RICS Unveils Comprehensive ESG Framework for Global Commercial Property Valuation

The Royal Institution of Chartered Surveyors (RICS) has published the fourth edition of its global professional standard addressing environmental, social and governance (ESG) factors and sustainability considerations in commercial property valuation. The updated framework, which becomes mandatory from 30 April 2026, establishes comprehensive guidelines for how ESG and sustainability metrics should be integrated into valuation processes across international markets.

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Responding to Evolving Market Demands

The new standard represents a significant evolution from previous editions, directly responding to substantial regulatory developments, shifting market expectations, and professional practice changes that have emerged in recent years. The framework reinforces the central role of valuation in commercial property markets globally while acknowledging that sustainability considerations have become fundamental to investment and lending decisions.

The updated standard applies universally to all RICS members and regulated firms conducting commercial property valuations worldwide. It aligns with mandatory requirements established in RICS Valuation Global Standards (commonly known as the “Red Book”) and International Valuation Standards (IVS), whilst simultaneously providing detailed guidance on how ESG and sustainability factors should be assessed when they represent significant considerations in valuation processes.

Key Enhancements in the Fourth Edition

The latest edition introduces several critical enhancements designed to address the complex intersection of sustainability metrics and property valuation. Perhaps most notably, the standard now includes jurisdiction-specific sections tailored to the UK, EU, and Australia, reflecting the established regulatory frameworks and disclosure requirements that have been implemented in these markets.

A crucial distinction clarified in the fourth edition addresses the difference between valuation services and strategic ESG advisory work. The standard confirms that strategic ESG advice typically constitutes a separate, additional service that should not be confused with valuation itself. This clarification helps valuers and clients better understand the scope and limitations of different professional services, preventing misunderstandings about what valuers can and should provide.

The standard places strong emphasis on proportionality and professional judgment, ensuring that the framework remains practical and workable across different asset types, varying levels of valuation risk, and markets at different stages of ESG maturity. This flexible approach acknowledges that sustainability considerations may have vastly different impacts depending on the specific circumstances of each valuation assignment.

Practical Guidance on Cost Assumptions

One of the most significant additions to the fourth edition involves practical guidance on cost assumptions in valuations. The standard provides clarity on when and how capital expenditure and operational expenditure linked to ESG factors may be reflected in property valuations, while also delineating the limits of a valuer’s role in making such assessments.

This guidance proves particularly valuable as property owners and investors increasingly face regulatory pressure to upgrade buildings to meet energy efficiency standards and emissions reduction targets. Understanding how these potential future costs should be considered in current valuations helps ensure consistency across the profession while protecting both valuers and their clients from unrealistic expectations.

The framework also incorporates a consolidated global list of typical ESG-related key performance indicators (KPIs), providing valuers with a standardized reference point for the metrics that commonly influence property values. These indicators span environmental factors such as energy consumption and greenhouse gas emissions, social considerations like occupant health and wellbeing, and governance elements including transparency in reporting and compliance with regulations.

Expert Collaboration and Development

Sam Carson, Head of Sustainability for Valuation and Advisory Services at CBRE UK, served as the lead author for the standard. Carson collaborated with a global expert group comprising valuers, sustainability specialists, and academics to ensure the guidance reflects real-world practice and evolving market expectations. This multi-disciplinary approach guarantees that the standard remains grounded in practical application rather than theoretical ideals.

Carson’s expertise in integrating ESG metrics into property valuations proved invaluable during the standard’s development. His previous work developing frameworks for commercial lending institutions and his involvement with industry bodies like GRESB and various professional forums provided critical insights into the challenges valuers face when attempting to incorporate sustainability considerations into their assessments.

Charles Golding at RICS emphasized the significance of this publication, stating that it continues RICS’s leadership position on sustainability issues. He noted that the standard provides clear and practical recommendations for commercial property valuers, including guidance on applying global standards, jurisdiction-specific coverage, and key ESG performance indicators. Golding emphasized that this represents a standard built on expert insight and consultation, designed to remain relevant to the evolving consideration and regulation of sustainability globally.

Alignment with International Standards

The fourth edition’s publication timing aligns strategically with broader developments in international valuation standards. The International Valuation Standards effective January 2025 introduced revised structures and increased focus on ESG, data management, and valuation modeling. The RICS standard builds upon this foundation, providing more specific guidance for commercial property while maintaining alignment with these overarching principles.

The integration with RICS Valuation Global Standards, updated most recently in late 2024 to become effective January 2025, ensures that valuers have a cohesive framework for addressing ESG considerations. This coordination between different standard-setting bodies prevents conflicting requirements and creates a more streamlined professional environment for valuers operating across multiple jurisdictions.

Jurisdiction-Specific Regulatory Frameworks

The inclusion of tailored sections for the UK, EU, and Australia acknowledges the significantly different regulatory landscapes in these markets. In the European Union, requirements such as the Corporate Sustainability Reporting Directive and the Energy Performance of Buildings Directive create specific disclosure and performance obligations that directly impact property valuations.

The UK’s evolving sustainability framework, including minimum energy efficiency standards for commercial properties, creates a distinct context that valuers must navigate. The standard provides specific guidance on how these requirements should inform valuation processes, including consideration of potential stranded asset risks for properties that fail to meet minimum performance thresholds.

Australia’s sustainability reporting requirements, which continue to develop and expand, present their own unique challenges. The jurisdiction-specific section helps Australian valuers understand how local regulations intersect with international best practices, ensuring compliance while maintaining consistency with global valuation principles.

The Role of ESG in Investment Decisions

The standard’s emphasis on sustainability reflects fundamental shifts in how investors and lenders evaluate commercial property. Research consistently demonstrates that energy-efficient properties achieve stronger capital growth and total returns compared to less efficient assets. This performance differential has grown more pronounced as regulatory requirements tighten and tenant preferences evolve.

Major financial institutions have increasingly embedded ESG considerations into their fundamental risk assessment and pricing mechanisms. For example, in the Netherlands, major banks collaborated to develop the DuPa 2.0 framework, which encompasses 80 sustainability data points and became mandatory for commercial real estate valuations by major Dutch banks in March 2024. This type of systematic integration of climate-related risks and ESG factors into lending decisions exemplifies the broader market transformation that the RICS standard addresses.

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Climate Risk and Physical Resilience

Physical climate risks represent an increasingly critical component of property valuation. The standard provides guidance on assessing how factors such as flooding, extreme heat events, sea level rise, and other climate-related hazards should influence valuation judgments. This guidance proves essential as climate change impacts become more pronounced and predictable, creating tangible financial risks for property owners and investors.

The framework encourages valuers to consider both immediate physical risks and longer-term transition risks associated with evolving climate policies and regulations. Properties that currently meet performance standards may face substantial capital expenditure requirements in the future as standards continue to tighten, and the standard provides guidance on how valuers should assess and communicate these potential future costs.

Market Evidence and Comparability Challenges

One of the persistent challenges in integrating ESG factors into valuations involves the availability and quality of market evidence. The standard acknowledges that while ESG performance increasingly influences property values, valuers must ground their assessments in observable market evidence rather than theoretical benefits or assumptions.

This requirement for evidence-based valuation creates challenges when dealing with innovative sustainability features that lack extensive market history. The standard provides guidance on how valuers can appropriately consider such features while maintaining professional objectivity and avoiding unsubstantiated value adjustments.

The framework also addresses challenges related to the variety of sustainability certification schemes and rating systems. While certifications like BREEAM, LEED, WELL, and others can provide useful information about a property’s sustainability characteristics, the standard clarifies that these should inform rather than determine valuation adjustments. Valuers must consider how the market actually values these certifications based on transaction evidence.

Proportionate Application Across Asset Types

The standard’s emphasis on proportionality recognizes that ESG considerations affect different property types in varying ways. Office properties, for instance, have seen substantial value divergence between energy-efficient and inefficient assets, driven partly by flight-to-quality trends and anticipated refurbishment costs. Industrial properties, by contrast, show less pronounced performance differences based on energy efficiency alone.

Retail properties present their own distinct patterns, with performance sometimes driven more by location and consumer accessibility than by energy performance metrics. The standard’s flexible framework allows valuers to apply professional judgment in determining which ESG factors prove most material for each specific asset type and market context.

Data Collection and Reporting Requirements

The consolidated global list of ESG-related KPIs provides valuers with standardized metrics for data collection and reporting. These indicators cover energy consumption patterns, greenhouse gas emissions, water usage, waste management, occupant health metrics, accessibility features, and governance practices. However, the standard emphasizes that data collection should be targeted and relevant to the specific valuation assignment rather than comprehensive by default.

This approach prevents unnecessary data collection burdens while ensuring that valuers obtain the information genuinely needed to inform their value assessments. The standard also provides guidance on how to handle situations where comprehensive ESG data proves unavailable, acknowledging the practical realities valuers face in many markets.

Integration with Valuation Methods

The standard addresses how ESG considerations should be incorporated into different valuation approaches. Whether using comparable sales methods, income capitalization approaches, or discounted cash flow analysis, valuers need clear guidance on where and how sustainability factors should influence their calculations.

For income-based approaches, this might involve adjustments to rental growth assumptions, void periods, or operating cost projections. When using discounted cash flow methods, ESG factors could influence discount rates, exit capitalization rates, or the timing and magnitude of future capital expenditures. The standard provides a framework for making these adjustments in a manner that remains both evidence-based and transparent.

Professional Competence and Resources

The framework emphasizes that valuers must maintain appropriate competence and resources to address ESG considerations in their work. When sustainability issues exceed a valuer’s expertise, the standard encourages collaboration with specialists or clear communication to clients about the limits of the valuer’s role.

This focus on competence proves particularly important given the rapid evolution of sustainability regulations and market practices. Valuers must commit to ongoing professional development to remain current with relevant ESG frameworks, regulations, and market trends affecting property values.

Supporting Public Interest and Market Confidence

Charles Golding emphasized that the standard supports RICS members in providing clients with relevant, contemporary advice that aligns with broader public interest. This alignment proves crucial as society increasingly expects the built environment sector to contribute meaningfully to climate goals and broader sustainability objectives.

By establishing clear, practical standards for how valuers should address ESG considerations, RICS helps maintain market confidence in valuation practices. Clients, lenders, investors, and regulators can have greater assurance that valuations appropriately reflect sustainability factors when they prove material to value.

Implementation and Transition Period

With an effective date of 30 April 2026, the standard provides firms and individual valuers with several months to prepare for compliance. This transition period allows time for training, process updates, and system modifications needed to fully implement the new requirements.

During this period, RICS will likely provide additional guidance, training resources, and support to help members understand and apply the standard effectively. The organization has historically supported major standard updates with webinars, guidance documents, and other educational materials.

Looking Forward: Continued Evolution

The standard acknowledges that ESG and sustainability remain rapidly developing topics. Regulatory frameworks continue to evolve, market practices advance, and scientific understanding of climate risks improves. RICS has indicated that the framework will continue to evolve through regular updates to maintain relevance as these factors develop.

Future editions may need to address emerging topics such as embodied carbon in building materials, circular economy principles in property development and management, biodiversity considerations, and evolving social factors including occupant wellbeing and community impacts. The framework’s structure provides flexibility to incorporate these developing areas as they mature and demonstrate measurable impacts on property values.

Global Applicability with Local Flexibility

While providing jurisdiction-specific guidance for the UK, EU, and Australia, the standard maintains applicability across global markets. Valuers operating in other jurisdictions can apply the framework’s principles while adapting to local regulatory requirements and market conditions.

This global-local balance proves essential for multinational property firms and international investors who need consistent valuation approaches across their portfolios while respecting regional differences in sustainability frameworks and market maturity.

Conclusion: A Milestone in Professional Standards

The publication of the fourth edition of RICS’s sustainability and ESG standard for commercial property valuation represents a significant milestone in the profession’s evolution. By providing clear, practical guidance grounded in expert consultation and real-world practice, RICS equips valuers to navigate the increasingly complex intersection of sustainability and property value.

The standard’s emphasis on proportionality, professional judgment, and evidence-based assessment ensures that valuers can fulfill their professional obligations while acknowledging the practical challenges and limitations they face. As sustainability continues to reshape commercial property markets globally, this framework provides essential guidance for maintaining professional standards and market confidence.

For clients, investors, lenders, and other stakeholders, the standard offers assurance that valuations will appropriately reflect ESG and sustainability considerations where they prove material to value, supporting more informed decision-making in an era where these factors increasingly influence property performance and risk profiles.

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By: Montel Kamau

Serrari Financial Analyst

4th February, 2026