By MIA Professional Practices and Technical
Why Sustainability is Rising in Significance to Valuation
Sustainability is no longer peripheral to valuation, but is in fact increasingly shaping cash flow resilience, risk perception and long-term business viability. What has changed is not the existence of these factors, but the expectation that business valuers explain clearly how they are identified, assessed and reflected in valuation conclusions.
The MIA Valuation Committee’s Focus Group Discussion held in December 2025 brought together senior business valuation practitioners to move the conversation from theory to practice: what sustainability integration actually looks like in valuation engagements, and where the business valuation profession is still struggling.
From Implicit Judgement to Explicit Analysis
Sustainability considerations have long influenced valuation assumptions, often implicitly through judgements on regulatory risk, licence to operate, governance quality and labour practices. IVS 2025 marks a clear shift by requiring these considerations to be made explicit, structured and documented.
“IVS 2025 does not require valuers to reinvent existing approaches; rather, it requires sustainability considerations to be explicitly identified, systematically assessed, and documented within the valuation process.”
-Leonard Woo, Partner, Valuation and Modelling Services, Deloitte Southeast Asia
“In the past, sustainability was considered when it mattered. IVS 2025 is the first time the Standards clearly say that valuers must stop assuming and start explaining.”
– Roger Loh Kit Seng, Director, Financial Advisory, Forvis Mazars in Malaysia
The Standards do not prescribe outcomes or methodologies. Instead, the standards reinforce disciplined thinking, consistency and transparency while preserving professional judgement
Materiality Remains the Hardest Judgement Call
A recurring theme was the difficulty of determining which sustainability factors genuinely influence value. While companies face numerous sustainability issues, only a small subset will materially affect cash flows, risk or growth.
“There are many sustainability issues, but only a small number will actually move value. The challenge is identifying the few that matter.”
– Emily Choo, Partner, Advisory, KPMG in Malaysia
Valuers must assess whether a sustainability issue is company-specific or already embedded across a sector or an industry. If an issue is industry-wide, market pricing may already reflect it. The challenge lies in identifying outliers and understanding severity, timing and financial impact.
What has the Market Already Priced In
Understanding whether sustainability risks and opportunities are already reflected in market data is critical but difficult. Sustainability-related pricing signals such as green premiums or brown discounts are rarely transparent.
“The real work starts when a company sits outside the sector norm. That is where judgement and evidence matter most.”
– Emily Choo, Partner, Advisory, KPMG in Malaysia
Practitioners often rely on peer comparisons, financing terms, investor behaviour and discussions with market participants to infer whether adjustments are required.
Data Gaps and Credibility Risks
Data availability and reliability remain among the most significant constraints. Disclosures are inconsistent, private company data is limited and emerging sectors and industries lack robust comparables.
“Most sustainability data is still based on management representation. Systems, controls and assurance are catching up, but not exactly there yet.”
– Roger Loh Kit Seng, Director, Financial Advisory, Forvis Mazars in Malaysia
Without reliable data or specialist input, sustainability-related assumptions are more likely to be challenged. Clear documentation of judgement, limitations and rationale is therefore essential.
“If sustainability inputs are weak or poorly explained, valuation credibility is at risk.”
– Ahmad Zubir Zahid, Managing Partner, Zubir Chang & Co.PLT
Sector Matters: No One Size Fits All
Sustainability exposure varies significantly by a sector or an industry. Carbon-intensive sectors such as power generation and transport sit along a brown-to-green spectrum, while other sectors and industries may face greater social or governance risks.
“We understand green premiums and brown discounts conceptually, but the empirical data is still thin.”
– Ng Boon Hui, Chairman of Valuation Committee and Partner, Ernst & Young
In practice, adjustments are often incremental and judgement-based, informed by sector dynamics rather than formulaic models.
Skills, Judgement and Multidisciplinary Input
Effective sustainability valuation requires capabilities beyond technical modelling. Practitioners emphasised the importance of understanding business strategy, transition pathways and how management operationalises sustainability commitments, as these factors directly influence valuation assumptions.
Case-based learning and practical examples were seen as essential in building confidence in applying judgement. At the same time, collaboration with sustainability or technical specialists is becoming increasingly important, particularly in complex or high-risk sectors, despite the associated cost and coordination challenges.
Commercial realities and client expectations
Practitioners noted ongoing tension between the additional work required to integrate sustainability considerations and clients’ willingness to pay
higher and commensurate fees. Sustainability-related analysis often involves deeper due diligence, additional data requests and more extensive documentation, which can increase engagement scope.
Assurance Supports, but Does Not Replace, Judgement
While assurance over sustainability information can enhance confidence, it does not remove the need for valuer-level due diligence.
“Even where sustainability information is subject to assurance or other forms of validation, valuers must critically evaluate its relevance and reasonableness to the business and valuation.”
– Leonard Woo, Partner, Valuation and Modelling Services, Deloitte Southeast Asia
Professional judgement remains central in determining how sustainability information influences valuation inputs.
Looking Ahead
The discussion reinforced that sustainability/ESG integration in valuation is evolutionary, not disruptive. Progress will depend on better data, clearer guidance, targeted training and continued professional dialogue.
“Sustainability is not replacing valuation fundamentals. It is sharpening them.”
– Ng Boon Hui, Chairman of Valuation Committee and Partner, Ernst & Young
For the profession, the priority is not perfection but consistency, transparency and confidence in applying judgement as sustainability becomes an established part of
business valuation practice.
