An Update On Our ESG Scores

Health security concerns in the time of COVID-19? Global Macro Views highlights five country case studies.

Templeton Global Macro®

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For several years, Templeton Global Macro (TGM) has been at the forefront of incorporating environmental, social and governance (ESG) factors into sovereign fixed income investing. Our proprietary Templeton Global Macro ESG Index (TGM-ESGI) was one of the first methodologies in this space to focus on projected changes in ESG scores as a source of investment insight, as detailed in our original publication in February 2018, Global Macro Shifts issue 9—Environmental, Social and Governance Factors in Global Macro Investing [GMS-9].

On a semi-annual basis we release updates of our ESG research, in which we discuss current and projected scores along with a number of country case studies. In each edition we also discuss improvements and refinements in our measurement of ESG factors. This April 2020 publication provides updated TGM-ESGI scores for 56 countries as of February 29, along with brief case studies for specific countries. We discuss improvements to our methodology in this edition, most notably the incorporation of Health Security in the Social category, which adds insight into a country’s ability to cope with the COVID-19 pandemic. This particular edition also takes a deeper look at increasingly critical environmental issues, specifically focusing on water security, air pollution and deforestation.

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WHAT ARE THE RISKS?

This material reflects the analysis and opinions of the authors as at 23 April 2020 and may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments. It is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed and the comments, opinions and analyses are rendered as at the publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market, industry or strategy. All investments involve risks, including possible loss of principal. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with merging markets are magnified in frontier markets. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline.