Franklin European Total Return 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 higher-quality debt securities issued by governments, government-related entities and corporations located in Europe and/or in euro-denominated securities of non-European issuers. The Fund can invest to a lesser extent in debt securities of any quality (including lower quality) and denominated in any currency from issuers of any type located outside Europe, including emerging markets, debt securities of supranational entities, such as the European Investment Bank, structured products such as mortgage- and asset-backed securities, collateralized debt obligations and collateralized loan obligations and securities in default (limited to 10% of assets).  The Fund can use derivatives for hedging and efficient portfolio management.

In order to meet the environmental and social characteristics described above the Fund filters out companies 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 is 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.