ESG in the Valuation Process

IVSC Global Survey 2024

This survey is the first one in a series of three surveys and is aimed at valuation providers. Please respond individually or on behalf of your organisation.

The ESG Survey results for valuation providers are expected to be published during the latter half of 2024.

As always, the IVSC would welcome your insight and feedback to understand which ongoing issues (if any) you or your stakeholders continue to endure when attempting to consider ESG factors in valuation.

Please forward any further feedback to the IVSC Standards Review Board via: [email protected]

Background to Survey

IVS (Effective 31^st January 2025) defines Environmental, Social and Governance (ESG) in the Glossary as “the criteria that together establish the framework for assessing the impact of the sustainability and ethical practices, financial performance or operations of a company, asset, or liability. ESG comprises three pillars: environmental, social and governance, all of which may collectively impact performance, the wider markets and society.”

IVS 104 Data and Inputs Appendix states that “the valuer should be aware of relevant legislation and frameworks in relation to the environmental, social and governance factors impacting a valuation.”

The IVS104 Data and Inputs Appendix further states that “the impact of significant ESG factors should be considered in determining the value of a company, asset or liability” and that “ESG factors may impact valuations both from a qualitative and quantitative perspective and may pose risks or opportunities that should be considered”.

Examples of environmental factors may include but are not limited to the following:

air and water pollution,
biodiversity,
climate change (current, transition and future risks),
clean water and sanitation,
carbon and other gas emissions,
deforestation,
natural disaster,
resource scarcity or efficiency (eg, energy, water and raw materials),
waste management.

Examples of social factors may include but are not limited to the following:

community relations,
conflict,
customer satisfaction,
data protection and privacy,
development of human capital (health & education),
employee engagement,
gender equality and racial equality,
good health and well-being,
human rights,
working conditions,
working environment.

Examples of governance factors may include but are not limited to the following:

audit committee structure,
board diversity and structure,
bribery and corruption,
corporate governance,
donations,
ESG reporting standards and regulatory costs,
executive remuneration,
institutional strength,
management succession planning,
partnerships,
political lobbying,
rule of law,
transparency,
whistle-blower schemes.

In addition, the Appendix states that “ESG factors and the ESG regulatory environment should be considered in valuations to the extent that they are measurable and would be considered reasonable by a valuer applying professional judgement.”

Over the past year the consideration of ESG factors within the valuation process across all specialisms (business valuation, financial instruments, and tangible assets) has continued to gain greater attention across all markets, though it should be noted that not all markets are moving at the same pace.

The requirement for greater consideration of ESG is in part due to renewed global commitments to environmental sustainability and managing carbon emissions to an eventual “net zero” goal (as established by the Paris Agreement in 2015), the growing influence of intangibles on valuations, and greater investor, regulatory and public scrutiny of ESG components within the valuation process.

As a result, the explicit consideration of ESG within the valuation process has continued to be a key topic for the IVSC, as not only is it in the global public interest, but also meets a market need, particularly as more standards and regulations are incorporating specific reporting requirements for ESG.

In order to better understand evolving market needs, the ESG Working Group carried out a survey of investors, businesses, and valuers in 2022 in order to gain an understanding of their consideration of ESG components within valuations.

As stated in the previous IVSC ESG Survey Results perspective paper section on next steps “IVSC is planning to run a survey tracking the uptake of ESG considerations within the valuations and the valuation process on an annual basis”. It should be noted that publication of last year’s ESG Survey was delayed while the IVSC Standards Review Board and its Technical Boards (Business Valuation Board, Financial Instruments Board and Tangible Assets Board) focussed on the Publication of IVS (Effective 31 January 2025.

The IVSC will continue to issue ESG related Perspectives Papers during 2024 to further explore the consideration of ESG and its components within the valuation process. These Papers will also aid in providing transparency and may act as a precursor to more explicit ESG requirements in future editions of IVS. Perspectives Papers can also facilitate and shape wider discussion and debate on the importance of ESG/ components in the valuation process.

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About you:

Name(Required)

First Last

Company Name

Email(Required)

Are you responding individually or on behalf of an organisation?

Individual

On behalf of an organisation

How many years of valuation experience do you have:

0-5 years

6-10 years

11-19

20+ years

In which country are you located (primary location)?

In which markets do you work? [select all that apply]

Africa

Asia

Americas

Europe

Global

Middle East

Country-specific (please specify)

Untitled

What is your valuation focus? [select all that apply]

Business Valuation

Financial Instruments

Intangible Assets

Private Markets

Tangible Assets

What is the main purpose(s) of the valuations you perform or review? [select all that apply]

Disputes

Financial Reporting

Employee Share-Based Compensation/Plans

Infrastructure Fund Reporting

M&A

Restructuring

Secured Landing

Tax

Transaction Opinions

Other (please specify)

Untitled

What is your primary role in valuations?

Data, Model or Service Provider

Preparer

Reviewer

Other (please provide details)

Other? Please provide details:

What is the industry/industries you work within:

Survey questions:

ESG and sustainability are often used interchangeably. For the purposes of this survey and in order to encourage responses from all markets, we have used the term ESG/Sustainability. Ultimately, we are looking for your perspective on how these factors are incorporated into your valuations.

1) Who makes the most requests of you to perform due diligence and/or valuation processes related to ESG/Sustainability?

Auditors

Corporates

Endowments

Financial Institutions

Private Equity Firms

Regulators

Valuation Firm Leadership

No one

Other [Please specify]

Please provide details

2) To what extent are you currently considering ESG/Sustainability factors within your valuation and valuation’s reports?

Always

Very Frequently

Occasionally

Rarely

Very Rarely

3) When preparing or reviewing a report how are ESG/Sustainability considerations reflected. [select all that apply]

ESG/Sustainability factors are identified

ESG/Sustainability factors are disclosed and/or reported

Impact of ESG/Sustainability factors are directly assessed (Eg positive/negative on value)

ESG/Sustainability factors are quantitatively measured

ESG/Sustainability factors are qualitatively measured

I do not consider any of the above

4) Do you independently assess ESG/Sustainability factors on all or most company and asset valuations?

Yes

5) Do you primarily restrict your assessments to specific industries or client types?

Yes

If yes, please provide more details

6) Which indexes, KPIs, or other metrics built from market-observable data do you use for ESG/Sustainability benchmarking purposes, if any? Please list what publicly available information you use:

7) Do you consider the existing publicly available information to be sufficient and reliable to consider ESG/Sustainability factors in your valuation?

Yes

Please provide further details:

8) Is the IVS (effective 31 January 2025) – IVS 104 Appendix on ESG considerations sufficient for your valuation needs?

Very sufficient

Sufficient

Somewhat sufficient

Neither sufficient nor insufficient

Somewhat insufficient

Very insufficient

If IVS is insufficient, how would you amend the standards or what sources would you use to guide your ESG/sustainability valuation considerations?

9) Do you separately identify Environmental (E), Social (S) and Governance (G) considerations from each other to reflect and report on the various individual factors (attach hyperlink to background section here) which may be material to the valuation?

Yes

Depends (please provide details)

Please provide more details:

10a) Which frameworks, guidelines, methods, or reporting standards have you found most useful in the course of considering ESG/Sustainability within your CORPORATE valuation work? (select all that apply) – See list of acronyms at the bottom of this page.

CDP

CDSB

Climate Bonds Initiative

Ecovadis

EPRA

EU NFRD/CSRD

EU Taxonomy

GHG Protocol

GRI

IFRS Foundation/ISSB

SASB

TCFD

UN SGDs/UN GC

Other (please specify)

Please provide more details:

10b) Which frameworks, guidelines, methods, or reporting standards have you found most useful in the course of considering ESG/Sustainability within your INVESTMENT/PORTFOLIO valuation work? (select all that apply) – See list of acronyms at the bottom of this page.

GRESB

PRI

SFDR

UK Stewardship Code

Other (please specify)

Please provide more details:

10c) Which frameworks, guidelines, methods, or reporting standards have you found most useful in the course of considering ESG/Sustainability within your ASSET valuation work? (select all that apply) – See list of acronyms at the bottom of this page.

CREEM

Other (please specify)

Please provide more details:

11) Which ratings or certifications are you utilising in your valuations to assist in assessing ESG/Sustainability? (select all that apply)

BELS

BREAM

CASBEE

Dun & Bradstreet

Energy Star

Fitwell

Green Mark

Green Star

HQE

LEED

MSCI

Moody's

NABERS

S&P Global

Sustainalytics

WELL

ZEB

Other (please specify)

None of the above

Please provide more details:

12) Do you believe that quantifying the impacts of ESG on valuations requires the development of wholly new valuation approaches and methodologies?

Strongly agree

Agree

Neither agreed nor disagree

Disagree

Strongly disagree

13) Can ESG/Sustainability investment considerations be in conflict with a fiduciary duty to maximise returns?

Yes

Depends

Please provide further information:

14) Are you or your organisation undertaking any professional development or training focused on ESG/Sustainability (eg official certifications, self-study, webcasts etc)?

Yes

Please provide further details:

Please provide details of the type of training you would like:

Abbreviations

BEI: Building Energy Index (Used for BELS)
BELS: Building-Housing Energy-efficiency Labelling System (Japan)
BREAM: Building Research Establishment's Environmental Assessment Method
CASBEE: Comprehensive Assessment System for Built Environment Efficiency
CDP: Carbon Disclosure Project (currently, only the CDP abbreviation is used)
CDSB: Climate Disclosure Standards Board
CERES: Coalition of Environmentally Responsible Companies
COP: Conference of Parties
CRREM: Carbon Risk Real Estate Monitor
CRREM Tool: Carbon Risk Real Estate Monitor Tool (EU Only)
CSRD: Corporate Sustainability Reporting Directive
D&B: Dun & Bradstreet
EFRAG: European Financial Reporting Advisory Group
Energy Star: joint program of the EPA and DOE
EPRA: European Public Real Estate Association
ESG: Environmental, Social, and Governance
ESRS: European Sustainability Reporting Standards
EU Taxonomy: Classification system for net zero trajectory alignment
Fitwel: Certification system for building health, originally by the CDC and GSA
GHG: Greenhouse Gas
GICS: Global Industry Classification Standard
Green Mark: UK business sustainability accreditation
Green Star: Australian sustainability rating and certification system
GRESB: Environmental, social, and governance data provider
GRI: Global Reporting Initiative
HQE: French building certification standard
IAASB: International Auditing and Assurance Standards Board
IASB: International Accounting Standards Board
IBOS: International Building Operations Standard
IFRS: International Financial Reporting Standards
IPCC: Intergovernmental Panel on Climate Change
IRF: Integrated Reporting Framework (now IFRS Foundation)
ISSB: International Sustainability Standards Board
NFRD/CSRD: Non-Financial Reporting Directive/Corporate Sustainability Reporting Directive
LEED: Leadership in Energy and Environmental Design
NABERS: National Australian Built Environment Rating System
PRI: Principles for Responsible Investing
S&P Global: Standard & Poor’s Global
SASB: Sustainability Accounting Standards Board (now IFRS Foundation)
SBTi: Science Based Targets Initiative
SFRD: Sustainable Finance Disclosure Regulation
SRI: Socially Responsible Investing
TCFD: Taskforce on Climate-Related Financial Disclosures (now IFRS Foundation)
UN SDG: United Nations Sustainable Development Goals
UNEP: United Nations Environment Programme
UNFCC: United Nations Framework Convention on Climate Change
WELL: WELL Certification (Link)
ZEB: Net Zero Energy Building (Japan)

Name

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Appendix - Abbreviations

BEI: Building Energy Index (Used for BELS)
BELS: Building-Housing Energy-efficiency Labelling System (Japan)
BREAM: Building Research Establishment’s Environmental Assessment Method
CASBEE: Comprehensive Assessment System for Built Environment Efficiency
CDP: Carbon Disclosure Project (currently, only the CDP abbreviation is used)
CDSB: Climate Disclosure Standards Board
CERES: Coalition of Environmentally Responsible Companies
COP: Conference of Parties
CRREM: Carbon Risk Real Estate Monitor
CRREM Tool: Carbon Risk Real Estate Monitor Tool (EU Only)
CSRD: Corporate Sustainability Reporting Directive
D&B: Dun & Bradstreet
EFRAG: European Financial Reporting Advisory Group
Energy Star: joint program of the Environmental Protection Agency (EPA) and the Department of Energy (DOE)
EPRA: European Public Real Estate Association
ESG: Environmental, Social, and Governance
ESRS: European Sustainability Reporting Standards
EU Taxonomy: The taxonomy is a classification system that defines criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate.
Fitwel: Fitwel is a certification system committed to building health for all. Fitwel was originally created by the U.S. Centres for Disease Control (CDC) and Prevention and U.S. General Services Administration
GHG: Greenhouse Gas
GICS: Global Industry Classification Standard
Green Mark: Green Mark accreditation provides a classification for business operations across the UK in relation to long term environmental sustainability
Green Star: An internationally recognised Australian sustainability rating and certification system
GRESB: An industry-led organization that provides actionable and transparent environmental, social and governance (ESG) data to financial markets.
GRI: Global Reporting Initiative
HQE: French equivalent of BREAM or LEED. HQE certifications apply to buildings, development and infrastructure.
IAASB: International Auditing and Assurance Standards Board
IASB: International Accounting Standards Board
IBOS: International Building Operations Standard
IFRS: International Financial Reporting Standards
IPCC: Intergovernmental Panel on Climate Change
IRF: Integrated Reporting Framework (now part of IFRS Foundation)
ISSB: International Sustainability Standards Board
NFRD/CSRD: Non-Financial Reporting Directive/Corporate Sustainability Reporting Directive
LEED: Leadership in Energy and Environmental Design
NABERS: National Australian Built Environment Rating System (also operates in NZ and UK)
PRI: Principles for Responsible Investing
S&P Global: Standard & Poor’s Global
SASB: Sustainability Accounting Standards Board (now part of IFRS Foundation)
SBTi: Science Based Targets Initiative
SFRD: Sustainable Finance Disclosure Regulation
SRI: Socially Responsible Investing
TCFD: Taskforce on Climate-Related Financial Disclosures (now part of IFRS Foundation)
UN SDG: United Nations Sustainable Development Goals
UNEP: United Nations Environment Programme
UNFCC: United Nations Framework Convention on Climate Change
WELL: https://www.wellcertified.com/certification/v2/
ZEB: A Net Zero Energy Building (Japan)