Franklin Euro Short Duration Bond Fund

The environmental and social characteristics of the product include the binding considerations of:

• Protection of human and labour rights; fosters social cohesion and social integration.
• Reduction in greenhouse gas emissions.
• Reduction of fossil fuel related activity, with the broader aim of reducing the risk of climate change.

The product is also bound to consider governance characteristics such as: ownership structure, shareholder rights, board structure and independence, remuneration policy and accounting standards.

The Fund pursues an actively managed investment strategy and invests mainly in short-term high quality debt securities denominated in Euro issued by European sovereign issuers and European and/or non-European corporations. The Fund can invest to a lesser extent in lower-quality debt securities such as non-investment grade securities or securities in default (limited to 10% of the Fund’s assets), debt securities denominated in non-Euro currencies (limited to 10% of the Fund’s assets), credit-linked securities and structured products. The Fund can use derivatives for hedging, efficient portfolio management and investment purposes. In making investment decisions, the Fund’s investment team refers to detailed analyses of economic trends in various countries and individual companies.

In order to meet the environmental and social characteristics described above the Fund filters out issuers that score below “B” based on MSCI ESG ratings. The investment team deploy additional filters to protect the integrity of the environmental and social characteristics promoted by the Fund:

Protection of human and labour rights, fostering social cohesion and social integration: norms-based exclusion using UNGC principles, as well as screening out countries that exhibit insufficient scoring according to the Freedom House Index.

Reduction in greenhouse gas emissions: The Fund screens out companies that derive unacceptable levels of revenue from the most polluting fossil fuels; fall short of the Investment Managers’ threshold level for using lower-carbon fossil fuels, exceed our tolerance levels of fossil fuels used to generate electricity, and those companies deemed to be laggards when assessed for ‘climate transition performance’.

Reduction of fossil fuel related activity, with the broader aim of reducing the risk of climate change: The Fund screens out companies that derive unacceptable levels of revenue from the most polluting fossil fuels; fall short of the Investment Managers’ threshold level for using lower-carbon fossil fuels, exceed our tolerance levels of fossil fuels used to generate electricity, and those companies deemed to be laggards when assessed for ‘climate transition performance’.

When assessing sovereign issuers for ‘climate transition performance’, data relating to energy resource management, resource conservation, environmental performance, management of environmental externalities, energy security risk, vulnerability to environmental events and environmental externalities are assessed.

Post-investment compliance monitoring of the Fund is carried out on a regular, quarterly basis.

• External-MSCI ESG
• Internal-Proprietary Climate Transition Performance scoring (derived from our proprietary sovereign model which assesses the extent to which an issuer is responding to the threat of climate change)

No index has been designated as a reference benchmark for sustainability.