Recognizing the increasingly important role sustainability plays in real estate, private retail real estate advisory Raider Hill in October hired Lukas Ceseña to oversee its new Sustainability Advisory practice. As director of sustainability at the New York-based firm, Ceseña will work with Raider Hill’s clients to integrate environmental, social and governance considerations and measures across the real estate value chain. He also will lead sustainability initiatives across Raider Hill’s portfolios and evaluate sustainable investment opportunities. Ceseña previously worked in Goldman Sachs’ Sustainable Banking Group, where he advised companies on sustainability-themed mergers and acquisitions and on public and private capital raises. Commerce + Communities Today contributing editor Joe Gose talked with Ceseña about his new role and the opportunities and challenges in the growing ESG field.

How did you get interested in sustainability as a career?

I grew up in a small town about an hour-and-a-half north of Los Angeles and saw many of the direct negative effects of climate change: water scarcity, forest fires and more extreme weather events, including record-high temperatures. So for as long as I can remember, addressing climate change and building a more sustainable future have been longstanding passions of mine. I’ve always searched for academic and professional opportunities where I could have the greatest impact on climate change and sustainability. I studied environmental economics in college and then had the great opportunity to join a new sustainable initiative with the investment banking division at Goldman Sachs.

What made you decide to make the jump to commercial real estate?

Real estate historically has been challenged from a climate sustainability perspective; it contributes nearly 40% of global greenhouse emissions and consumes nearly 40% of global energy and raw materials. The overwhelming majority of commercial buildings in existence today were built under much looser ESG-focused regulations, standards and codes, and while we’re seeing some pockets of reprioritization toward sustainability, the efforts have largely been below the required thresholds to achieve our climate and ESG ambitions. But this challenge represents an opportunity, and furthering sustainability in the space can have a high impact and drive us toward a more positive climate future.

Does retail real estate possess inherent characteristics that make it more or less prone to emitting carbon than other property categories — or more or less adaptable to sustainability?

Retail real estate faces many of the same kinds of stakeholder pressures as other sectors: Investors are looking to deploy capital in more sustainable opportunities, and state and local governments are enacting more stringent emissions laws and building codes. But really, the added pressure is coming from tenants, particularly those retailers who are building ambitious ESG frameworks to decarbonize the entirety of their supply and value chains. What that implies is that they’re emphasizing occupying buildings that align with those ESG ambitions.

In your opinion, what principles should any commercial real estate organization incorporate when launching an ESG strategy?

ESG strategies and frameworks will vary from company to company and, frankly, from asset to asset. That being said, there are a few parameters and considerations that are important in any context.

First, I would say, build an understanding around relevant and material ESG issues. Ask questions: What’s going on in the market? What are competitors doing? Why is sustainability important in real estate? How will we as real estate owners and operators be affected by the transitional and physical consequences of climate change? Just as importantly, get to know the full suite of real estate decarbonization technologies and options that are available and gain an understanding of their financial and strategic costs and benefits.

Second, begin the work of incorporating ESG risks into valuations. Build technical and analytical capabilities to establish accountability across the company, from construction sites to the C-suite and boardroom. Where feasible, begin to decarbonize your real estate assets. That could include actions such as leveraging low-carbon development and construction materials and practices and upgrading heating, cooling and lighting systems to improve energy efficiency.

Third, enhance and create new sources of value that relate to sustainability. Use your geographic location, utility systems, climate intelligence and operational footprints to create new revenue streams. An example of that would include implementing on-site energy generation and battery storage or electric vehicle-charging stations, both of which could be incremental sources of income.

Without getting into complex financial assumptions, can you provide an example of how sustainability initiatives can enhance property valuations?

We see sustainability as a critical point of strategic and competitive differentiation that will have tangible and positive implications on rent premiums, occupancy rates, lease renewals and transaction values over time. The key is to understand that, by advancing sustainable real estate practices, you’re fundamentally de-risking decisionmaking and execution. A piece of that is figuring out which assets in the portfolio are mispriced due to climate or ESG considerations and then leveraging that information to inform investment, asset management and disposition choices. How will heightened flooding, more severe weather and job losses due to the climate transition affect the ecosystem of your real estate assets and portfolio, for example? By proactively focusing on and executing a sustainability strategy, in many ways you’re addressing the inevitable and wide-ranging changes in the industry that span regulation, capital deployment, laws and tenant demands.

Lithium-ion batteries and solar panels contain toxic chemicals and require particular disposal after their useful lives. Is incorporating those technologies into projects more costly and potentially hazardous than relying on natural gas or nuclear power?

While some of the trade-offs you mention are certainly concerns, the degree of progress and innovation around battery storage recycling and mineral and resource recycling has been remarkable over the past few years. There are new startups and founders that are highly engaged and focused on addressing some of these fundamental and critical issues.

The critical and largely misunderstood concept around the integration of sustainable technologies in real estate is that, in many cases, the economics are positive. Reductions in emissions can be achieved through technologies that exist today, such as by upgrading to more energy-efficient lighting systems and enhancing insulation. Newer technologies such as low-carbon heating and cooling systems and battery-storage systems are cost competitive in many markets now, as well, and the costs continue to come down. So the adoption of such measures and technologies can lead to a meaningful de-risking of assets and operational cost savings that accrue to the benefit of both property owners and tenants.