RICS Draft Guidance Note: Sustainability and ESG in commercial property valuation and strategic advice, 3rd edition

Sustainability and ESG in commercial property valuation and strategic advice 3rd ed

5 Inspection, investigation and data

5.1 Inspection and investigation

The required extent of inspection and investigation is set out in Red Book Global Standards VPS 2. It should be agreed with the client at the time of instruction, along with relevant sustainability-related investigations.

Red Book Global Standards VPS 2 paragraph 1.5 states that:

'sustainability and environmental, social and governance (ESG) matters ... are commonly important in terms of market and societal perception and influence and it is therefore essential that valuers should have proper regard to their relevance and significance in relation to individual valuation assignments.'

Red Book Global Standards also includes a mandatory requirement for the valuer to consider 'whether any sustainability and environmental, social and governance (ESG) factors that affect the valuation are likely to have altered' (VPS 2 paragraph 2.3).

Valuers should be satisfied that they are able to obtain enough information to make an informed judgement around ESG and sustainability issues, and provide suitable advice to the client. Any limitations or restrictions on the inspection, inquiry and analysis for the purpose of valuation must be identified and recorded in the terms of engagement (see VPS 1 paragraph 3.2(i)) and also in the report (VPS 3 paragraph 2.2(h)).

Valuers should make themselves aware of the likely short- and longer-term use of the property. They should also explicitly consider and reflect upon how physical characteristics impact resilience, including making themselves familiar with current and pending statute and other regulations that could impact value. This may need to include consideration of likely capital expenditure requirements, covered further in section 10.2.

5.2 Investigations: data

Valuers are advised to obtain sufficient sustainability data themselves, or use tools and third-party data. This is in order to make sure valuation judgements about sustainability and ESG are appropriately evidence-based.

Data from property performance systems and metrics relating to the subject property and comparables can inform the valuation where relevant. The time period the data reflects is also an important consideration.

Information may have been provided directly from the client or supplied through third-party sources. It is subject to appropriate verification and Red Book Global Standards requirements around 'professional scepticism' (PS 2 paragraph 1.5).