Franklin Templeton unveils Article 9 social bond fund for Europe

Franklin TempletonFranklin Templeton has launched an Article 9 social bond fund targeted toward European investors.

The Franklin European Social Leaders Bond Fund, a sub-fund of the Luxembourg-domiciled Franklin Templeton Investment Fund range, will be registered in almost 20 European countries, including Germany, France, Italy, Spain, Switzerland and the UK. 

The fund will be co-managed by London-based David Zahn, senior vice president and head of European fixed income for Franklin Templeton fixed income – global sovereign and emerging market debt, and Roderick MacPhee, vice president, portfolio manager and research analyst.

Franklin Templeton’s European fixed income group has approximately €139.8 billion in assets under management and has managed ESG-aligned strategies since 2017. It now touts six Article 8 and two Article 9 funds.

Article 8 funds, or light green funds, promote ESG characteristics, while Article 9 funds, or dark green funds, have sustainable investment or a reduction in carbon output as their objective.

Social bonds support positive social outcomes in that the proceeds are exclusively applied to finance eligible social projects directly mitigating a social issue for a target population. 

The latest fund will target positive social outcomes by financing projects aimed at a target population. This may include those living below the poverty line, people with disabilities, and displaced persons, among others, and targets a wide range of social projects like affordable housing, employment generation, food security, socioeconomic advancement and access to essential services.

It principally invests in Euro-denominated investment grade bonds worldwide and targets entities mainly involved in socially sustainable activities, including those linked to the United Nations Sustainable Development Goals, including No Poverty, Zero Hunger, Clean Water and Sanitation, and Decent Work and Economic Growth. 

The fund aims to achieve a total return of income and capital growth by investing predominantly in a portfolio of social bonds, but the portfolio management team believes the biggest source of alpha will come from active security selection, duration management and sector allocation.

Zahn said: “Given recent events and the growing emphasis on environmental aspects of sustainable investing, investors are increasingly interested in addressing the S in ESG. 

“A portfolio of actively managed social bonds can provide an attractive source of risk-adjusted returns while providing liquidity to new and existing projects contributing to positive social outcomes. This new fund also benefits from transparency in quantifiable reporting on social impact of fixed income investments.” 

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