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Environmental, Social and Governance Investing

We believe that Environmental, Social and Governance (ESG) factors should be considered alongside traditional financial measures to provide a more comprehensive view of an investment, particularly over the long term. In our view, ESG analysis is not just about identifying and measuring risks, but is also about identifying investment opportunities.

Our integrated approach is designed to ensure that ESG issues are Recognised (understood), Rational (intended), and Rewarded (compensated) during the various steps of the investment cycle.

ESG Integrated Approach

Our fully integrated approach means that we are committed to incorporating ESG factors throughout the investment process, from fundamental research and analysis to portfolio construction and maintenance, and risk management.

This approach applies broadly across Franklin Templeton’s investment research teams and risk management framework and has the flexibility to accommodate to each team’s individual investment style.

Fundamental Research & Analysis

Integration begins with portfolio managers and research analysts considering ESG factors as part of their bottom-up, fundamental research. We believe that keeping ESG considerations embedded in the work of our investment teams - rather than creating a separate ESG research function - is the most effective integration strategy.

In addition, Franklin Templeton’s dedicated ESG team supports their efforts through additional ESG-related data, analysis and training, and enhancements to processes and documentation.

Portfolio Construction & Maintenance

Analysts monitor and update any material ESG considerations relevant to a particular security on an ongoing basis as a part of their standard research activities.

Consistent with their status as autonomous investment management groups, each investment manager determines the extent to which various research inputs are incorporated and weighted in their investment decisions.

Risk Management

We believe ESG risk considerations should be integrated into our global risk management framework to be part of the mainstream investment risk conversation.

Our dedicated ESG team works with Franklin Templeton’s independent risk group, PAIR (Performance Analysis and Investment Risk) and uses industry-leading tools to provide a top-down, portfolio level perspective on ESG factors. This ensures ESG analytics are integrated into regular portfolio performance and risk analysis, as well as discussions with portfolio managers.

Active Ownership

Active ownership encompasses our investment professionals’ activities related to meetings and dialogue with company management and directors, advisory board participation, and proxy voting.

Please see additional information on our Policies & Reports and Proxy Voting Statement sections below.

Socially Responsible Investing

We draw a clear distinction between ESG and Socially Responsible Investing (SRI). Though SRI may incorporate ESG factors, we define SRI as based on negative and or positive screening of certain stocks driven by religious, ethical, or cultural values.

Recognising that different clients have different SRI priorities, we do not have a firm-wide SRI policy and our pooled fund investment vehicles do not apply client-specific SRI policies. Instead, we work with separate account clients individually to accommodate specific investment requirements.