In the past, property valuation reports have been focused predominantly on financial metrics and market comparables for a client’s relevant transaction, be it a proposed letting, purchase or financing. Specifically, such valuations have conventionally dealt with the location of a property, the market demand and local market trends, any rental income and primarily the physical condition of a property.
However, due to an increase focus on sustainability and responsible investment specifically in respect of Environmental, Social, and Governance (ESG) factors valuers are now giving consideration and commentary on how well the valued properties align with ESG standards.
For example, valuations now may include commentary on:
- Environmental factors. Such environmental factors like energy efficiency, carbon emissions, and flood risk are increasingly central in real estate and asset valuations due to the increasing statutory requirements in this respect. Furthermore, the focus is driven by regulatory pressure, investor expectations, and long-term risk management.
- With respect to Energy Efficiency this is assessed by the existence of Energy Performance Certificates (EPC’s) which were first introduced in 2007 and are now mandatory in the UK for properties being sold or rented. The purpose is to give a detailed assessment of a property’s energy efficiency and better ratings can enhance the value of the property.
- Embodied carbon (from construction materials) and operational carbon (from daily use) are both now considered in property valuations and investors are being seen to increasingly demand transparency on carbon reporting and benchmarking. Carbon intensive properties may face increased financing costs, regulatory burdens, or market discounting whereas those properties which align with net-zero targets could have premium valuations or an increased investor interest.
- Whilst flood risk may be less of a “new” area of valuation, they have become a critical component in property and infrastructure valuations. As climate change intensifies, investors, regulators, and lenders are placing greater importance on how physical risks — especially flooding impact on the asset and the proposed transaction. Properties with high flood risk can become less attractive to ESG-conscious investors and harder to insure or finance.
- Social factors, under ESG are being increasingly considered in valuations, though they are often less directly quantifiable than environmental factors. For instance, buildings designed for occupant comfort (e.g. air quality, natural light, wellness amenities often found in new build to rent complexes) may command higher rents, lower vacancy, and tenant loyalty. Likewise, developments that positively engage with local communities or support local economies may face fewer planning hurdles, gain public support, and achieve social value premiums. Other factors including proximity to schools, hospitals, public transport, and services also increase social value and marketability in property valuations.
- Governance factors refer to the management structures, policies, and processes that ensure transparency, compliance, and accountability in property ownership and operations. Strong governance practices increasingly influence property valuations by affecting risk perception, investor confidence, and access to capital. Clear, consistent disclosure of ESG performance and operational data increases investor trust and reduces uncertainty, often resulting in higher valuations. Adherence to planning, safety, environmental, and social regulations lowers legal and financial risks, supporting stable cash flows and better marketability. Well-governed properties are viewed as lower risk, and strong governance attracts ESG-conscious investors and lenders, often resulting in more favourable financing terms. Effective governance practices enhance property value by mitigating operational, legal, and reputational risks while raising investor confidence. As ESG considerations grow, governance quality is becoming a critical driver in property valuation and investment decisions.
ESG is no longer just a compliance box to tick—it’s a strategic lever that materially impacts asset value. Whether you’re an investor, developer, lender, or occupier, understanding the ESG credentials of a property is essential to making informed decisions in today’s market.
This update is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this update may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.
