arguably be at different stages of development, and ultimately, it is up to valuation service providers and their clients to determine how best to incorporate local market and regulatory requirements into the ESG data list. 

However, to ensure market consistency and transparency, we strongly recommend referencing the ESG data list when applying ESG indicators in valuations.

To support this effort, the RICS Hungary Valuation Working Group has agreed to adopt the ESG Valuation Questionnaire as a common practice. This initiative aims to comply with relevant European Union regulation and the updated RICS Global Red Book, requiring sustainability considerations in property assessments. The information collected through the questionnaire can significantly enhance the perception of a property in terms of sustainability and transparency.

The current version of the ESG Valuation Questionnaire was developed through an extensive, multi-stage expert consultation process involving both market players and regulators and is available in both Hungarian and English language.

The widespread adoption of the harmonized ESG Valuation Questionnaire as a best practice in Hungary represents a major step forward for the real estate market. It contributes to greater market transparency, better integration of ESG criteria, and the standardization of data used in valuations.

In addition to the ESG Valuation Questionnaire, the RICS Hungary Member Engagement Group has also developed an ESG Property Check List. This list follows the structure of the ESG Valuation Questionnaire but is designed for tenants, agents, and property owners.

For any questions regarding the questionnaires, please contact Anna Orcsik on aorcsik@rics.org, or Edina Winkler on edina.winkler@cushwake.com (ESG Valuation Questionnaire), or Katalin Honi on katalin.honi@colliers.com (ESG Property Check List).

Download the questionnaires