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Castle Hall Welcomes Growth of the Firm’s ESG Due Diligence Service

Feb 27, 2020 11:12:08 AM

Castle Hall, the Due Diligence Company, today provided an update with respect to the firm’s ESG Diligence service, which helps investors manage their relationships with external asset managers across environmental, social and governance issues.

“We have just entered a new decade, where we will see new priorities for many asset owners” said Chris Addy, Castle Hall’s CEO. “In the 2020s, investors will rapidly evolve towards a model where environmental, social and governance factors are central to their investment programs.”

“As this shift takes place, ‘greenwashing’ is a real risk for institutional investors” continued Addy. “Asset managers may ‘talk the ESG talk’ in their marketing, but not actually ‘walk the walk’ across E, S and G factors in their investment process. Castle Hall’s ESG diligence on asset managers has illustrated a very broad range of quality - from managers with well-structured ESG functions, to firms who lack resources and are unable to produce evidence of meaningful ESG activities.”

ESG Diligence moves the bar beyond manager self-reporting to help investors conduct meaningful ESG due diligence within a constructive, “trust but verify” approach. ESG Diligence is applicable to any asset manager, irrespective of asset class, strategy or global location.

Castle Hall’s ESG due diligence methodology covers a broad range of issues, including the topics issues recently raised in the new AIMA white paper “Policy and Practice: ESG Considerations at Alternative Investment Management Firms”. Castle Hall also reviews and verifies the responses provided by asset managers who are signatories to the United Nations Principles for Responsible Investment (the UN PRI).

ESG Diligence has three components, which can be used individually or integrated to create a comprehensive ESG diligence program:

  • Reputational Due Diligence (“RDD”)
  • Responsible Investment Manager (“RIM”)
  • Responsible Investment Strategy (“RIS”)

Reputational Due Diligence uses a combination of regulatory filings, know your customer and money laundering databases, legal checks and extensive adverse media searches to build a reputational profile of an asset manager and individual executives. RDD can also be extended to service providers and underlying portfolio companies. RDD uses cutting edge artificial intelligence tools to screen thousands of sources in multiple languages, supported by manual curation by Castle Hall’s analyst team.

Responsible Investment Manager (“Cultural Due Diligence”) considers the asset manager’s own business and evaluates the manager’s corporate culture. Does the firm offset the carbon footprint of business travel? Does the manager operate from LEED certified buildings? Does the manager offer equivalent benefits to same sex partners? What is the firm’s track record in encouraging diversity and inclusion – at hiring, promotion, senior management and ownership? Has the firm faced #MeToo actions in relation to sexual harassment or other issues linked to inappropriate workplace behaviour?

Responsible Investment Strategy reviews the investment manager’s investment decision making process. Castle Hall looks for tangible evidence of actual ESG integration, which rapidly identifies greenwashing. Diligence considers issues such as:

  • Is there an ESG policy, and is that policy detailed and meaningful?
  • What is the overall governance framework at the firm?
  • Has the manager added sufficient resources to implement ESG in the investment process? is there a dedicated team of ESG analysts, and what is their experience? What research tools does the manager access to gather information on E, S and G issues across current and potential investments?
  • How does the firm manage incentives and accountability across the investment team to prioritize ESG factors?
  • How does the firm document its investment decisions – does each investment recommendation include an adequate write up around ESG factors?
  • Does the firm measure the carbon footprint of its portfolio? Does the firm gather critical ESG measurement analytics on portfolio companies, such as gender diversity?
  • What is the firm’s process to launch engagement campaigns with investee companies – and what happens if the investee company ignores the manager?

“Castle Hall is hugely excited to offer ESG due diligence solutions to the investment industry” said Anne Coady, Managing Director. “ESG is evolving to become a fundamental foundation of institutional investing, and we strongly welcome contributions from industry bodies such as AIMA and the PRI. With ESG Diligence, asset owners can evaluate their entire roster of external managers and identify “leaders” and “laggards”, across a range of issues from gender diversity to climate change."

Topics:ESGResponsible InvestingESGDiligence

About Castle Hall Diligence

Castle Hall helps investors build comprehensive due diligence programs across hedge fund, private equity and long only portfolios More →


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