What property funds need to know about ESG and changes to the International Valuation Standards

ESG is no longer considered peripheral to commercial property valuers, according to Greg Sugars OAM, CEO of valuation firm Preston Rowe Paterson, who explored how ESG is becoming embedded in the global financial and regulatory reporting framework at the PFA 2026 Conference in Adelaide.

Sugars said where they once talked about ESG being a ‘nice to have’, it is now a necessity, as the ASRS (Australian Sustainability Reporting Standards) and IVS (International Valuation Standards) 2025 are mutually reinforcing. “The introduction of the ASRS mandatory reporting and the IVS 2025 signals a profound shift where valuation is no longer simply about what an asset is worth today. 

“It’s increasingly about how resilient that value is in a transitioning world.

“The ASRS and IVS 2025 work hand in hand, and means that the valuations will underpin sustainability disclosures.”

He said valuers have an increased requirement to understand climate scenarios and engage with client ESG data, with valuation reports clearly articulating ESG considerations and aligning with ASRS disclosures where relevant. “ASRS elevates ESG to a board-level accountability issue.

“Preparation today will determine asset pricing tomorrow. Consistency is critical, and assumptions that you’re working on, assumptions that your advisors are working on, must be part of careful discussions between the valuer and the client.”

The IVS 2025 requires ESG factors to be identified, analysed, and explicitly disclosed in valuation reports. 

The ASRS, which introduces mandatory reporting, focusses on climate risks (both physical and transition risks), scenario analysis, governance and risk management, and metrics and targets.

A key challenge at present is securing the relevant data and attempting to forecast future risks, according to Mr Sugars. “The Sustainability Standards are asking us to disclose the exposure to climate risk. 

“They’re asking us about the financial implications, and they’re also asking us to have forward looking scenarios and planning scenarios, so valuations must now incorporate future risks, not just current market conditions.”

While it is not an exact science at present collecting quality data on commercial properties is an important starting point. “The key challenge is making sure we’ve got data availability and reliability. That means collecting great data on our properties, translating the climate scenarios into actual financial inputs. 

“We’re all learning, but we need to find consistency across what the valuers are doing in the market. We need to educate and help the auditors, because they’re now auditing these inputs, and make sure our reporting frameworks are clear and that they make sense. We need to make sure we don’t have a risk of premature precision versus informal judgment.”

Mr Sugars said he thinks many of these challenges are transitional issues. “They’re not structural barriers. I think we can overcome most of those. 

“The opportunities that we’re looking at include early repositioning of assets ahead of repricing. Managers who own assets that need money spent on them can begin to put in place programs, understand how that’s going to work, who you’re going to be attracting as your new tenants. 

“Not just doing the sustainability upgrade but making sure that if you’re doing upgrades, you’re getting them rated, so there’s some independence around that.”

For property fund managers, the strategic impact of higher reporting standard includes making portfolio resilience something that becomes measurable and reportable.

Mr Sugars said ESG performance directly influences valuation outcomes, investor perception and capital flows. Fund managers therefore have a growing need for asset-level ESG data, retrofit strategies, and scenario modelling capability.

The benefits for commercial property fund managers by having their ESG performance independently rated include reputational advantages, and the ability to attract capital and quality tenants. 

“It will give you better access, over the next five years in my opinion, better access to institutional capital from the larger and more established major lenders.

“And you will find that there are ESG aligned investment mandates from companies. We are already seeing sectors of the market that are demanding certain levels of sustainability, and they will pay a premium for strong sustainability credentials.”

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Photos courtesy of Festival City Photography.