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    ANNUAL IMPACT REPORT Social Infrastructure Strategy March 2021 FRANKLIN REAL ASSETS ADVISORS WHAT’S INSIDE Impact investing in real estate Our impact approach Impact performance A look at our assets and impact For Institutional Professional Investors Use Only / Not For Distribution to Retail Clients


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    WHAT IS SOCIAL INFRASTRUCTURE AND WHY IT IS NEEDED? Buildings and services with a civic and social purpose underpin our economies. At Franklin Real Asset Advisors, we define these physical assets as social infrastructure. Examples of social infrastructure include hospitals, schools, affordable housing and buildings related to justice, emergency and civil services. HEALTHCARE EDUCATION HOUSING JUSTICE & CIVIC Medical facilities, Primary and Student, social and EMERGENCY Sports facilities infrastructure secondary schools affordable housing Court houses Community and local Nursing homes Further education Public servant housing Police and fire stations government facilities and universities ABOUT FRANKLIN REAL ASSET ADVISORS Franklin Real Asset Advisors (FRAA) is a premier real asset investment manager with a long-track record of global investing spanning core, non-core and impact strategies. Extensive industry Philosophy shaped by Rising leader in experience local insight impact investing Expertise developed over Capitalizing on local factors and Integrated proprietary impact man- multiple cycles inefficiencies agement framework FRAA invests in private markets and draws on deep knowledge of Global Locations: global capital flows, investor behavior, and sector trends across markets and regions to drive strong outcomes for our clients. Investors benefit 1984 Headquartered in New York, U.S. with offices in San Date from a disciplined investment process that serves as a foundation for established Mateo, London, Frankfurt, the successful implementation of a wide range of strategies. Luxembourg and Melbourne Capabilities Direct Real Impact Social Indirect Estate Management Infrastructure Real Assets ABOUT THIS REPORT This is a summarized version of our Annual Impact Report. The full version is available to existing investors and qualified prospects. To receive the full report, please contact your Franklin Templeton representative. 2 Franklin Real Asset Advisors: Annual Impact Report


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    COMMITMENT TO IMPACT Nine values guide our approach to impact investing: CONTRIBUTION OBJECTIVES MEASUREMENT We seek to make a realistic and Each investment must have We have a robust system material contribution towards measurable impacts. for gathering and monitoring impact through investment and impact metrics. active ownership. STANDARDS CONFIRMATION OVERSIGHT We align our investment process We conduct site visits and Our advisory committee is with industry standards, including engage with investees for responsible for periodic reviews. the UN SDGs, the Impact real-time and transparent Management Project (IMP), the impact validation. Operating Principles for Impact Management (OPIM) and the Global Real Estate Sustainability Benchmark (GRESB). VISION PARTICIPATION TRANSPARENCY We are committed to the We disseminate ideas and We share lessons learned with continuous improvement of our beset practices through thought investors and other impact- impact-management process. leadership and participation at investment practitioners. conferences and events. Franklin Real Asset Advisors: Annual Impact Report 3


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    A YEAR LIKE NO OTHER Dear reader, I am pleased to introduce the second Annual Impact Report of our social infrastructure strategy. We developed the strategy’s unique dual-return objective to achieve a social and environmental impact return alongside a market-level financial return. To those ends, we have assembled and actively manage a diversified portfolio of social infrastructure assets across Europe. RAYMOND J. JACOBS The strategy launched successfully in July 2018 and had acquired 12 assets in six European Managing Director, countries by the end of 2019, in the healthcare, education, housing, and justice and Franklin Real Asset emergency sectors. But 2020 was a year like no other. The Covid-19 pandemic disrupted Advisors life at many levels, across Europe and around the world. Despite lockdowns, travel restrictions and other challenges, Franklin Templeton’s investment and impact team was able to complete four more acquisitions in the education, housing, and healthcare sectors, ending the year with 16 assets. The team remained focused on actively managing the portfolio through the Covid-19 pandemic. Most of the strategy’s assets stayed operational throughout the year, delivering essential services to their communities. Communication with tenants and operators has continued, and we are working closely with them to ensure positive outcomes during these challenging times. While the strategy’s portfolio experienced minimal disruption, the Covid-19 pandemic has demonstrated that governments alone are unable to provide the necessary quality and quantity of social infrastructure. Clearly, private capital has an important role to play in filling the funding gap. This second Annual Impact Report will give you an insight into the strategy’s progress towards achieving its impact objectives during a challenging year. We are also pleased to report on how our process aligns with the Operating Principles for Impact Management. Our alignment with the principles is now documented and has been audited by BlueMark, an independent third-party auditor. The impact team, led by Impact Director John Levy, has done a tremendous job under difficult circumstances, and I hope you enjoy reading this report. As always, we welcome your feedback.


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    STAYING OPTIMISTIC Dear reader, It was difficult to be an optimist in 2020. The pandemic, extreme weather events and social unrest all exposed the significant vulnerabilities in our society, and stay-at-home orders left many of us feeling disrupted and disconnected. And even optimists must acknowledge that 2020 will not be the last time our society is upended. Climate change, unsustainable urban growth, air, water and land pollution, and growing social and economic inequality, among JOHN LEVY, CFA, CAIA other issues, all have the power to massively disrupt our way of life. But optimism has never Director of Impact, been more important as we need to see past our problems, knowing that a better future is Franklin Real Asset within reach. Advisors From today’s challenges comes greater awareness of the need for reinvention, and with reinvention comes great opportunity to align with and contribute towards a modern, more sustainable future. The advent and impressive growth of impact investing is one such reinvention and something to feed the optimist in all of us. Impact investors are redefining the role of capital in our society. The ongoing Covid-19 crisis is creating a watershed moment where consumers, governments, companies, entrepreneurs and investors are more focused than ever on steering capital towards endeavors that benefit society and the planet. This new focus on sustainable capital is catalyzing opportunities for impact investors to deliver profit with purpose. As you will see throughout this report, we have plenty of grounds for optimism. With an acknowledgement of our imperfections and an eye towards improvement, we are choosing to strengthen our approach, align our interests and accelerate results for communities and the planet. We are excited to share how we are creating lasting social and environmental impact. We were very active in 2020. We added four new assets to our portfolio, adjusted our impact priorities to focus on health and wellbeing, and began expansion projects at many assets. Progress was made on reducing energy usage, adding clean-energy generation and improving our utility monitoring across the portfolio. We grew our team and worked with mission-aligned partners and stakeholders. We know that our cooperative efforts can unlock further impact and make us better together. In this report, we address the effects of Covid-19, highlight ecosystem-building partnerships and show how our approach to impact aligns with the Operating Principles for Impact Management. We also report on our progress towards impact targets, highlight how our strategy and initiatives have contributed to six Sustainable Development Goals (SDGs), and provide asset-level progress summaries. With great appreciation for the ongoing support from our investors and partners, we thank you for fueling our optimism and for joining us on our journey towards a better future. We hope you enjoy the report!


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    OUR IMPACT STRATEGY IN NUMBERS As of 31st December 2020 PORTFOLIO LEVEL (Change from 2019) Number of assets 16 (+4) Note to the reader Amount invested in € (in million) 352 (+34%) For transparency and accuracy, IRIS Metrics 2 Total area owned (m ) 173,908 (+38%) and SDG targets and indicators are mentioned throughout the report where Energy consumption intensity 169 (-6%) relevant and can be accessed by clicking (kWh / m2) of the portfolio: 20201 the IRIS Metric report ID or hovering over CO2 intensity (kg CO2 / m2) 20 (-36%) of the portfolio: 20202 the SDG Target Indicator. Renewable energy production (kWh)3 OI2496 105,000 (N/A) IRIS Metrics example: OI2496 SDG Targets and Indicators example: SDG 7.3.1 SECTOR LEVEL Healthcare Justice and Emergency Number of assets PI1017 7 (No Change) Number of assets 1 (No Change) Total area owned (m2) 80,319 (+1%) Total area owned (m2) 6,586 (No Change) Amount invested in € (in million) 142 (+1) Amount invested in € (in million) 16 (No Change) Number of nursing home beds 533 (-5%) Number of hospital beds 255 (+8%) Number of accredited beds 617 (-2%) Civic4 Number of assets 1 (+1) Total area owned (m2) 9,484 (New) Housing Amount invested in € (in million) 22 (New) Number of assets 3 (+2) 2 Total area owned (m ) 16,552 (+249%) Amount invested in € (in million) 69 (+170%) Education Number of beds available PI5965 695 (+185%) Number of assets 4 (+1) Number of affordable beds 446 (+83%) Total area owned (m2) 60,967 (+75%) Number of residents 582 (N/A) Amount invested in € (in million) 103 (+30%) Average cost savings of affordable beds 12% (N/A) Number of university and vocational students 5465 (+138%)5 vs market rate unit per year7 PI1748 PI2389 Number of youth students6 PI2389 1142 (N/A) 6 Franklin Real Asset Advisors: Annual Impact Report


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    A FEW WORDS ABOUT COVID… We entered 2020 with a plan to improve community value across our portfolio by working to bring communities closer together. The spread of Covid-19 reminded us of the old line from Robert Burns: “The best-laid plans of mice and men often go awry.” With lockdown orders across all of Europe, we were of course told to stay apart, not get closer together, so we had to adapt to our new reality and adjust our approach to impact. One of the key tenets of a strong impact approach is to not superimpose your own plans, but instead to hear and understand the challenges faced by communities and assist where possible. The new challenges caused by the pandemic became our focus as we worked with our tenants to address health and safety directly, as well as the financial fallout from the lockdowns and closure of businesses. Tenant outreach In direct response to the disruptive force of the virus, we reached out to all our tenants to discuss ways in which they might need our assistance. Thankfully, most tenants felt secure with their business operations and rental commitments and did not need our support. One tenant, however, was in need since their business model leaned heavily on bringing members of the broader community to their facilities. We were able to provide rent relief, which allowed them to continue to administer quality care for the residents of their facility, continue to pay competitive wages to all their staff members and endure the cost of implementing enhanced cleaning and safety procedures. Refocusing our impact We had great aspirations for hands-on tenant interaction to develop stronger communities in and around the assets in our portfolio. But as tenants needed to focus on their core operations, many specific initiatives, including waste-management reviews, SDG 11.6 new volunteer opportunities, beneficiary surveys and plans for increased public access, were put on the backburner. So, instead, we shifted the focus of our resources further into the environmental aspect of our impact plans. As access to facilities was severely limited, we became more acutely aware of the need to utilize technology to better understand our buildings. We took this time to accelerate planning and installation of smart meters and sensors across the portfolio. SDG 7.3 While these “internet of things” (IoT) devices are still being installed, we are creating a more accurate and resilient data source that will identify resource inefficiencies and create avenues for tenant engagement, education and training. What next for social infrastructure? The pandemic highlighted that many communities lack the necessary facilities—things like accessible healthcare facilities and affordable housing—to combat threats like Covid-19 effectively. Yet as countries move past the acute phase of the pandemic, the lack of financial support in this space is likely to worsen. Public capital is simply not available to spend. The opportunity for private capital flows into social infrastructure is substantial. While governments have implemented a range of fiscal and quantitative measures to cope with many aspects of the pandemic, social infrastructure funding has not been a priority. Governments alone cannot respond effectively to the crisis on behalf of vulnerable communities; public investments are not sufficient to fill the social infrastructure investment gap. The support of the private sector is needed now more than ever. Our strategy looks to aid in covering the persistent and growing investment gap in the sector, and we look to do so while partnering with strong operators to grow sustainably and to provide quality services to local communities. Franklin Real Asset Advisors: Annual Impact Report 7


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    THE UNITED NATIONS’ SUSTAINABLE DEVELOPMENT GOALS (SDGS) The United Nations’ Sustainable Development Goals (SDGs) are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.8 The SDGs inform our entire impact-management system and process. We seek opportunities to align with and contribute to six of the 17 UN Sustainable Development Goals throughout our actions at each investment. We target an additional SDG, Partnerships for the Goals, introduced in this report.


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    INTRODUCING SDG 17 – PARTNERSHIPS FOR THE GOALS Most of the world’s largest problems cannot be solved when one organization or one section of society acts alone. Our largest problems persist because they are complex and require coordinated efforts that include multiple stakeholders. We must coordinate our efforts, not just to represent the many stakeholders affected by our actions, but also to bring to bear the expertise required to create sustained positive impact. For this reason, we feel that SDG 17, “Partnerships for the Goals,” is, and has been, critical to all of our efforts. While we focus on six outcome-oriented SDGs, the addition of the 17th SDG is foundational for all impact outcomes. We believe that we can make a powerful and enduring impact by bringing together local stakeholders and subject-matter experts to explore new and better ways to enact positive change. With every new partnership, we create blueprints for how building owners can materially contribute to a more sustainable and inclusive future. Our work contributes to SDG Targets 17.16 and 17.17: The following are some examples of mission-aligned partners that help us achieve our impact objectives Franklin Real Asset Advisors: Annual Impact Report 9


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    PUTTING STUDENTS FIRST Camplus We identified Camplus as mission-aligned partners and brought them in to manage our green student-housing asset in Pavia, Italy. We were attracted to “ For us, every student is a ‘work in progress’: we care for them, we help them along Camplus because they focus on students and not just property management. in their studies, and we offer How we work together an answer when it comes to Our asset in Pavia is eco-friendly, but we also wanted it to help improve the their needs for the future. For education of the students, whose outcomes are enhanced when living in this reason, relationships high-quality residences filled with support and community services.9 Therefore, with the students, as well as it was critical to bring in Camplus to further enhance the impact for the students. ties to the academic, cultural, and working worlds, are at Partnership for the future the very base of our work.” Our successful early partnership is helping us create new, high-impact opportunities for our investors. We are working with Camplus to identify MAURIZIO CARVELLI Founder & CEO, Camplus development opportunities with a strong focus on students and the environment. These opportunities require both parties to share an interest in pursuing impact, and we are actively assessing opportunities for new, carbon-neutral assets to be developed by eco-conscious developer. “ Working with the Franklin Real Asset Advisors has been outstanding, mostly because they think ‘out of the box’, to solve problems with professionalism and a focus on human relations. We do not see ourselves as simply having an owner vs.operator relationship, but rather as partners who share the risks, the outcomes and the results.” WALTER LA GAMMA Global Business Development, Camplus 10 Franklin Real Asset Advisors: Annual Impact Report


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    EXPERTS IN COGNITIVE ACCESIBILITY Plena Inclusión Madrid Plena Inclusión Madrid is a non-profit organization that operates for the interests of people with intellectual and/or developmental disabilities so that they may be included in and enjoy every aspect of society. The organization accomplishes this goal by consulting with asset owners to review the “cognitive accessibility” of their businesses and recommend improvements that will make the use of the buildings and products more conducive to all. Working together to improve inclusion We committed to working with Plena Inclusión Madrid at our courthouse asset in Madrid to make it more accessible to the local population. Plena Inclusión Madrid carried out a report for us whereby two people with intellectual disabilities, one graphical designer and two supporters went to the court to identify cognitive accessibility challenges, that means, comprehension difficulties, including how to reach the courthouse. According to Plena Inclusión Madrid, up to one-third of the Spanish population has some type of comprehension difficulty. By improving the cognitive accessibility of our asset, we are helping to reduce many of the stresses induced by a foreign, complex space. And by improving accessibility, we are developing an asset that is inviting to all. These improvements assist in creating social autonomy regardless of cognitive ability. What is the impact? After the complete audit, we developed a plan with several accessibility improvements that include adding magnetic loops for the hearing impaired, strategically placing visuals that offer building-access information, developing a visual building directory and creating a standardized format for informative posters located on each floor. These initiatives will help foster a more inclusive environment for all. OI8113 Franklin Real Asset Advisors: Annual Impact Report 11


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    Impact Measurement and Management: through the lens of the Operating Principles for Impact Management In our first Impact Annual Report, we introduced many of the key aspects of our impact measurement and management system. This year, to more closely align with emerging best-practice standards, we want to describe our approach through the lens of the nine Operating Principles for Impact Management. We are a signatory to the Operating Principles for Impact Management. The principles describe the features essential to establishing and managing a robust impact-management system. They are designed to define an end-to-end process, from establishing “strategic intent” to managing “impact at exit”. The principles aim to introduce rigor into impact analysis and limit “impact-washing”. Principles 1 to 8 focus on the creation and operation of an impact-management system. Together, these principles embody the spirit of impact investing. In our view, principle 9—Independent Verification—is critical as it requires signatories to disclose publicly their alignment with the previous eight principles. Our alignment with the principles has been verified by BlueMark, a third party auditor. We would like to thank BlueMark for helping us to assess our processes. We are already working on many of their suggested improvements and plan to incorporate more over the course of 2021. BlueMark, a Tideline company, is a leading provider of impact-verification services in the impact-investing market. Since its founding in 2014, Tideline has become a recognized leader in impact measurement and management, working with leading asset owners and managers to design and implement impact-management systems. BlueMark has conducted this verification with an independent and unconflicted team experienced in relevant impact-measurement and management issues. BlueMark has implemented a Standard of Conduct requiring its employees to adhere to the highest standards of professional integrity, ethics, and objectivity in their conduct of business activities. For more information, pleasevisit www.bluemarktideline.com Our disclosure and verification statement can be found on our website at https://www.ftinstitutionalemea.com/socialinfra


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    PRINCIPLE 1 Define strategic impact objective(s), consistent with the investment strategy Summary The strategy provides capital and seeks to improve the quality of social infrastructure assets while reducing the carbon footprint of the built environment. These goals were created in direct response to research citing the lack of quality social services across Europe, as well as the need to reduce carbon emissions and address climate change. Our impact objectives have two research-backed vectors: community and environment. OD6247 Community objectives OD6247 A report released by the High-Level Task Force (HLTF) on Investing in Social Infrastructure in Europe highlights the importance of social infrastructure, its funding gap and the many ways to address this challenge through both public and private investment. The report notes that “high-quality social infrastructure provides benefits to individuals and communities and improves social cohesion. Appropriate access to social infrastructure generates more ‘hired, housed, healthy and happy’ people with positive spill-overs on society…Social Infrastructure can boost community resilience and regeneration.”10 By investing in social infrastructure, the team looks to add much-needed private capital to boost and protect the social services provided to communities. Environment objectives OD4108 If average global temperatures rise 2°C above pre-industrial levels, we risk dramatically higher sea levels and changes in weather patterns that will cause food and water shortages, according to the UN’s Intergovernmental Panel on Climate Change. To avert irreversible changes to our climate, the 2015 Paris Agreement aims to keep global warming to below 2°C. The real estate industry has an important role to play in the fight against climate change. On many measures, buildings use more energy than either industry or transportation and will emit more CO2 between now and 2030.11 We look to reduce the carbon emissions associated with buildings in our investment portfolio. We do this through improving energy efficiency SDG 7.3 and the on-site generation of clean energy. SDG 7.2 We aim to reduce our portfolio-level CO2 emissions by 5% per annum OD4091—a more ambitious target than the one recommended by the World Economic Forum. Franklin Real Asset Advisors: Annual Impact Report 13


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    Defining objectives: theory of change OD6350 To create meaningful social and environmental impact, our strategy incorporates a theory of change that identifies the challenges, contributions and outcomes we want to achieve. We begin by identifying the environmental and community challenges we seek to address at each asset. Next, we look for the best ways to allocate our efforts and investors’ capital. By identifying and directly addressing community and environmental challenges, we can increase the access to quality healthcare, housing, education and civic services while also enhancing the resource efficiency of our assets. THEORY OF CHANGE 1. CHALLENGES 2. CONTRIBUTIONS 3. OUTCOMES FRANKLIN TEMPLETON SOCIAL INFRASTRUCTURE STRATEGY STAKEHOLDER ALIGNED Lack of quality PARTNERSHIPS LONG-TERM More hired, housed, CAPITAL social infrastructure healthy and across Europe happy communities PURPOSE-DRIVEN FUNCTION DEVELOPMENT ENHANCEMENT ENVIRONMENTAL UPGRADES Our five main contributions THE UN SDGS The UN’s 17 SDGs inform our entire impact-management system and process. Specifically, the strategy seeks to create measurable impact via six of the SDGs: Good Health and Well-Being Affordable and Clean Energy Ensure healthy lives and promote Ensure access to affordable, reliable, well-being for all ages. sustainable and modern energy for all. Quality Education Sustainable Cities and Communities Ensure inclusive and equitable Make cities and human settlements quality education and promote inclusive safe, resilient sustainable. lifelong learning opportunities for all. Clean Water and Sanitation Peace, Justice and Strong Insitutions Promote peaceful and inclusive societies for Ensure availability and sustainable sustainable development, provide access to management of water and sanitation justice for all and build effective, accountable for all. and inclusive institutions at all levels. 14 Franklin Real Asset Advisors: Annual Impact Report


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    The SDGs are a powerful guide for global citizens and organizations seeking to “achieve a better and more sustainable future for all”.12 As the SDGs were not designed specifically for use by institutional investors and asset managers, they are vulnerable to misuse, misrepresentation and dilution. As part of our commitment to impact investing, we must ensure that we move beyond just alignment and make a verifiable contribution to positive social and environmental outcomes. Every SDG has anywhere between five to 19 “targets” with more specific sought-after outcomes. Using these targets, we can define which specific actions—or contributions—we wish to carry out at each asset. Franklin Real Asset Advisors: Annual Impact Report 15


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    PRINCIPLE 2 Manage strategic impact on a portfolio basis We manage strategic impact through the execution of our investment process. By integrating impact analysis and execution throughout the lifecycle of each asset, we create a more holistic approach that aligns investment and impact considerations at every stage. The strategy relies on the efforts of our whole team to implement our impact-management process to certify that the assets in our portfolio maximize the impact of our capital. INTEGRATING IMPACT MANAGEMENT ACROSS THE INVESTMENT PROCESS 1 | Impact policy and objectives 3 | Impact due diligence 2 | Impact screening criteria 4 | Impact rating framework and tool DUE SOURCING DILIGENCE 7 | Impact data monitoring MONITORING & PORTFOLIO 5 | Integration of impact in and reporting system REPORTING CONSTRUCTION investment approval 8 | Advisory committee 6| 1 | Our impact policy and objectives–This crucial first step is covered in our disclosure of Principle 1. 2 | Impact screening criteria and tool–We screen every pipeline deal to ensure strategic alignment with our objectives. A team member must affirm the applicability of an opportunity by answering the following questions: a. What purpose does the asset serve in the community? b. Who does the asset serve? How much demand is there for the service provided by the asset? c. How can Franklin Templeton contribute to the asset/tenant/community through this investment? d. In what ways does the tenant align with or contribute to the SDGs? e. Are there any major impact risks with this investment? 3 | Impact due diligence–Each asset undergoes impact due diligence, culminating in a dedicated assessment report. The report is structured around the Impact Management Project’s Five Dimensions of Impact and includes an asset-specific theory of change, an assessment of the contributions to SDG targets and a business plan highlighting potential impactful improvements and initiatives (see Principle 4 for details). 16 Franklin Real Asset Advisors: Annual Impact Report


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    4 | Impact-rating framework–Also included in our asset assessments and annual updates is a proprietary scoring system for each asset (see Principle 4 for details). 5 | Integration of impact in investment approval–The Investment Committee must approve each asset before investment and does so on the basis that the asset meets the dual-return objectives of the strategy–both financial and impact. 6 | Diversification of impact–The portfolio-management team oversees portfolio construction and ensures that the strategy adequately meets the impact objectives by balancing assets by region, sector and primary SDG impacts. 7 | Impact data monitoring and reporting system–The team collects key performance indicators (KPIs) for each asset and provides periodic reporting to investors on the impact performance of each asset and the overall portfolio. 8 | Advisory committee–The advisory committee works to ensure that the strategy is meeting its dual-return objectives. Franklin Real Asset Advisors: Annual Impact Report 17


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    PRINCIPLE 3 Establish the manager’s contribution to the achievement of impact Summary We have developed an extensive framework that outlines our process for identifying asset-level impact. A part of that framework is identifying the specific contributions that we can make towards superior outcomes for communities and the environment. Each expected contribution for each asset is articulated and subsequently captured in an impact-assessment report and investment-committee memorandum. FIVE TYPES OF CONTRIBUTIONS Each asset-level contribution is mapped to one of five contribution types: We are committed to the stewardship of the assets we hold. Our objective is Aligned to maintain strong-performing assets and improve underperforming ones. Our long-term capital seeks to ensure long-term social benefits by providing much-needed capital liquidity to municipalities and private operating companies, freeing up their balance sheets to allow them to provide more services. We renovate and upgrade the facilities we purchase. Examples include Function improving their comfort and utility for tenants. Where possible, we develop enhancements alternative uses for existing facilities to benefit the broader community. We can create positive environmental impact with improvements that reduce pollution, save water and materials, and support biodiversity Environmental and clean transportation. Examples include installing energy-efficient upgrades systems, creating more green space and improving recycling and waste-disposal policies. Puropose- Certain investments may present the opportunity to directly add to the stock driven of social infrastructure. We can accomplish this by repurposing assets for development social use or by adding space to existing assets. Stakeholder engagement is critical to the success of social infrastructure Stakeholder investments. Through active engagement with tenants and local partners, partnerships we can uncover new and meaningful ways to better serve the community. Source: Franklin Real Asset Advisors. For illustrative purposes only. 18 Franklin Real Asset Advisors: Annual Impact Report


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    In our due-diligence process, we set out expected contributions for each asset and continuously review progress on each initiative. Specific contributions for each asset are built into our business plans and tracked over time. We utilize our impact-tracking tool to document KPIs and progress for each contribution. Our Annual Impact Updates formally report all progress made. As contributions are achieved, or not, we reassess each asset’s current community and environmental value compared with its value at acquisition. We take what we have learned and look for new initiatives and contribution opportunities throughout the holding period. We also reassess the viability of each contribution type for future assets. Franklin Real Asset Advisors: Annual Impact Report 19


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    PRINCIPLE 4 Assess the expected impact of each investment, based on a systematic approach Summary We quantify the expected impact from each investment through our ex ante impact-assessment process. Using the “five dimensions of impact” set out by the Impact Management Project (IMP), we identify the potential impacts of each investment. We then quantify the current and projected community and environmental value of each asset through our custom impact-rating system. Impact assessments Our impact-assessment reports are where our ex ante, systematic approach to measuring and managing impact comes together. Through the lens of the IMP’s five dimensions (see below), our assessments bring together a theory of change, the SDGs, our bespoke community and environmental scoring systems, our identified contributions, and our impact-focused business plans. Our assessments are backed by asset-level data, demographic data and market research to ensure that our theory and actions are linked to meaningful outcomes. We track the performance of each asset, using standard and comparable reporting standards such as IRIS+ and GRESB. OI4732 IMPACT MANAGEMENT PROJECT: FIVE DIMENSIONS OF IMPACT With input from over 2000 IMPACT DIMENSION IMPACT QUESTIONS EACH DIMENSION SEEKS TO ANSWER stakeholders, the Impact Management Project introduced WHAT • What outcome occurs in the period? “five dimensions of impact” to • How important are the outcomes to the people (or planet) better measure, manage, and experiencing them? report on social and environmen- tal impact. The five dimensions WHO Who experiences the outcome? are: What, Who, How Much, Contributions, and Risks. We have HOW MUCH How much of the outcome occurs—across scale, depth incorporated the five dimensions and duration? into our impact framework for real estate, including additional con- CONTRIBUTION Would this change likely have happened anyway? siderations and our own bespoke frameworks while preserving the RISK What is the risk to people and planet that impact does not occur spirit of the Impact Management as expected? Project’s work. Source: Impact Management Project. For illustrative purposes only. 20 Franklin Real Asset Advisors: Annual Impact Report


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    Community and environmental scoring system Throughout our impact-management process, we stress the terms “authenticity” and “transparency”. We acknowledge that with a dual-return objective—financial and impact—some impact-related contributions may not be economically viable. To this end, we created an impact-rating system that measures the current and projected state of each asset’s community and environmental performance. The rating system is based on a set of predefined community and environmental factors (see below). Progress towards impact objectives can be quantified, and key performance metrics can be tracked over time. The scoring system is also designed to create systematic comparability between assets in terms of their strengths, weaknesses, opportunities and risks. Community value Environmental performance How much value does the asset contribute to the community’s How strong is the environmental performance of the asset? development and wellbeing? 1 2 3 4 5 1 2 3 4 5 ACQUISITION ACQUISITION CURRENT CURRENT PROJECTED PROJECTED Acquisition rating Projected rating (with FT contribution) Source: Franklin Real Asset Advisors. For illustrative purposes only. Franklin Real Asset Advisors: Annual Impact Report 21


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    PRINCIPLE 5 Assess, address, monitor and manage potential negative impacts of each investment Summary Our approach to addressing negative impact and impact risks can be broken down into two sections: asset underwriting and asset management. During the underwriting process, we identify potential risks associated with the acquisition of the asset. In our asset-holding period, we define specific capital-expenditure programs aimed at mitigating or eliminating any of the risks previously identified in our underwriting process. Asset underwriting Before acquiring an asset, we conduct thorough due diligence on the physical aspects of each building to identify potential risks and negative impacts. This diligence includes the following: Environmental and technical due diligence Technical and environmental reports are commissioned by us and executed by third-party firms with deep expertise in the space. The reports provide an analysis of the property’s current state as well as items that are likely to require remediation and their corresponding costs. These reports address risks related to building itself, the systems within the building, accessibility, and the health and safety of the occupants. Impact due-diligence reports We commission a bespoke impact due-diligence report to further address impact risks and opportunities. In regard to risks, these reports highlight various forms of pollution in and around each asset. They benchmark energy and water usage while identifying underperforming systems. They also measure and benchmark waste and recycling practices, and measure the biodiversity, or lack thereof, of each asset. Asset management Once negative risks are identified through internal and third-party due diligence before acquisition, the team incorporates solutions and improvements into the capital-expenditure plan for each building and is responsible for addressing the negative impacts when feasible. We have a dedicated asset-management team that works with property managers and tenants to identify and address any additional negative impacts associated with the built environment throughout our holding period. 22 Franklin Real Asset Advisors: Annual Impact Report


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    PRINCIPLE 6 Monitor the progress of each investment in achieving impact against expectations and respond appropriately Summary After an acquisition is made, the team uses many tools and processes to monitor and manage impact. We have developed a custom impact tracker to store and manage asset-level data pertaining to impact initiatives and impact scoring. Additionally, we have made substantial investment into smart-metering IoT technology to improve the quality and timeliness of the data we collect on our assets. We review and analyze all these data streams during our team meetings, where we share updates and plan new initiatives. Finally, we create annual update reports for each asset and a portfolio-level Annual Impact Report to highlight our progress and achievement of impact. Ongoing monitoring tools Impact tracker A tracker tool is used to track all impact initiatives, KPIs and asset scores across the entire portfolio. Updates to the tracker are done live, making it a working document and the “source of truth” for data related to progress towards impact. Tenant engagement Our asset-management team is tasked with working with tenants and property managers to ensure that business plans are being executed and the expected impacts are materializing. SDG 17.16 Smart meters and sensors To better facilitate our ongoing monitoring process, we have invested heavily in smart meters and sensors. These devices allow us to collect real-time data, not only to more closely monitor consumption habits, but to also initiate conversations and initiatives with tenants that aim to reduce energy and water usage at our assets. OI6765 SDG 7.3 Occupant Facing Dashboard of BuddyOhm System Franklin Real Asset Advisors: Annual Impact Report 23


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    Team meetings The monitoring and execution of impact business plans are discussed multiple times a week through a combination of ad hoc and scheduled meetings covering portfolio management, asset management, and specific impact initiatives, such as the process for installing solar panels across the portfolio. Since impact is fully integrated into the team and the investment process, impact monitoring is also fully integrated into these discussions. We have also held dedicated impact meetings for further discussion of impact progress when needed. Pertinent meeting notes are tracked in the impact-tracker tool. Periodic monitoring Quarterly data collection The asset-management team conducts a quarterly data-gathering exercise with property managers for each asset. Included in this data request is a list of impact KPIs, which we aim to use in tracking the progress of each of our impact initiatives. Annual impact updates We publish annual updates for each asset in the portfolio. The updates include a revised business plan for the year ahead, the latest KPIs and updated scores and analysis. Annual impact report We also publish a portfolio-level impact report that tracks impact progress for each asset. OI4732 This highlights aggregated data, progress towards portfolio-level goals and summaries of our contributions towards each of the six pertinent SDGs. PRINCIPLE 7 Conduct exits considering the effect on sustained impact Summary The strategy creates long-term impact value by planning to hold assets for at least 10 years and by signing long-term leases with tenants. Many of the impact initiatives are designed to persist for the long term as they are linked to the tenant or are physical improvements to the asset, which naturally remain impactful regardless of ownership. However, a consistent process and policy towards impactful exits needs be created to more intentionally consider the persistence of impact after ownership. Fewer exits As an open-ended, income-generating strategy, we aim to hold assets for the long term, greatly reducing the frequency of exits compared with closed-ended structures. For this reason, our impact underwriting has assumed a holding period of 10 years or more and has naturally sought sustained impact over many years. In particular, the upgrades to physical systems are very likely to be sustained should we exit an asset early, and the signing of long-term leases should enable the provision of quality social services through our tenant regardless of our ownership position. 24 Franklin Real Asset Advisors: Annual Impact Report


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    PRINCIPLE 8 Review, document, and improve decisions and processes based on the achievement of impact and lessons learned Summary Our team is committed to monitoring the effectiveness of our impact-measurement and management systems and modifying our current process to maximize the efficiency of our resources. Comparing expected and actual impact Through our initial impact underwriting, ongoing monitoring and annual updates, we can thoroughly review and document progress made towards our impact goals. Our Impact Management and Measurement (IMM) system was explicitly designed to highlight our direct contributions towards better outcomes for communities and the environment. Our 10-factor scoring system sets targets for each factor, and we track progress on an ongoing and annual basis through our impact tracker and impact-assessment update document. Improving decisions through lessons learned Embedded in our ongoing discussions and our impact tracker are explanations for why failed, delayed or disappointing initiatives were not successful. We use this knowledge to adjust future strategies and calibrate our expectations of the likely success of future initiatives. PRINCIPLE 9 Publicly disclose alignment with the principles and provide regular independent verification of the alignment As a signatory of the Operating Principles for Impact Management, Franklin Templeton engaged BlueMark to undertake an independent verification of the alignment of our impact-management system with the Principles. The full verifier statement, along with our disclosure document, can be found at: https://www.impactprinciples.org/signatories-reporting https://www.ftinstitutionalemea.com/socialinfra Franklin Real Asset Advisors: Annual Impact Report 25


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    A LOOK AT OUR IMPACT PERFORMANCE


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    IMPACT PERFORMANCE Portfolio-level impact targets OD4091 In 2020 we made progress in tracking our impact through improved data collection and growing tenant engagement. As we continue to pursue more and better data, we will look to add or further analyze portfolio-level targets to best reflect our impact objectives and impact execution. We group targets into outcomes and foundations. Outcomes measure our progress towards stated goals, such as reducing greenhouse gas emissions. Foundations track how we engage, improve data collection and collaborate with technical experts to help best identify asset-specific and portfolio-wide improvement opportunities. FOUNDATIONS Metric Target Progress Smart Smart meters and 75% (based on m2) We have installed smart meters and sensors in 3 assets, metering sensors installed of stabilized portfolio representing 29% of the stabilized portfolio. This is below (Y/N) OI6765 (assets held +1yr) with our target as Covid-19 has delayed many ongoing efforts. smart meters and We are planning an additional 11 installations in 2021. sensors installed Green leasing/ Green lease terms 75% (based on m2) We have green lease terms with 13 tenants, representing addendums (Y/N) of portfolio with green 70% of the total portfolio. We continue to add green lease lease agreements or language whenever possible and are confident we will addendums reach the 75% target in the coming years. Solar feasibility Completed solar 100% of portfolio Studies have been conducted at 7 assets, representing studies feasibility study assessed – excluding 53.8% of the addressable portfolio. Assets acquired (Y/N) assets which already in 2020 will be assessed as soon as possible. Moving have solar or where we forward, we will look to conduct feasibility studies when do not own the roof possible ahead of asset purchases to move closer to our target of assessing 100% of the portfolio. Waste and Waste and 100% of stabilized Waste assessments have been indefinitely delayed. recycling recycling portfolio (assets held We look to re-evaluate waste and recycling once tenants assessment +1yr) assessed have stabilized from Covid-19 disruptions. We have complete (Y/N) collected waste and recycling data at 35% of the stabilized portfolio, up from 0% in 2019. Tenant Sentiment survey 50% of tenants 9 tenants representing 14.6% of the total portfolio sentiment completed by respond to sentiment responded to this year’s survey or provided formal tenants (Y/N) survey or other sentiment feedback, down from 24% in 2019 and OI5049 PI9435 sentiment engagement below our 50% target. We expect the response rate to methods rise once in-person engagement is feasible again. NOTE: We have dropped the “beneficiary sentiment” target from 2019. We still believe that outreach to the community is critical for each asset, but the form of outreach, whether direct or through our tenants, is varied and difficult to aggregate in a meaningful way. Dropping the portfolio-level target will not change our asset-specific engagement efforts. 28 Franklin Real Asset Advisors: Annual Impact Report


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    NOTE ON COMMUNITY TARGETS: It is important to note that our list of portfolio-level targets does not include many of ways we will look to create impact through asset-specific opportunities. Most of our community-focused initiatives and investment theses are not meaningfully aggregated into portfolio-level targets. Individual community initiatives are best reflected in our asset-specific summaries. OUTCOMES Metric Target Progress 2 Carbon intensity Total CO2e / m – based 5% reduction per Sufficient data was collected for 11 of our SDG Target 7.3 on Scope 1 and Scope annum assets representing 74% of the stabilized 2 estimates portfolio. The portfolio’s carbon intensity was reduced by approximately 36.2% in 2020, significantly exceeding our target. Most of the improvements come from two large assets converting their electricity to 100% renewables. Other reductions can be attributed to physical improvements to systems and lower occupancy at some assets. Net energy kWh / m2 2.5% reduction Sufficient data was collected for 11 of our consumption per annum of assets representing 74% of the stabilized SDG Target 7.3 stabilized portfolio portfolio. Within this reportable subsegment, (assets held +1yr) energy consumption was reduced by 6.2%. OI6697 Water usage m3 / m2 5% reduction Year-over-year water usage data was collected SDG Target 6.4 per annum for assets at both assets located in high-water-stress in high-water-stress regions. Water usage was reduced 7.6%. regions OI3637 The reduction can be entirely attributed to reduced usage of these assets. Franklin Real Asset Advisors: Annual Impact Report 29


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    IMPACT BY SDG—LINKING GOALS TO ACTIONS The strategy targets six of the 17 SDGs as key objectives: Good Health and Well-Being; Quality Education; Peace; Justice and Strong Institutions; Sustainable Cities and Communities; Affordable and Clean Energy; and Clean Water and Sanitation. The SDGs inform our portfolio targets as well as the entire impact-management system and process. Ensure healthy lives and promote well-being for all at all ages PORTFOLIO STATISTICS Challenge Highlights Despite significant advances in • At a hospital in Denmark, we added 7 of 16 medicine and medical technology, 563m2 of new space to the asset. Number of assets PI1017 at least half the global population lacks SDG 3.8.1 This allowed the tenant to access to essential health services.14 add three new operating theaters and And where health services do exist, the increase office space. challenge is to provide services of high 45.2% quality.15 While most of Europe • At a hospital in Italy, plans have been submitted to expand the nursing of portfolio enjoys universal health coverage, quality healthcare is not always home and create a specialized end-of- Total area life care facility SDG 3.8. We are available. As Europe’s population ages, waiting on regional approval so we demand for more and better health- can move forward with this project. care-related infrastructure and services • A nursing-home and community- €140 million is expected to increase.16 center operator was hit hard by Covid Euros invested The role of social infrastructure lockdowns as the business model Healthcare is a key sector of social encouraged the broader community infrastructure. We aim to contribute to to utilize the asset. We provided this SDG by improving and expanding €90,000 of rent relief, which allowed the operator to refurbish 25% of Europe’s healthcare facilities SDG 3.8. SDG 3 can also be supported with sale-and- a physiotherapy therapy pool and population is above leaseback arrangements for healthcare fund delirium research scholarships with Milano Bicocca University. the age of 60. This operators that provide quality services. • All tenants have invested substantially is expected to grow Strategy in action in PPE, hygiene measures, and other Throughout 2020, our focus has been to 35% by the year on expanding the availability and Covid-19 risk mitigants. We continue to support these high-quality tenants 2050.13 accessibility of services, in addition to as they work to minimize the risk of supporting healthcare tenants through Covid-19. SDG 3.3 the difficulties created by Covid-19. 30 Franklin Real Asset Advisors: Annual Impact Report


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    Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all PORTFOLIO STATISTICS Challenge Strategy in action 7 of 16 Over the last 15 years, Europe has increased the rate of students In 2020, the team made progress in helping to address Europe’s education Number of assets completing secondary school. For challenges. most countries, 80-90% of students Highlights graduate with a high-school • We have agreed to a forward purchase 44.5% certificate.17 However, there is of a student-housing complex and still insufficient access to quality of portfolio education at all levels—day-care, completed the acquisition of an education facility for a key university Total area primary, secondary, and university. in southern Italy. SDG 4.3.1 This So the need for safe, high-quality should create new quality education education facilities is clear. opportunities for youth in the region. €171 million The role of social infrastructure • At a London primary school, we Euros invested added four additional classrooms Education is a key sector of social which increased the school’s capacity infrastructure. We aim to support this by 32 students. SDG with investments in quality education assets in Europe. SDG 4.1 • Through our close working SDG 4.3 Our strategy is to preserve, relationship with the school improve, and expand access to operator, we have been granted education facilities. exclusivity to consider funding two additional schools focusing on special-needs students. SDG 4.5.1 Franklin Real Asset Advisors: Annual Impact Report 31


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    Ensure availability and sustainable management of water and sanitation for all 15–25% 18 Challenge A 2010 European Commission installing low-flow fixtures. Each building presents a unique opportunity European Union territory report on water scarcity and droughts to save water and reduce the impacts experiencing water scarcity OI2799 found that water supplies are of water scarcity. a concern for nearly half of the European population.19 Southern Strategy in action and western Europe are under greater Water usage was not a priority for our water stress due to agricultural and tenants during the pandemic. We will urban consumption.20 Water-supply refocus on water efficiency when the management is especially critical pandemic’s acute phase has passed, in these areas.21 and we can invest more time in active engagement. The role of social infrastructure Highlights At least 20% of fresh water is lost due • Despite Covid restrictions, we safely to waste and inefficiency.22 SDG 6.4.1 installed smart-water meters at 3 of Given the different water use patterns our 12 legacy properties and expect of social infrastructure, the role each to install 11 more throughout the asset plays in addressing the challenge portfolio during 2021. OI6765 These varies. In some instances, engaging meters will allow us to identify any with tenants to raise awareness of water wastage creating an opportunity consumption and modify behaviors to work with the tenants to optimize will yield the biggest reductions. water consumption. SDG 6.4.1 Alternatively, in other assets, the greatest water use reductions may come from replacing toilets and PORTFOLIO IN WATER STRESSED REGIONS* Water Exploitation Index (WEI) 7% 10% Low (<10%) 6% Low-medium (10-19.9%) Medium-high (20-39.9%) High (40-80%) 77% Extremely high (>80%) *Percentages in chart based on area of asset in respective WEI region. 32 Franklin Real Asset Advisors: Annual Impact Report


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    Ensure access to affordable, reliable, sustainable and modern energy for all INCREASED EU 2030 CLIMATE Challenge Strategy in action & ENERGY TARGETS23 The EU’s 2030 climate and energy Highlights framework sets ambitious targets for • 6 of our assets source 100% Reduction in GHG emissions clean energy and energy efficiency of their electricity from offsite, 40% 55% to combat the challenge of climate clean-energy, up from 4 last year. 2019 target 2020 target24 change. The built environment has The two additional assets, made a significant role to play in meeting the switch in 2020. This change is these goals because buildings make the primary driver of the significant up a significant portion of energy reduction in the portfolio’s overall 36% consumption and CO2 emissions.27 carbon footprint. Increase in energy efficiency • Solar-installation planning began at needed to reach 2030 GHG The role of social infrastructure target25 two assets in 2020 and is expected Improvements to the energy to be completed in the first half of efficiency of buildings will help the 2021. The two projects have an EU meet its 2030 targets. As owners expected production capacity of 65% of social infrastructure assets, we can contribute to SDG targets 7.2 and 7.3 120,500 kwh per year.28 OI2496 Renewable electricity • At a private hospital in Denmark the production by 203026 by increasing clean-energy generation shared district cooling system from and reducing energy usage. The carbon the 1960s was upgraded to a highly footprint of assets can be reduced efficient system which should reduce through design, capital expenditures, heating and cooling energy usage by engagement, education and real-time 68%. This will reduce total expected monitoring. energy use by 6% per annum29. OI6697 SDG 7.3.1 Franklin Real Asset Advisors: Annual Impact Report 33


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    Make cities and human settlements inclusive, safe, resilient and sustainable PORTFOLIO STATISTICS Challenge Strategy in action Urbanization and associated SDG 11 is at the core of the 6 of 16 community and environmental issues strategy. Our focus on preserving, Number of assets are central to SDG 11. Europe’s improving and expanding social increasingly dense cities suffer a lack infrastructure assets contributes of amenities, inadequate waste broadly to sustainable cities and disposal, high prices of basic goods, communities. 41.0% and insufficient affordable housing.31 Highlights of portfolio As urban populations rise, the need for mobility, energy efficiency, and • We brought online 244 affordable Total area beds at our housing asset in community resiliency is increasingly Cambridge, UK. 152 of the beds are critical. One in four Europeans are now occupied by students and 1 by considered “rent burdened”—spending an essential worker.33 PI2640 Average €122 million more than 40% of disposable incomes rent is 17.3% lower than market-rate Euros invested on rent—while ballooning housing costs accommodations in the area.34 PI1748 put more people at risk of poverty.32 • We currently provide 446 student- housing beds at a below-market level The role of social infrastructure and 617 accredited beds in our We believe social infrastructure is healthcare assets. PD5833 uniquely positioned to contribute SDG 11.1 to both aspects of this SDG. From a community perspective, the • We are in active discussions about preservation of safe and affordable funding the construction of social housing directly aligns with infrastructure assets as part of SDG target 11.1. From an environmental a community-supported master standpoint, we aim to work with plan in a major European city. tenants to minimize waste and Our involvement could support the optimize recycling practices to sustainable and inclusive growth support SDG target 11.6. of the urban location. SDG 11.3 68%: the percentage of world population projected to live in urban areas by 2050, currently 55%30 34 Franklin Real Asset Advisors: Annual Impact Report


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    Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels PORTFOLIO STATISTICS Challenge on impact initiatives with the The safeguarding of individual rights, municipal tenant was challenging 1 of 16 opportunities, and safety is uneven at first but has been improving as we Number of assets across the globe because of weak have shown we are thoughtful partners. institutions, poorly enforced laws and We have been able to demonstrate how a lack of access to justice. Europe we can improve the quality of the asset lacks adequate investment in social for the community. 3.8% infrastructure, which includes buildings Highlights Total area used to administer and enforce justice • In 2019 we installed a Gesell systems.36 Underinvestment in justice Chamber37 – a safe space in which and emergency facilities hurts these juveniles can testify in private in the €16 million public services. company of a youth psychologist. Euros invested • We followed up on this by engaging The role of social infrastructure with the tenant on accessibility and Progress towards SDG 16 could be completing a cognitive accessibility hampered by a lack of quality space assessment with Plena Inclusión used by civil servants. By investing Madrid (see SDG 17 – Partnerships in buildings related to justice and for the Goals on page 11). emergency services, our strategy aims to preserve the availability and improve We are actively building relationships the quality of these essential assets. with other local municipalities across Europe. We hope that these will Strategy in action uncover additional opportunities to Our juvenile courthouse in Madrid, contribute to SDG 16. Spain, is our only justice and emergency asset. Direct engagement 55 million: The number of children in Europe who have been victims of violence35 Franklin Real Asset Advisors: Annual Impact Report 35


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    A LOOK AT OUR ASSETS AND IMPACT


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    Student housing, United Kingdom The asset will initially serve as student housing. It will benefit from the flexibility to serve the student population or workers in essential services, or as assisted-living homes for the elderly. We aim to make a portion of the portfolio available to other segments Asset overview of the community in need Country United Kingdom Energy source Renewables (offsite) & of affordable housing. 100% Sector PD7557 Housing natural gas Area (% of of the asset is priced below Sub-sector Multi-use housing portfolio) PI4765 4,738 m2 (3%) market. PD5833 Acquisition date September 2019 THEORY OF CHANGE OD6350 Reducing housing insecurity with affordable, quality housing allows students to achieve better outcomes through their time in university. SUSTAINABLE DEVELOPMENT GOALS TARGETS UNDERWRITTEN CONTRIBUTIONS AT TIME OF ACQUISITION Purpose-driven development—We will recondition this housing portfolio to PURPOSE-DRIVEN provide 244 flexible, low-cost beds across 40 properties. PI6058 SDG 11.1 DEVELOPMENT Environmental upgrades—We will be making a series of upgrades to the systems in assets across the portfolio. We plan to implement 100% LED We believe providing affordable housing will ENVIRONMENTAL lighting, upgrade to low-flow water fixtures, install double-pane windows help students from lower-income backgrounds UPGRADES continue into higher education. where applicable and upgrade boilers where feasible. SDG 6.4 SDG 7.3 Function enhancement—Significant capital expenditure will be required to FUNCTION ENHANCEMENT furnish and recondition the assets and improve the quality of units. SDG 11.1 Stakeholder partnerships—To build on our planned environmental upgrades, we aim to engage with tenants on best practices for reducing water and energy We have identified improvements that can be STAKEHOLDER PARTNERSHIP use. SDG 6.4 SDG 7.3 made to HVAC and lighting. Additionally, we believe the tenant will be receptive to our efforts to work with them to improve consumption Aligned long-term capital—We intend to preserve the availability of this asset behavior. Both of these initiatives will help to ALIGNED as a flexible affordable-housing option over the long term. SDG 11.1 reduce the assets energy intensity in line with LONG-TERM CAPITAL indicator. SDG 7.3 The portfolio will provide student housing at below-market rates. This will help to support access to safe and affordable housing for the student population. 38 Franklin Real Asset Advisors: Annual Impact Report


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    YEAR IN REVIEW Over the past year, we brought these units online with eco-friendly furnishing and other quality improvements. They have been initially positioned to serve the local student population at an accessible price point. We are coordinating with local health groups and municipalities to identify alternative community-use opportunities. We have brought in Homes for Students to manage the properties. Covid-19 slowed lease-up for the 2020–2021 academic year, although 67% of beds were let by the end of 2020. ASSET SCORE Community Environmental INITIAL 1 INITIAL 2 CURRENT 3 CURRENT 2 PROJECTED 4 PROJECTED 4 We have spent over £1 million to restore the assets Over half the capital spent was put towards sustainably and bring them into compliance. The improved sourced furniture and energy-efficient appliances. We are quality, along with the higher quantity of services in the process of installing smart meters and energy sensors. we now can offer at the asset, bring the score up In the coming years, resident engagement, lighting to a 3. SDG 11.1 Further improvement of is expected improvements and heating-system fit outs should move post Covid-19. us towards the projected score. BUSINESS-PLAN PROGRESS Description Status SDG target Contribution type Bike-rack installation To date, we have installed 16 bike racks. Progressing 11.2 Smart meters and sensors Electric and gas smart meters and sensors have Progressing 7.3 been partially installed during 2020 and we aim to complete installation during 2021. OI6765 Furniture installation All furniture is certified by the Program for the Completed 12.2 Endorsement of Forest Certification schemes (PEFC) or Forest Stewardship Council® (FSC®). KPI UPDATE38 Number of Beneficiaries Affordability GHG emissions Energy Water used residents / total PI2640 (discount to (kg CO2e / m2) consumption (m3 / m2) number of market rate)39 (kWh / m2) OI1697 affordable beds PI1748 OI8825 PI5965 2020 164 / 244 152 students 17.3% 16.6 (+152%) 80.9 (+148%) 0.8 (+300%) 1 key worker 11 other 2019* 0/0 0 N/A 6.6 32.6 0.2 *Units were largely unoccupied in 2019. Franklin Real Asset Advisors: Annual Impact Report 39


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    Hospital, Denmark The asset houses the largest private hospital in Denmark. It provides standard medical services as well as a range of specialized services, including anesthesia, pulmonology, dietetics, gastrectomy, gynecology, cardiology, dermatology, otolaryngology, and gastroenterology. PI1533 Asset overview Country Denmark Energy source Renewables (offsite) Sector PD7557 Healthcare Area (% of 10,517 m2 (6%) portfolio) PI4765 Sub-sector Private hospital Acquisition date October 2019 THEORY OF CHANGE OD6350 Through capital and active ownership, we will help meet growing demand for, and assure access to, high-quality healthcare services for the community around Copenhagen. SUSTAINABLE DEVELOPMENT GOALS TARGETS UNDERWRITTEN CONTRIBUTIONS AT TIME OF ACQUISITION Aligned long-term capital—The Danish healthcare system depends on private hospitals to help manage patient demand and reduce costs for specialty care, ALIGNED LONG-TERM and we seek to maintain the availability of one of the country’s top private CAPITAL hospitals. SDG 3.8 Environmental upgrades—The tenant, Aleris-Hamlet, has set company- Private hospitals in Denmark act as specific goals that align with the SDGs. We are optimistic that we will be overflow support for the public healthcare system This ensures that all citizens have ENVIRONMENTAL UPGRADES able to build on this interest to improve both systems and operations in timely and equal access to necessary health an environmentally beneficial way. SDG 7.3 services. Since 37% of the asset’s revenue comes from public contracts for these Purpose-driven development—We are planning to expand the asset, services, the asset is directly facilitating thereby improving the quantity and quality of services the tenant will be necessary universal health coverage PURPOSE-DRIVEN able to provide. SDG 3.8 DEVELOPMENT in Denmark. By including LED lighting in expansion Density of hospital beds in Denmark and refurbishment projects, engaging with the tenant on environmental initiatives, (beds / 1000 people)40 and implementing green lease language in a lease addendum, we aim to help the tenant decrease its energy intensity in 4.8 VS 2.6 terms of energy consumption / m2, which EU average Denmark 2019 will contribute directly to SDG target 7.3. 40 Franklin Real Asset Advisors: Annual Impact Report


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    YEAR IN REVIEW Over the past year, the asset has outperformed our expectation, especially from a contribution perspective. We have also had to revise our initial environmental score as we have since learned that energy at the asset is sourced from renewables. We were able to complete one expansion project in 2020 with another one in the works. ASSET SCORE Community Environmental INITIAL 4 INITIAL (Revised) 3 CURRENT 4 CURRENT 4 PROJECTED 4 PROJECTED 4 We believe there is new upside in the “quantity In 2020 we replaced the existing inefficient HVAC system from of services” factor given the recently completed the 1960’s. SDG 7.3 Pollution and energy-use scoring should courtyard expansion and the planned development improve with further upgrades, and proof that the HVAC system of an additional floor. We did not pursue any other is creating the expected efficiency improvements. community initiatives during the year that would affect the overall scoring. The asset maintains its strong performance from a community standpoint. BUSINESS-PLAN PROGRESS Description Status SDG Target Contribution type Expansion of asset – Reviewing opportunity to add an additional floor Progressing 3.8 additional floor to the asset. Expansion of asset – Added 563 m2 including 3 new operating Completed 3.8 courtyard rooms. Window replacement Targeting the replacement of 355 windows at Progressing 7.3 the asset by the end of 2021. HVAC improvements A new HVAC system has been installed. Completed 7.3 Smart meters and sensors Buddy smart meters and sensors have been Completed 7.3 installed on site. OI6765 KPI UPDATE41 Healthcare GHG Energy Water used Total waste Total recycle Total waste facilities emissions consumption (m3 / m2) intensity intensity to energy PI1017 (kg CO2e / m2) (kWh / m2) OI1697 (kg / m2) (kg / m2) (kg / m2) OI8825 OI6709 OI2535 OI8357 2020 32 beds 0 221.2 (-25%) N/A 11.6 (+24%) 1.5 (+33%) 5.0 (+26%) 64 examination rooms 10 operating rooms 2019 32 beds 0 296.8 N/A 9.3 1.1 3.9 64 examination rooms 7 operating rooms Franklin Real Asset Advisors: Annual Impact Report 41


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    Nursing home, Italy The asset is an elderly-care facility a small northern suburb of Milan. It offers outpatient care and a nursing home for the elderly, particularly those with Alzheimer’s disease. Additionally, the asset serves the community as a gym, outpatient health center, Asset overview conference center and Country Italy Standard grid & Energy profile a nursery school. Sector PD7557 Healthcare natural gas Area (% of Sub-sector Nursing home 11,451 m2 (7%) portfolio) PI4765 Acquisition date January 2020 THEORY OF CHANGE OD6350 Acquisition of the asset through a sale-and-leaseback structure supports the continued provision of high-quality elderly care while allowing the operator to pursue expansion to further service Italy’s aging population. SUSTAINABLE DEVELOPMENT GOALS TARGETS UNDERWRITTEN CONTRIBUTIONS AT TIME OF ACQUISITION Aligned long-term capital—By ensuring that the space will remain available, we ensure that it can confidently use the proceeds from the sale of the asset ALIGNED LONG-TERM CAPITAL to pursue expansion opportunities in Italy. SDG 3.8 Stakeholder partnerships—We aim to work with the tenant to co-sponsor It offers outpatient medical care and community events and initiatives, such as working with the municipality of physiotherapy services that directly STAKEHOLDER Gerenzano to plant trees, opening psychological support programs for patients, PARTNERSHIP contribute to the provision of universal and more. SDG 17.16 healthcare coverage in the region. Environmental upgrades—We see a potential opportunity to work alongside the operator to install a photovoltaic system. SDG 7.2 Additionally, we expect ENVIRONMENTAL UPGRADES to exploit smart-metering data to help the tenant create efficiencies in its utility-consumption patterns. SDG 7.3 The asset provides 144 total beds, of which 72 are government subsidized, to be used for nursing home and Alzheimer services. PI1017 The inclusion of beds for those struggling with mental issues directly contributes to SDG 11.1 by providing safe and affordable housing for all. A portion of the asset is used as a nursery for pre-school children. 42 Franklin Real Asset Advisors: Annual Impact Report


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    YEAR IN REVIEW As with much of the portfolio, this asset faced its share of challenges through the year driven by Covid-19. The strategy was able to support the tenant through rent concessions, allowing it to shift its focus for the year from community engagement to ensuring the safety of the residents and improving the quality of the asset. Savings went directly into the refurbishment of the physiotherapy pool and research scholarships into delirium with Milano Bicocca University. ASSET SCORE Community Environmental INITIAL 4 INITIAL 2 CURRENT 4 CURRENT 2 PROJECTED 4 PROJECTED 4 None of the underlying factors for the community and environmental scoring have changed. The initiatives pursued to date will result in improvements on the environmental side once completed. The main driver of this environmental improvement will be our funding of a large solar installation that we aim to install before the end of summer 2021. The community side has proven stable, even in the face of Covid-19. The pandemic has actually made us more bullish on potential partnership opportunities with the tenant as it has created opportunities to prove our mission-alignment. BUSINESS-PLAN PROGRESS Description Status SDG Target Contribution type LEED certification LEED certification for the property is being Progressing 7.3 pursued in 2021. OI6765 Solar-panel installation We have agreed to fund the installation of Progressing 7.2 a large solar-panel installation at the asset. Rent concession Provided rental concessions to the tenant Completed 3.8 to accommodate the financial impacts of Covid-19. Smart meters and sensors Aim to install Buddy smart meters and sensors Progressing 7.3 at the asset in 2021. OI6765 KPI UPDATE42 Community usage (daytime) Number of GHG emissions Energy Water used PD7557 nursing-home beds (kg CO2e / m2) consumption (m3 / m2) provided (kWh / m2) OI1697 PI1017 OI8825 2020 1,190 users of elderly day-care center 120 occupants / 88.2 (-11%) 408.2 (-11%) 1.6 (-22%) 2,968 users of day center for disabled 144 beds 1,041 outpatient clinic users 890 users of physiotherapy pool 2019 7,820 users of elderly day-care center 144 beds 99.5 460.6 2.0 4,370 users of day center for disabled 1,885 outpatient clinic users 1,250 users of physiotherapy pool Franklin Real Asset Advisors: Annual Impact Report 43


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    CONTRIBUTING TO THE DISCUSSION Advancing the debate on impact investing Impact investing is a relatively new discipline, and we are committed to deepening our understanding of it in the broader investment community. We publish impact research on a regular basis, collaborate with the media and participate in leading conferences. Our latest research MAY 2020 JUNE 2020 ANNUAL IMPACT REPORT WHY IMPACT NOW? COVID-19 AND Our inaugural impact report covered how we THE ACCELERATING SHIFT TOWARDS approach impact investing in real estate, A MORE SUSTAINABLE FUTURE disclosing comprehensive information about The advent and impressive growth of impact our framework and measurement process. investing is redefining the role of capital in our society. The current Covid-19 crisis is creating a watershed moment where consumers, governments, companies, entrepreneurs and DECEMBER 2020 investors are more focused than ever on steering NEED AND OPPORTUNITY: WHAT COVID-19 capital towards endeavors that benefit society REVEALED ABOUT SOCIAL INFRASTRUCTURE and the planet. This new focus on sustainable The need for social infrastructure investments capital is catalyzing opportunity for impact may be accelerating shifts in real estate investors to deliver profit with purpose. allocations away from traditional retail and commercial properties and toward more impact-related allocations. Media coverage We collaborate with leading publications – from trade to general media – to increase awareness of impact investing. We contributed to dozens of articles on impact investing throughout the year. ESG CLARITY PENSIONS & BOERSEN ZEITUNG OPTION FINANCE “Creating impact in INVESTMENTS “Corona influences “The Covid-19 crisis a Covid-19 world” “How to impact the effect of impact has greatly increased European real estate investing investments” interest in our social in a Covid-19 world” infrastructure strategy.” Our speaking engagements* FEBRUARY 2020 APRIL 2020 SEPTEMBER 2020 OCTOBER 2020 FEBRUARY 2021 Urban Financial Forum Social Institutional CFO (Family IPE Real Thinkers Investigator Institutional Infrastructure Vastgoed Office Forum) by Assets Campus in Rome Roundtable Investors by Investor Day Beleggers MondoInstitutional European Italy Netherlands MondoInstitutional Pan European Nederland/CFA Italy Virtual Forum Italy Netherlands Pan European BAI conference: IPE breakfast Casse di Impact MAY 2020 Phenix Impact series Insurances Previdenza Management Annual Impact Summit Germany Annual Meeting event by Real Assets Report Webinar Netherlands by Itinerari MondoInstitutional Germany Pan European Mallowstreet Previdenziali Italy FinPro Conference University Italy Germany Summit UK *Representative list. 44 Franklin Real Asset Advisors: Annual Impact Report


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    Endnotes 1. Total area covered based on data availability for CO2 & energy intensity: 93,505m2 30. Source: “68% of the world population projected to live in urban areas by 2050, says 2. Ibid UN”, United Nations Department of Economic and Social Affairs, May 16th, 2018 3. Renewable production based on estimated outputs from EPC information for Project 31. UN SDG11, United Nations, Sustainable Development Goals Dolphin and PV output at Project Bleuet 32. Source: Housing statistics, income and living conditions, Housing cost burden, 4. Project Giraffe is counted in all of our Civic metrics but has yet to officially close. Eurostat, as of June, 2020 We are projected to close H1 of 2021 33. This number is from all leases starting between 1/1/2020 and 12/31/2020 and 5. Percent change based on the addition of Bari students only. Not counting data on consists of residents who self-identified as an essential worker. vocational students at Project Cold since this data was not available in 2019 34. Source: This value was computed by calculating the median monthly cost to rent 6. Excludes data for some education tenants at Valla Park. No year over year change a room at Project Rose obtained from our booking data and comparing that to the shown due to inconsistent data availability median monthly rental cost for an individual room in Cambridge. This data was 7. This data point is an aggregated value calculated by averaging the cost savings sourced from https://www.home.co.uk. Our calculation was computed by subtracting premium across affordable beds Cambridge’s median monthly room cost from our median monthly room cost and dividing that by Cambridge’s median room cost as suggested by the IRIS metric 8. Source: United Nations Development Programme PI1748 9. Source: Student accommodation impact report (Rep.). (2019). Octopus Real Estate 35. Source: Violence against children: tackling hidden abuse, World Health Organization, 10. Source: Boosting Investment in Social Infrastructure in Europe. 2020 Report of the High-Level Task Force on Investing in Social Infrastructure in Europe, 36. Source: Boosting Investment in Social Infrastructure in Europe. Report of the January 23, 2018 High-Level Task Force on Investing in Social Infrastructure in Europe, January 23, 2018 11. Source: Changing Courses. UNEP Finance Initiative, November 2019 37. Source: AJS Advocates for Safe Places to Give Testimony. Association for a More Just 12. UN Sustainable Development Goals Society, October 26, 2016 13. Source: World population projected to reach 9.8 billion in 2050, and 11.2 billion in 38. Environmental KPIs are calculated based on data provided by tenants. Intensity is 2100. United Nations Department of Economic and Social Affairs, June 2017 calculated using whole area unless otherwise specified. CO2 values were calculated 14. Source: UN SDG3, United Nations, Sustainable Development Goals, as of March, 2020 based on supplier information provided by the tenant 15. Source: Improving healthcare quality in Europe. European Observatory on Health 39. Source: This value was computed by calculating the median monthly cost to rent Systems and Policies, 2019 a room at project Rose obtained from our booking data and comparing that to the 16. Source: Population structure and ageing, Eurostat, as of March, 2020 median monthly rental cost for an individual room in Cambridge. This data was 17. Source: Secondary graduation rate, Organization for Economic Co-operation and sourced from https://www.home.co.uk. Our calculation was computed by Development, as of March, 2020 subtracting Cambridge’s median monthly room cost from our median monthly room 18. Source: Water Use and Environmental Pressures, European Environmental Agency, as cost and dividing that by Cambridge’s median room cost as suggested by the IRIS of November 2020 metric PI1748 19. Source: Water Scarcity and Drought in the European Union, European Commission, 40. Source: Hospital beds (per 1,000 people), The World Bank, data retrieved March 2021 August 2010 41. Environmental KPIs are calculated based on data provided by tenants. Intensity is 20. Source: Water Stress, European Environmental Agency, as of March, 2020 calculated using whole area unless otherwise specified. CO2 values were calculated 21. Source: Water Scarcity and Drought in the European Union, European Commission, as based on supplier information provided by the tenant of August 2010 42. Environmental KPIs are calculated based on data provided by tenants. Intensity is 22. Source: Water Performance of Buildings, European Commission, August, 2012 calculated using whole area unless otherwise specified. CO2 values were calculated leveraging the Carbon Risk Real Estate Monitor tool developed by the CRREM research 23. Source: Stepping up Europe’s 2030 climate ambition, European Commission, consortium September, 2020 24. Ibid 25. Ibid 26. Ibid 27. New rules for greener and smarter buildings will increase quality of life for all Europeans, European Commission, April 15, 2019 28. The energy number is an estimate based on size and location of system 29. Estimated reduction based on actual 2019 consumption data for the asset and outgoing cooling system and COP of the newly installed cooling system Franklin Real Asset Advisors: Annual Impact Report 45


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    IMPORTANT LEGAL INFORMATION For Institutional Professional Investors only / Not for distribution to retail clients This material 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 are those of the investment manager and the comments, opinions and analyses are rendered as at 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. This material is made available by the following Franklin Templeton entities in those countries where it is allowed to carry out relevant business. EMEA • UK: Franklin Templeton Investment Management Limited (FTIML), registered office: Cannon Place, 78 Cannon Street, London, EC4N 6HL. Tel +44 (0)20 7073 8500. Authorized and regulated in the United Kingdom by the Financial Conduct Authority. • Luxembourg: Franklin Templeton International Services S.à.r.l. (FTIS), registered office 8A, rue Albert Borschette, L-1246 Luxembourg. Authorised and regulated in Luxembourg by the Commission de Surveillance du Secteur Financier (CSSF) and authorized to conduct specific investment business in other European countries via UCITS and AIFMD outward service or via any of the following outbound FTIS S.à r.l. branches as listed below: • Germany: Franklin Templeton International Services S.à r.l. Niederlassung Deutschland, Mainzer Landstr. 16, 60325 Frankfurt/Main, Deutschland. Tel +49 (0) 69/27223-557, Fax +49 (0) 69/27223-622, institutional@franklintempleton.de. • Netherlands: FTIS Branch Amsterdam, World Trade Center Amsterdam, H-Toren, 16e verdieping, Zuidplein 134, 1077 XV Amsterdam, Netherlands. Tel +31 (0) 20 575 2890. • Romania: Franklin Templeton International Services S.À R.L. Luxembourg, Bucharest Branch, at 78-80 Buzesti Str, Premium Point, 8th Floor, Bucharest 1, 011017, Romania. Registered with Romania Financial Supervisory Authority under no. PJM07.1AFIASMDLUX0037/10 March 2016 and authorized and regulated in Luxembourg by Commission de Surveillance du Secture Financiere. Telephone: + 40 21 200 9600 • Spain: Franklin Templeton International Services S.à r.l. – Spanish Branch, Professional of the Financial Sector under the Supervision of CNMV, José Ortega y Gasset 29, Madrid, Spain. Tel +34 91 426 3600, Fax +34 91 577 1857. • Sweden: Franklin Templeton International Services S.à r.l. – Swedish Branch, Nybrokajen 5, SE-111 48, Stockholm, Sweden. Tel +46 (0)8 545 012 30, nordicinfo@franklintempleton.com South Africa: Franklin Templeton Investments SA (PTY) Ltd which is an authorised Financial Services Provider. Kildare House, The Oval, 1 Oakdale Road, Newlands, 7700 Cape Town, South Africa. Tel +27 (21) 831 7400, Fax +27 (11) 341 2301, www.franklintempleton.co.za Switzerland: Franklin Templeton Switzerland Ltd, Stockerstrasse 38, CH-8002 Zurich, Switzerland. Tel +41 44 217 81 81 / Fax +41 44 217 81 82, info@franklintempleton.ch U.A.E.: Issued by Franklin Templeton Investments (ME) Limited, authorized and regulated by the Dubai Financial Services Authority. Dubai office: Franklin Templeton Investments, The Gate, East Wing, Level 2, Dubai International Financial Centre, P.O. Box 506613, Dubai, U.A.E., Tel.: +9714-4284100, Fax:+9714-4284140. Please visit www.franklinresources.com to be directed to your local Franklin Templeton website with further contact details/information. Information contained in this document is as of 31 December 2020, unless otherwise indicated. For Institutional Professional Investors Use Only / Not For Distribution to Retail Clients © 2021 Franklin Templeton. All rights reserved.


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