Franklin Templeton eyes long, attractive runway for growth in green infrastructure

GLOBAL investment manager Franklin Templeton is cognisant that the choices it makes as an institutional investor have a profound effect.

With a rich history of over 75 years as active managers, responsible fiduciaries, and promoting standards in the industry, the company serves clients in over 150 countries. As at end-March 2022, it had over US$1.5 trillion in assets under management - a phenomenal figure that has the potential to shape the world and its future.

And that is precisely what Franklin Templeton aims to do. The California headquartered global asset manager strongly believes that being a responsible steward of client capital is crucial to their goal of delivering better client outcomes and essential to these efforts is consideration of sustainable investment factors.

The firm has been and continues to be committed to supporting and strengthening the consideration of environmental, social and governance (ESG) opportunities and risks across its entire platform. It sees increasing client demand for ESG, sustainable or "green" investment products as perhaps the greatest driver of change in the asset management industry.

The firm's clients also broadly hold the same opinion. ESG factors are quickly becoming relevant to an increasing breadth of investors - not just as a matter of principle but as recognition of the exigent risks to regions, economies and capital markets.

Financial markets are facing an inflection point on climate change. Generating sustainable, risk-adjusted returns - in a holistic manner - is core to the company's role as investment managers.

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Picking winners

As stewards of clients' assets, Franklin Templeton states that its goal is to provide the best guidance it can for investors.

With this mindset, the investment manager continues to work towards improving its investing processes and move towards the goal of being the leader in the asset management landscape when it comes to positioning its clients for climate change.

But as governments around the world push towards decarbonisation and a green future - with an eye on the broad target of net zero carbon emissions by 2050 - not all companies are poised to benefit equally.

Here, Franklin Templeton believes stock selection and active management will be key to sift the long-term winners from the losers.

And it has already picked one potential winner from the sustainable investing trend: Infrastructure.

The firm believes that as decarbonisation efforts ramp up, green infrastructure projects will be plenty and their scale, significant. This will be a key tailwind for infrastructure players that are well positioned to undertake such generation changing projects and expand their asset bases along the way.

For example, some green infrastructure projects include the electrification of public transport systems, incentivising electric vehicle (EV) adoption and modernising power grids.

The International Energy Agency (IEA) suggests that global spending on electricity systems should nearly treble by 2030 to be on track to achieve targeted net zero outcomes.

Such spending entails building a more comprehensive network of EV charging stations and upgrading electric transmission and distribution grids to handle the rising share of renewables such as wind and solar in electricity generation.

Given the enormity of the task, the private sector is key to ease pressure on public finance, where infrastructure companies such as electric utilities and toll roads can help mobilise private capital to invest in decarbonisation initiatives.

More than a few of these green infrastructure projects are likely to be through public-private partnerships. In these cases, the infrastructure companies typically hold long-term contracts with governments that define an allowed rate of return on their asset bases.

Subsequent spending on infrastructure upgrades and new infrastructure builds will also expand these asset bases and, in turn, boost earnings, cash flows and dividends.

The runway for growth of the infrastructure sector is long and attractive, given that this is only the beginning of a multi-decade shift towards net-zero.

Green networks

While Franklin Templeton is leading the charge towards a green future, it is by no means working alone.

The investment manager also works with a wide range of organisations that are establishing and promoting best practices for incorporating sustainability into investment processes.

Among others, it is a signatory to the Principles for Responsible Investment (PRI), the leading global investor network that champions responsible investing.

As part of this commitment, Franklin Templeton is represented on the Select Advisory Committee to the Assessing Sovereign Climate-related Opportunities and Risk (ASCOR) Initiative.

It is also a member of the Ceres Investor Network on Climate Risk and Sustainability, which includes more than 200 institutional investors managing more than US$47 trillion in assets.

In addition, Franklin Templeton is a signatory to the Task Force on Climate-related Financial Disclosures (TCFD) and an investor signatory to CDP, a global environmental disclosure organisation formerly known as the Carbon Disclosure Project.

Last year, the company also joined the Net Zero Asset Managers initiative (NZAMI) in support of its goal of addressing climate change through investment practices aligned with reducing carbon emissions to net zero by 2050 or sooner. Its participation reinforces the firm's commitment to addressing climate-related issues through data-driven investment decisions.

As an investment manager with offices in more than 30 countries globally and approximately 1,300 investment professionals, Franklin Templeton recognises the powerful influence it can have in this area by coordinating its efforts within a global strategic framework.

Internally, the company is also incorporating sustainability into its DNA.

In March 2021, Franklin Templeton established a firm-wide Stewardship and Sustainability Council, comprising key investment leaders from each of its specialist investment managers, to leverage the wealth of expertise across its autonomous investment teams.

In addition to the dedicated experts within its specialist investment managers, Franklin Templeton's Global Sustainability Strategy Team engages its investment teams and risk management professionals to help them recognise and understand the impact and scope of material ESG issues. On top of this, they consult on sustainable investment topics in their analysis, and use research and tools to ensure that ESG issues are addressed throughout the company's investment processes.

In February this year, Franklin Templeton appointed its first global head of sustainability. In the newly created role, Anne Simpson reports directly to president and CEO Jenny Johnson, while driving the firm's overall strategic direction on stewardship and sustainable investment strategy.

Simpson works in close partnership with Dr Ben Meng, Franklin Templeton's executive vice president and chairman of Asia-Pacific, and its executive sponsor of sustainability.

To showcase its commitment to sustainable investing, Franklin Templeton is planning to hold a sustainable investing forum in Singapore later this year.

Franklin Templeton's long-term goal is to be a global leader in stewardship and sustainable investing, and to extend that leadership through collaborative participation in key industry initiatives and partnerships.