SEC backs effort to hold Franklin Templeton accountable on climate change

Potential landmark ruling by US financial regulator

In a decision that could reverberate with all US mutual fund companies, the Securities and Exchange Commission (SEC) has ruled that Franklin Resources, the parent firm of Franklin Templeton Investments (FTI), must include in its proxy materials a shareholder resolution dealing with FTI’s voting record on climate change proposals.

The resolution comes from Zevin Asset Management, the Boston-based SRI investor that has been attempting to hold FTI and its peer T. Rowe Price accountable for their voting records on sustainability issues in general. Zevin argued that despite being signatories to the Principles for Responsible Investment (PRI), the two had frequently voted against sustainability proposals in past years.

As the 2015 proxy season began, Zevin President Sonia Kowal filed proposals at the mutual fund firms that sought a board review of their voting policies to see the extent to which they reflected their membership of the PRI. Both proposals failed, as Franklin Resources and T. Rowe Price were able to convince the SEC that they sought to micro-manage their firms.

But now the SEC has ruled that Franklin Resources must, in its 2016 proxy materials, include Zevin’s resolution obliging its board to report to shareholders any discrepancies between FTI’s public stance on climate change and its voting record. The SEC said Zevin’s proposal could not be excluded as it dealt with “the significant policy of climate change.”Said Kowal: “Franklin’s inconsistency on climate poses a reputational risk to the company, especially given the contrast with many of its competitors.” Competitors that have been supporting climate change resolutions at US firms include Deutsche Bank’s asset management unit, Oppenheimer and AllianceBernstein.

Zevin pointed to FTI’s disclosure to the CDP, the UK environmental body. In it, the mutual fund firm says “its bottom-up approach to investing, which takes climate change-related factors into consideration, gives us a competitive advantage by managing risk and opportunities.”

But Zevin said research done for the sustainability advocacy group Ceres reflects that FTI’s voting record on climate change is “near the bottom of the pack among mutual funds.” Indeed, Ceres says that during the 2012 proxy season, FTI did not support a single climate-related resolution.

Added Kowal: “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.”

There was no immediate comment from FTI parent firm Franklin Resources, which is based in San Mateo, California. The US is currently celebrating Thanksgiving.