The RICS Red Book, updated in March 2025, made the integration of ESG considerations a mandatory practice when valuing properties.
The update aligns the professional standards for property valuation, with recent industry developments concerning net zero and ESG practices, as well as the adoption of AI and emerging technologies. The latter are critical determinants influencing risk and return and therefore factors which play a key role in assessing their potential influence on property values.
It also reflects the fact that the combination of legislation, regulation, commercial priorities, and public opinion has created a compelling and irrevocable tsunami of pressure on companies, organisations, cities, and nations to decarbonise and meet highly publicised net zero targets. Changes to the Red Book therefore ensures that valuers of commercial and residential assets and portfolios have a framework which allows them to make valuation judgements which are aligned with the evolving regulatory and market priorities which are shaping our future.
Valuing in a net zero world
The ability of the current generation of valuers to accurately determine and assess the impact of net zero and ESG practices depends heavily on their experience, expertise, and access to robust data from specialists such as fund and asset managers, net zero practitioners, occupiers, owners, and investors.
There is much discussion around ‘significant ESG factors’ but determining which of these will materially impact a property’s valuation requires skills and knowledge that may still be developing within the valuation profession. While valuers have long applied proven methodologies to assess the influence of traditional factors such as location, condition, size, and layout, simple market fundamentals may not be sufficient when it comes to ESG considerations. Forming a qualified opinion on the influence of these factors may, at this stage, still depend on collaboration with other professionals and the availability of relevant, reliable data.
It is important to note that putting a value on ESG factors and the impact they will have on the operational and financial aspects of the business will ensure that investors, tenants and landlords will be better incentivised to think strategically about their carbon footprint, energy efficiency and the social impact associated with their influence over and interaction with the built environment.
Doing this will also give investors and real estate lenders far greater confidence that embracing net zero and broader social and governance initiatives and practices will sustain and ultimately enhance the value of assets and portfolios they own.
As these factors become embedded in real estate thinking, the data and benchmarking will mature to follow the updated regulatory guidelines valuers are required to adhere to. Values will ensure continued transparency, consistency, and accuracy of all future valuations.
London - An environmental leader
London is a global city with mature, transparent, and sophisticated real estate stakeholders that it has been at the forefront of the nation’s property ESG journey. The City has countless examples of assets enjoying a ‘green premium.’ Buildings with Building Research Establishment Environment Assessment Methodology (BREEAM) certification, low emissions and/ or strong occupier engagement will continue to perform strongly from a transactional perspective.
In contrast, buildings with poor ESG credentials, particularly where the viability of retrofitting is questionable and data benchmarking is patchy, will be subject to what is termed a ‘brown discount’. Therefore, if landlords and owners of brown discounted assets want to compete in a market populated by educated and discriminating occupiers and purchasers, they risk being left behind with stranded assets or portfolios.
A potential ‘silver bullet’ for this scenario could be permitted development, allowing for changes to the use of a building without the need for full planning permission in certain circumstances. A good example of this has been the change of use from office to residential. This flexibility can play a critical role in addressing ESG challenges, as it offers a viable route for owners of underperforming assets to repurpose them in ways that improves environmental performance, social value, and long-term viability.
For instance, converting outdated office space into energy efficient residential units not only reduces vacancy and waste but also aligns with sustainability goals, extending the building’s lifecycle and potentially incorporating modern, low carbon technologies.
By enabling more adaptive reuse, permitted development can bridge the gap between current ESG shortcomings and future proofed, higher-performing assets, transforming liabilities into competitive, compliant, and desirable properties in the marketplace. More specific to the residential letting sector is the fact that new developments, with strong ESG credentials, are already performing better than older stock with poor energy efficiency.
Local authorities’ considerations
Local authorities and housing associations will need to be particularly alert to the impact ESG compliance is already having on the long-term viability of their assets and portfolios. They will also need to reflect on their capital expenditure and investment strategies if they want to optimise asset and portfolio values, as well as ROI.
Key to the greater focus on ESG aspects of valuation is the need for landlords, occupiers, and investors to understand the link between ESG factors, the short-term operational benefits, as well as the longer-term occupation and/or income sustainability of their assets. Underpinning all this is the need for accurate data collection and efficient monitoring frameworks.
For older buildings, reliable ESG data remains patchy, so the judgements of experienced valuation teams will be critical. The 2025 Red Book revision is an important development for London’s and the nation’s real estate market. It will create a credible framework and reinforce the efficacy and relevance of asset and portfolio valuations.