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January 26, 2013

Genocide-Free Investing Proposal on Proxy Ballot at Franklin Templeton
    by Robert Kropp

For the first time in at least 19 years, investors in the mutual fund will vote on a shareowner resolution, calling on the company to adopt policies to avoid investing in companies that contribute to genocide.

SocialFunds.com -- Despite their financial power and influence, accounting for almost $12 trillion in assets under management, mutual funds are not legally bound by Securities and Exchange (SEC) regulations requiring corporations to hold annual general meetings at which resolutions can be introduced and voted on by shareowners.

Even though the 2012 Trends Report from US SIF: The Forum for Sustainable and Responsible Investment indicates "a dramatic increase in the number of mutual funds that consider corporate governance criteria or avoid companies doing business in the Sudan"—in fact, "Sudan-related investment policies are the most prevalent ESG (environmental, social, and corporate governance) criteria incorporated into investment management," US SIF found—investors in mutual funds often have no idea that their investments are supporting companies like PetroChina that actively help the regime there maintain its violent campaign against the people of South Sudan.

A case in point is Franklin Templeton, one of four financial firms—JPMorgan Chase, Fidelity, and Vanguard are the others—that together have holdings of $9 billion in PetroChina, Sinopec, and other oil companies whose payments to Omar al-Bashir's government help fund ongoing crimes against humanity. Franklin Templeton alone holds almost 1.5 billion shares in PetroChina, accounting for seven percent of the Chinese oil company's outstanding shares.

As it turns out, Franklin Templeton is holding an annual general meeting this year, on March 13th, and shareowners led by Investors Against Genocide (IAG) have submitted a resolution—"the first shareholder proposal to appear on the company's proxy ballot in nineteen years and possibly the first ever," according to an IAG press release—requesting that the mutual fund's board of directors "institute transparent procedures to avoid holding or recommending investments in companies that, in management's judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights."

Arguing "that there are many different perspectives and opinions on the best way to approach this and similar issues," the company opposes the proposal, stating, "We believe that fostering economic and business development through investment can often help in achieving reforms."

Three senior executives collectively own 32% of the mutual fund's outstanding shares, and 35 local and national human rights and religious groups, along with genocide and corporate governance scholars, wrote an open letter to them this week, requesting that they support the shareowner proposal.

"We are concerned that management's opposition to the proposal, combined with the many institutional shareholders that will follow your recommendation, will dramatically skew the vote against the wishes of average investors," the letter states. A 2010 study by KRC Research reported that 88% of respondents want their mutual funds to be genocide-free, and 84% said they would withdraw investments from financial institutions that do business with companies that support genocide.

"We are appealing to you directly, in advance of the proxy vote, to institute transparent procedures to avoid holding investments in companies that, in management's judgment, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights as stated in the shareholder proposal," the letter continued.

During the 2012 proxy season, a shareowner resolution addressing genocide-free investing at the ING Emerging Countries Fund won 59.25% of votes, with only 10.8% of the fund's shareowners voting against the proposal. Also, support for a similar proposal at JP Morgan Chase increased over 2011 during last year's proxy season.

Engagement by IAG and its allies led Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) and American Funds to sell their holdings in PetroChina and other companies associated with the Sudanese regime, and adopt policies addressing the issue.

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