Mutual fund giant Franklin Resources set to face further resolution on ESG and proxy voting

Franklin Resources, the US mutual fund holding company which operates as the better known Franklin Templeton Investments, is likely to face a further shareholder resolution scrutinizing its proxy-voting activities next year.

An earlier resolution filed by sustainability specialist Zevin Asset Management last year was withdrawn after meeting resistance from the company, which has a total of $882.2bn under management.

At issue is what Zevin says is a contradiction between the fund giant’s stated belief in the value of environmental, social and governance (ESG) factors and its actual record on voting on sustainability resolutions at company AGMs. The proposal had wanted the company’s board to review its proxy voting policies and practice.

“We intend to file again on the issue this summer and are confident that we would be able to successfully make it through a no-action request,” Zevin’s Director of Socially Responsible Investing Sonia Kowal told RI. The ‘no action’ process is when a company effectively seeks permission from the Securities and Exchange Commission to omit shareholder proposals from its AGM agenda.Despite withdrawing the proposal, Kowal has tried to enter into dialogue with the company, and wrote to chairman and CEO Gregory Johnson last month. She pointed out that in 2013 Franklin Templeton’s mutual funds voted against shareholders’ sustainability proposals on 171 out of 175 occasions. This suggests, she argues, that Franklin’s funds disregard sustainability-themed resolutions.

For its part, a legal brief from Franklin’s lawyers at Stradley Ronon Stevens & Young noted that the firm – which signed up to the Principles for Responsible Investment (PRI) in May 2013 – is a holding company and thus does not itself manage assets or vote proxies. Zevin’s proposal would “create a conflict of interest” for its investment advisor subsidiaries in choosing between their fiduciary duty to their clients and the “social objectives” enshrined in the proposal.

The firm says it is committed to integrating the consideration of ESG “opportunities and risks” throughout its global platform.

Kowal added the company’s adoption of the PRI illustrates that it believes its subsidiaries “can take sustainability issues into account while still complying with their fiduciary duty”.