Environmental, Social and Governance Report
All content contained in this report is subject to the disclosures found in the PDF available at the bottom of this page.
Castlelake is a global alternative investment firm and relationship-oriented, experienced liquidity provider in asset-based investment opportunities.
Castlelake has extensive experience, data, and relationships within the specialty finance, real assets, and aviation private markets that we bring to bear as we provide asset-based private credit and other forms of capital solutions. We believe that Castlelake offers differentiated exposure to investors across the private markets and aspires to generate attractive risk-adjusted returns with low correlation and less volatility than the public markets.
The Castlelake team has more than two decades of specialized asset structuring expertise, in-market experience, and long-standing sourcing relationships. For more information about our firm, visit our About page.
“We consider ESG factors and weigh ESG risks because we believe they can have a meaningful impact on capital flows, asset values, and liquidity, and therefore, investment outcomes.“
Evan Carruthers
Managing Partner, Chief Executive Officer & Chief Investment Officer
Governance
Castlelake regards ESG review and management as central components of our investment underwriting and portfolio management processes.
Firm Level
Because Castlelake regards ESG review and management as central components of our investment underwriting and portfolio management processes, Castlelake’s ESG Committee (the “Committee”) functions as a core element of our governance structure. A dedicated ESG practitioner leads the Committee, which reports to the Portfolio Committee. The Portfolio Committee advises on recommendations from the ESG Committee, ESG Director, and Investment team.
The Committee, led by the ESG Director, provides the foundation for and guides our approach to implementing ESG principles. The Committee advances the consideration of ESG risks and opportunities throughout the investment lifecycle through coordination with investment professionals and operational teams and provides subject matter expertise.
Moreover, the Committee works to ingrain the firm’s ESG approach and the principles of responsible investing throughout Castlelake’s culture. As part of this effort, the Committee continues to play a pivotal role in driving, optimizing, and reporting on Castlelake’s ESG approach across the firm and to its investors and stakeholders.
In August 2023, Castlelake merged the firm’s ESG Committee and Aviation ESG Sub-committee, creating a more streamlined structure that allows for increased coordination and more efficient decision-making and makes it more action-oriented and productive. The single committee structure also drives consistency and facilitates knowledge-sharing across business lines.
The ESG Committee is responsible for integrating and embedding ESG practices and principles into Castlelake’s culture. The Committee accomplishes this through creating and disseminating materials that contribute to Castlelake’s governance, firm-wide and tailored trainings, and ongoing engagement with various departments and teams across the firm.
In addition to and in a complementary fashion, Castlelake maintains several policies that govern the behavior of its team and the way in which it operates. Two such policies include its Code of Ethics and its Privacy & Information Security Policy.
Castlelake’s approach to cybersecurity is governed by its Privacy & Information Security Policy. The Privacy & Information Security Policy provides and identifies administrative, technical and physical safeguards that establish standards for Castlelake to maintain the security and confidentiality of non-public information that Castlelake has collected from investors or other third parties, to protect against anticipated threats or hazards to the security or integrity of personally identifiable information, to protect against unauthorized access to or use of PII in a manner that creates a substantial risk of identity theft or fraud and to dispose of the PII in a secure manner. The policy is based upon SEC Regulation S-P, the European Union’s General Data Protection Regulation (“GDPR”), with additional guidance from the California Consumer Privacy Act (“CCPA”) and New York’s Stop Hacks and Improve Electronic Data Security Act (“SHIELD Act”).
Castlelake’s Code of Ethics sets for the standards of conduct expected of all partners, members, officers, and employees of Castlelake, as well as certain independent contractors (“Covered Persons”). It addresses gifts, entertainment, outside business activities, and third-party relationships, as well as assists Covered Persons in fulfilling its obligations to comply with federal securities laws. We believe that adherence to the code is critical to maintaining the integrity, reputation, and performance of Castlelake. Beyond the specific examples and situations outlined in the code, all Covered Persons are expected to comply with the spirit of the code and the principles articulated within it. Enhancements and alterations to the code are made periodically to reflect regulatory changes and developments in Castlelake’s business.
Finally, we continue to embed ESG throughout our culture, as reflected in the firm’s approach to human capital management. In 2023, we mandated firmwide ESG training, recording a 100% completion rate.
Investment Integration Level
Within our investment underwriting process, Castlelake designed a structured approach to considering material ESG risks and assessing their potential financial impacts for the Investment Review Committee’s consideration. We thoughtfully built this process to allow for its incorporation into our existing underwriting process and ongoing investment monitoring and management.
Where applicable, we may use governance or reporting rights at the investment level to provide insight into relevant ESG factors after the initial closing, believing that prudent management can affect performance. These structures may include Castlelake investment professionals within the management teams or boards managing invested assets. They may also include encouraging governance policies around ESG factors from incident reporting to occupational health and safety, as relevant to the investment opportunity.
Our middle office team and investment professionals regularly engage with the management teams of assets within our portfolios and other operating partners to provide insight into relevant ESG matters as part of the investment management process. Each investment receives dedicated and consistent oversight from a team of Castlelake investment professionals throughout the hold period.
Strategy & Risk Management
We believe a focused and robust ESG approach — as opposed to a broad or far-reaching, but less rigorous one — is aligned with our investors’ interests.
Firm Level
We also believe that deeply integrating that ESG approach into our firm’s governance and culture creates an environment conducive to our core mission of providing attractive risk-adjusted returns.
To enhance integration, we put a strong focus on data integrity and process rigor.
We are also committed to reassessing, focusing, and strengthening our ESG protocols and practices, to enhance their overall integrity and utility within our investment and risk management approach. Accordingly, we are committed to reviewing our ESG governance and firmwide strategy and approach on an annual basis. As part of this review, we evaluate the functions within our ESG Committee, the Committee’s positioning within our broader governance structure, and its strategic priorities. Castlelake assesses the external business and macro environments and the needs of our investors to help guide future focus areas. We also evaluate challenges and gaps in our existing program and devise plans for addressing these.
Investment Integration Level
Castlelake believes that ESG factors can be material to investment performance, particularly as they potentially impact exit liquidity and sponsorship appeal in today’s environment. Therefore, we aim to analyze any material, relevant ESG factors to each investment as part of the investment underwriting process and on an ongoing basis as part of our portfolio management. The next section demonstrates how we evaluate ESG factors throughout our investment lifecycle.
Pre-Investment
Castlelake deal teams integrate assessment of relevant, material ESG issues analysis into our broader due diligence processes for all new investment opportunities. These due diligence processes include company and/or asset research, country analysis, asset and operating manager selection, and risk management.
ESG Underwriting Tool
Castlelake implemented a proprietary ESG Underwriting Tool to help streamline and organize our pre-investment ESG practices. Investment professionals underwriting investment opportunities initially use the tool, which we designed to adapt dynamically with each input.
The utility then helps Castlelake increase internal collaboration by integrating our middle office teams and ESG Committee at various inflection points, including at the initial stages of investment memo creation and circulation. The tool facilitates information-sharing and enables different teams to work collaboratively to incorporate ESG into the investment underwriting process.
The tool also serves as a self-contained utility which incorporates Sustainability Accounting Standards Board (SASB) factors and proprietary business line guidance. It generates a tailored ESG assessment plan based on inputs that include recommended next steps, available resources, and additional variables to consider. Using inputted data, the tool automatically generates an ESG output for incorporation into the final Investment Review Committee (IRC) memo, and also flags elevated ESG risks to give IRC members greater visibility.
The tool incorporates relevant ESG data and analysis at multiple levels of detail:
- Basic investment information, such as asset category and industry
- Castlelake Exclusions List screening
- SASB Factor review
- Castlelake proprietary ESG guidance review based on business line/asset type and/or industry
- Investment professional analysis and commentary on ESG risks and opportunities
Once completed, the tool serves as documentation for ESG underwriting, future reference and comparison for other investment opportunities, and fulfilling record-keeping obligations.
The utility also prompts investment professionals to request and deliver ESGrelated data and considerations to other internal teams, as necessary. These prompts help the team complete particularly relevant ESG underwriting tasks such as RepRisk scoring, Watch List updates, operating partner ESG due diligence or operational risk assessments, or further collaborate with Castlelake’s ESG Director.
This comprehensive, proprietary tool guides our ESG pre-investment process and, in our view, significantly improves efficiency, internal governance, and consistency in ESG underwriting.
Operational Due Diligence and Escalation Processes
In addition to our ESG underwriting process, Castlelake employs an ongoing due diligence process that focuses on systemizing data acquisition. We believe this creates a strong ESG data foundation for managing risk and enhancing enterprise and investment level ESG strategies and processes. Our standard ESG procedures require members of our middle office teams to request each operating partner — the companies or teams involved in servicing the assets that Castlelake funds/vehicles have invested in — to complete our proprietary ESG due diligence questionnaire annually.
Additionally, Castlelake employs a standardized ESG Escalation Process, which is part of our ESG Policy. The Process provides a clearly defined set of steps for the escalation and resolution of material ESG factors discovered during an investment’s underwriting or due diligence. We designed the Escalation Process to facilitate enhanced diligence in the event of material ESG exposures. Once the investment team or ESG Director invokes an escalation, Castlelake conducts, documents, and delivers an analysis of ESG risk and mitigation recommendations to our IRC as part of the investment decision-making process.
Reporting
In addition to publishing a publicly available ESG report annually, Castlelake regularly reports its ESG strategy and activities to its internal and external stakeholders. Our reporting approach uses qualitative commentaries and quantitative reporting tools and systems. Castlelake assesses the third-party quantitative frameworks and systems with an eye toward metrics and information that are material, decision-useful, and whose integrity and utility we trust. In the asset-based private markets, we continue to see meaningful gaps in the quality and complexity of data available for benchmarking and measurement through third parties. As we gather more data and more comprehensively document the ESG risk analysis in our own underwriting and investment-management processes, we continue to hone our approach to internal data and external/quantitative data sources and systems.
Led by the ESG Director, our ESG Committee provides annual internal reports to Castlelake’s Portfolio Committee, which is comprised of members of firm’s senior leadership. These reports include an evaluation of ESG Committee activities, the state of ESG integration and its effectiveness within Castlelake, and any pertinent ESG challenges or opportunities facing the firm and the broader investment industry. This qualitative review lets Castlelake continuously refine its ESG strategy.
In addition, Castlelake aims to respond to any particular inquiries from its investors regarding its ESG strategy and processes. Finally, we continue to adhere to the reporting requirements of our various industry memberships, including the United Nation’s Principles for Responsible Investment (PRI). Castlelake completed our first mandatory reporting cycle in 2024.
Progress
This report strives to convey how Castlelake’s ESG approach focuses on rigorous analysis, due diligence, and consistency to maximize efficacy. In 2023, Castlelake’s continuous effort to enhance and refine this approach included implementing systems-based integrations to ensure we collect and use ESG-related data more efficiently, as well as increasing information-sharing and collaboration throughout the investment lifecycle.
Firm Level
Integrations at the firm-level included connecting due diligence questionnaires with investment processing and tracking systems and launching Castlelake’s ESG Underwriting Tool to bring relevant information and automation into a single interface. We also refined our use of training systems to better distribute ESG training modules to relevant parties and track and enforce training completion.
Castlelake also continues to engage in what we believe are high-quality ESG initiatives elevant to its investment strategies and focus on the organizations that we think offer the best opportunities to provide and extract valuable insights. In 2023, these included trade associations and other financial institution-related networks and affiliations, such as PRI and Aircraft Leasing Ireland’s sustainability initiative. We also continue to focus on identifying those opportunities which are most relevant to Castlelake’s asset-based investment strategies (Specialty Finance, Aviation, and Real Assets), where we can contribute asset expertise and experience and learn about sector-specific ESG topics.
In 2023, Castlelake refined its investment review process to create an independent ESG review step. For this step, we place the ESG Director within the investment review workflow to evaluate every investment memo through an ESG lens. We also integrate our ESG Escalation Process into this review, which empowers the ESG Director to independently escalate an ESG exposure and submit a document to the IRC that details the findings and recommendations. In 2023, we also encouraged deeper collaboration between Castlelake’s ESG Committee and Client Management teams.
We believe that a combination of individual responses to investors’ requests and a systematic reporting approach (including through this report) is warranted and most useful for our investors, given their unique needs and expectations and the nuances of Castlelake’s asset-based investment strategy.
Investment Integration Level
At the investment level, we saw progress throughout 2023 in implementing Castlelake’s ESG approach across our firm. We measure this by several factors, including:
- Castlelake’s ESG training
- Operating Partner ESG Due Diligence Questionnaires
- The ESG component in investment review memos
2024 and Beyond
Looking forward, we expect our ESG approach to continue prioritizing materiality, rigor, and efficiency. In our view, these characteristics achieve effective ESG risk management and reporting and ultimately help create the risk-adjusted returns that investors seek.
ESG Governance and Resources
View Castlelake’s ESG guidelines here
and the 2023 Report PDF, including disclosures here.
For more information about Castlelake’s ESG Committee or prior ESG reports, please login to the Investor Portal, or contact investor.relations@castlelake.com.