By Franklin Templeton
The prevention of global warming is one of the greatest challenges we face to ensure the future of our planet. It is also an urgent priority for the asset management industry and one that is at the forefront of Franklin Templeton’s thinking as we look ahead into the 21st century. Preserving the planet for generations to come is in keeping with our belief that good stewardship as a global asset manager means managing and allocating capital to benefit our clients.
In this light, Franklin Templeton has recently joined the industry-leading Net Zero Asset Managers Initiative.
Launched in December 2020, the Net Zero Asset Managers Initiative is an international group of asset managers who have committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. Indeed, Franklin Templeton’s Stewardship and Sustainability Council and the Global Sustainability Strategy Team has identified climate change as a key strategic priority for the firm. We will be implementing this important agenda for change throughout the organization, in collaboration with our internal stakeholders and clients.
Franklin is joining a growing community of signatories dedicated to combating climate change. As of today, the number of signatories consist of 128 investors who have $43 trillion in assets under management, a clear sign of the asset management industry’s recognition that climate change is an urgent priority that must be addressed. What is clear is that investors must better understand the environmental impacts of the projects their investments are funding.
We at Franklin Templeton are committed to finding the necessary data and solutions to help us achieve global net zero emissions. But how do we do this? What investments can we make that not only have environmental credentials but also provide a satisfactory yield for our clients?
One answer is investing in green bonds. Our proprietary research helps us identify the most suitable issues. However, the green bond market is relatively new and so ascertaining which bonds best achieve our environmental goals is not always straightforward.
To shed more light on the matter, in our recent and inaugural impact report, we have probed deeper into the role that fixed income, via the green bond market, can play in helping us achieve the goal of zero carbon emissions. Although the green bond universe has grown rapidly – a positive development in the fight against climate change – we are also aware that further steps must be made to ensure that ‘green’ investments really deliver on their intentions and that capital is being directed to the most worthwhile projects.
A key conclusion was the need for greater transparency around the level of data investors should be asking for when pursuing more environmentally friendly projects. In short, we need greater consistency in environment impact reporting by issuers to help identify which bonds are truly fit for purpose.
Although several voluntary coordination efforts are pushing for greater consistency in impact reporting, we believe that the onus lies with investors. Investors themselves must press issuers for more consistent data and encourage more specific reporting guidelines. Only then will it become common practice. Until then, it will be challenging for some investors to access consistent impact information at the green bond level.
Nonetheless, we are going in the right direction. As the green bond market grows, data availability will improve to help inform the decisions of investors with a green agenda.
The Net Zero Asset Managers Initiative is undoubtedly a positive development in the world of environmentally conscious investing. As more asset managers sign on to the initiative, and more resources are directed towards research into green investments, the goal of reducing carbon emissions will be expedited.
At Franklin Templeton, we are proud to be part of an initiative that we believe will positively influence the global economy and how companies operate. It will help us make better investment decisions in bonds that purport to have a net positive environmental impact.
David Zahn, Head of European Fixed Income: “We look forward to continuing our dialogue with government officials and corporate management teams about the risks emanating from climate change. Countries are being asked for with ambitious emissions reduction goals, action plans and interim targets that put us on a path for reaching net zero by 2050.”
All investments involve risks, including possible loss of principal. Please note that this document is promotional information of a general nature and not a complete representation or financial analysis of any particular market, industry, security or investment fund(s) listed. Franklin Templeton Investments publishes product-related information only and does not make investment recommendations.
