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December 10, 2015

Resolution on Climate Change Will Be on Franklin Templeton's Proxy Ballot
    by Robert Kropp

A proposal submitted by Zevin Asset Management, requesting that the mutual fund company “assess any incongruities” in its proxy voting practices relating to climate change, is allowed onto proxy ballot by the SEC. -- According to the 2015 Fact Book of the Investment Company Institute, US-based mutual funds accounted for $16 trillion in assets under management at the end of 2014. And, as Cary Krosinsky recently pointed out, mutual funds currently own about 30% of public companies headquartered in the US.

Unfortunately, few of the largest mutual fund families have accounted for the long-term impacts of climate change in their investment strategies; while 2014
witnessed an overall improvement in mutual funds' support for climate-related shareowner resolutions, the US-based institutions perform far worse than do their European counterparts.

In fact, the three largest US-based fund families—BlackRock, Fidelity and Vanguard—supported zero percent of climate change resolutions in the most recent proxy season.

Another of the larger US-based fund families—Franklin Resources, which does business as Franklin Templeton—also scores poorly in the analysis compiled by Jackie Cook of
Fund Votes. Despite its poor performance, Franklin Templeton has reported to CDP that its “fundamental bottom-up approach to investing, which takes climate change-related factors into consideration, gives the company a competitive advantage by managing risk and opportunities within portfolios and attracting investors.”

Also, the company is a signatory to the United Nations'
Principles for Responsible Investment (PRI), thereby committing to incorporating environmental, social, and corporate governance (ESG) factors into its investment decision-making.

Noting the discrepancy, the Boston-based investment management firm
Zevin Asset Management filed a shareowner resolution with Franklin, requesting that the company “assess any incongruities between the proxy voting practices of the company and its subsidiaries within the last year, and any of the company’s policy positions regarding climate change.”

“This assessment should list all instances of votes cast that appeared to be inconsistent with the company’s climate change positions, and explanations of the incongruency,” the resolution continued. “The report should also discuss policy measures that the company can adopt to help enhance congruency between its climate policies and proxy voting.”

Franklin Templeton sought to have the resolution omitted from its proxy ballot, arguing that proxy voting matters should be considered to be ordinary business. Zevin, on the other hand, asserted that resolution addressed climate change, and the Securities and Exchange Commission (SEC) recently found in the proponent's favor.

“Franklin’s inconsistency on climate poses a reputational risk to the company, especially given the contrast with many of its competitors”, said Sonia Kowal, President of Zevin Asset Management. “Given the severe threats of climate change to human societies and economies, Franklin’s clients may start to wonder if their investments are in good hands. We hope that other investment companies will now become more thorough and transparent in making decisions on climate related issues”.

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