Valuations underpin nearly every financial decision we make, from buying a house to investing in the markets. RICS registered valuers operate to the highest professional and ethical standards. Registered valuers operate within strict guidelines that ensure consistency and transparency. Sustainability is increasingly recognised as an important element of the valuation process.
Embedding Sustainability in Valuations
How we value the things we create as well as the natural world is a central element in the conversation on sustainability. Increasingly, sustainability is being integrated into economic accounting to include social and environmental components. Within the academic literature this is an area called environmental economics and more recently the term sustainability economics has been coined to highlight the central role that sustainability is now playing in economic considerations.
These discussions have been ongoing for some years and are now starting to translate into mechanisms, techniques and protocols within the professional realm. These advancements in economic accounting are particularly important for chartered surveying a central element of which is valuations. The importance of sustainability in the valuation process was clearly demonstrated by its inclusion in the recent updates of the RICS Red Book. Here sustainability is defined as:
“… the consideration of matters such as (but not restricted to) environment and climate change, health and well-being and corporate responsibility that can or do impact on the valuation of an asset. In broad terms it is a desire to carry out activities without depleting resources or having harmful impacts.” (RICS 2017)
In the recent insight paper 'The Future of Valuations: The relevance of real estate valuations for institutional investors and banks – views from a European expert group', the future of the profession of chartered surveying was explored speculating on the sort of issues that will need to be taken into account by current and future valuers. Whilst acknowledging that valuers reflect the market and not lead it the report advises valuers to:
‘… collect appropriate and sufficient sustainability data as and when it becomes available for future comparability, even if it does not currently impact on value’. (RICS 2017:30)
The paper identified barriers to a broader and more rapid inclusion of sustainability within valuing focusing on the definition of value and the implications this has for liability. In this sense a valuation that considers sustainability is more akin to a risk assessment than a valuation of present market value.
The inclusion of sustainability within the RICS Red Book and the broader recognition that valuation techniques and methodologies need to respond to future uncertainty points to the valuation profession is in a period of transition and to ignore this transition could leave valuers and valuation marginalised and lacking relevance.
These observations are reinforced by increasing recognition of sustainability in areas such as natural capital and ecosystem service valuation, commercial property valuation and renewable energy, to mention just a few. To understand how this transition impacts on your investment, business, property and any area impacted by valuation please get in contact.