Templeton Global Climate Change Fund

The Fund's investment objective is to contribute towards climate change mitigation and adaption as considered by the Paris Climate Agreement while seeking capital appreciation.

The Fund seeks to achieve its objective by primarily investing in equity securities of global companies that provide solutions for the mitigation and/or adaption of climate change risk or which are in the process of making their business models more resilient to long-term risks presented by climate change and resource depletion. The investment manager believes that such companies are better prepared financially and competitively for a transition to a low carbon and more resource constrained economy. The Investment Manager uses in-depth analysis to select equity securities which it believes are undervalued, based on such factors as their expected long-term earnings and the value of the business assets.

The Fund aims to achieve its climate change mitigation and adaptation objective by investing in companies that reduce emissions, improve resource efficiency and limit the physical consequences of climate change so as to align the Fund’s portfolio carbon footprint with the landmark Paris Climate Agreement adopted in December 2015. Companies that may benefit financially and competitively from the transition to a global low-carbon economy can be grouped into three broad categories:

• Solution providers: (>50% of net assets) companies that derive more than 50% of revenues (or alternative metric such as assets) from products and services that directly or indirectly reduce global emissions, improve resource efficiency, and/or protect against the physical consequences of climate change. The solutions activities are generally associated with one of the following themes: Renewable Energy, Energy Efficiency, Water & Waste Management, Sustainable Transportation, and Sustainable Forestry & Agriculture. Factors driving security selection include the Investment Manager’s percent of revenues and profits from solutions, a company’s net impact on greenhouse gas emissions and resource usage and its governance of the opportunities arising from the low carbon transition.
• Transitioning companies: (<50% of net assets) companies that have moderate to high emissions or resource intensity which are making industry-leading efforts to reduce them. Such companies will have below average projected carbon intensity as a result of historical greenhouse gas emissions reductions and quantitative reduction targets, or they will have above average projected solutions revenue. Factors driving security selection include the Investment Manager’s view on a company’s ability to achieve carbon and resource intensity aligned with the long-term global warming targets of the Paris Climate Agreement, greenhouse gas emissions disclosure quality, exposure to climate mitigation and adaptation solutions and the company’s governance of the risks and opportunities arising from the low carbon transition.
• Resilient companies: (<50% of net assets) companies that have relatively low carbon and resource intensity. Such companies will have carbon or resource intensity in the bottom half of the broad global investment universe. Factors driving security selection are the same as Transitioning companies.

The Investment Manager’s ESG approach also includes regular dialogue with companies, monitoring material ESG issues and voting proxies.

The internal ESG assessment framework applied to all companies is aided by multiple external ESG research and data providers, including Carbon Disclosure Project (CDP), MSCI and Sustainalytics.

ESG issues evaluated will include elements such as 1) Environmental how a company manages its impact on the environment (energy use, climate change, waste, pollution, natural resource conservation), 2) Social - how a company manages relationships with its employees, suppliers, customers and the communities where it operates (human rights, labour standards, employee engagement, community relations, data protection and privacy, gender and diversity) and 3) Governance - how a company’s oversight is structured to ensure responsible and effective management (company’s leadership, degree of independent directors, executive pay, independent audits and internal controls, shareholder rights).

To measure the attainment of the Fund’s sustainable investment objective, the Fund will measure exposure to climate mitigation and adaptation solutions providers, the portion of the portfolio with an increase in solutions revenues and that report carbon avoided, renewable energy generation, the percent of companies with quantitative greenhouse gas emissions reduction targets and the weighted average reduction target, portfolio carbon footprint trajectory, exposure to fossil fuels, exposure to companies with high carbon emission product & operations, and the portion of the portfolio with an improving carbon footprint.

The fund’s proposed index to measure the sustainability investment objective is the MSCI Provisional ACWI Climate Change EU Climate Transition Index, which pursues carbon intensity of at least 30% below the broad market index and incorporates a year on year self-decarbonization of at least 7% on average in order to align with the trajectory of the Intergovernmental Panel on Climate Change’s 1.5-degree scenario. The index applies exclusions and adjusted weightings to the broad market parent index, MSCI All Country World Index, in order to comply with the EU Climate Transition Benchmark requirements.