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2150 Kittredge St. Suite 450
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www.asyousow.org
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Berkeley, CA 94704
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BUILDING A SAFE, JUST, AND SUSTAINABLE WORLD SINCE 1992
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Notice of Exempt Solicitation
Pursuant to Rule 14a-103
Name of the Registrant: Phillips
66 (PSX)
Name of persons relying on exemption: As You Sow
Address of persons relying on exemption: 2150 Kittredge St. Suite 450, Berkeley, CA 94704
Written materials are submitted
pursuant to Rule 14a-6(g)(1) promulgated under the Securities Exchange Act of 1934. Submission is not required of this filer
under the terms of the Rule, but is made voluntarily in the interest of public disclosure and consideration of these important
issues.
Phillips
66 (PSX)
Vote Yes: Item #4 – Petrochemical Risk Proposal
Annual
Meeting: May 6, 2020
CONTACT: Lila Holzman | lholzman@asyousow.org
THE
PROPOSAL
Shareholders request that Phillips
66, with board oversight, publish a report, omitting proprietary information and prepared at reasonable cost, assessing the public
health risks of expanding petrochemical operations and investments in areas increasingly prone to climate change-induced storms,
flooding, and sea level rise.
SUMMARY
Due to the COVID-19 pandemic,
2020 has seen unprecedented economic disruption. With lives at stake, government action has been insufficient to avert massive
loss of life and economic devastation. This shock demonstrates just how critical early action and planning is to mitigate known
and likely global catastrophes. Even as the energy sector grapples with the impacts of COVID-19, it must not put aside preparation
and action to stem the risks presented by the climate crisis.
Physical risks associated with
climate change are increasing faster than previously predicted, as demonstrated by heightened storm intensity and frequency, as
well as rising sea levels in regions like the Gulf Coast. Chevron Phillips Chemical Company (CPChem), jointly owned by Phillips
66 and Chevron, has announced plans to significantly expand new petrochemical infrastructure in Gulf Coast areas that are already
being affected by such climate impacts.
Investors are concerned about
the financial, health, environmental, and reputational risks associated with operating and building-out new chemical plants and
related infrastructure in Gulf Coast locations that are increasingly prone to catastrophic storms and flooding associated with
climate change. Given the highly toxic chemicals involved in petrochemical operations (including benzene, volatile organic compounds,
and sulfur dioxide), the location of these investments in the Gulf Coast poses significant risks to the company, local communities,
and the environment. Disruptions in plant operations, such as those experienced by CPChem during Hurricane Harvey, frequently
result in upsets and equipment malfunctions and release of toxic chemicals beyond permitted levels. CPChem was noted as being
the source of some of the largest pollution leaks during Hurricane Harvey.
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2020 Proxy Memo
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Phillip’s 66 | Petrochemical Risk Proposal
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While the Company rapidly expands
its petrochemical assets in climate-impacted areas, investors seek specific information to assess whether Phillips 66 is sufficiently
prepared to mitigate public health risks associated with climate-related impacts and the dangerous chemicals it uses.
RATIONALE
FOR A YES VOTE
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1)
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Phillips 66’s increasing
investments in petrochemical infrastructure projects expose the company to growing climate
risks. These risks could lead to harms to human health and the environment and associated
litigation, financial penalties, regulatory action, reputational damage, loss of social
license to operate, and significant repair and clean-up costs that adversely impact shareholder
value.
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2)
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Phillips 66 does not provide
shareholders with sufficient analysis and disclosure on managing growing risk to its
petrochemical operations. The Company states it is aware of climate change and its
risks, but it has not adequately described plans to address the increasing risks its
operations face in sensitive areas. The Company’s references to high-level and
generalized risk management protocols are insufficient to assess if and how CPChem is
preparing to adequately mitigate and prevent the growing risks that climate change poses
to its current and planned petrochemical investments.
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DISCUSSION
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1)
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Phillips 66’s increasing
investments in petrochemical infrastructure projects expose the company to growing climate
risks.
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Phillips
66 has announced major billion-dollar investments for Gulf Coast-based projects over the next few years including the development
of a major petrochemical plant with an ethylene cracker and two high-density polyethylene units.1 Existing and proposed
petrochemical projects have the potential to create major liability during extreme weather events. In fact, Phillips 66 and CPChem
were noted as being the source of some of the largest pollution leaks during Hurricane Harvey, indicating that the Company may
be ill-prepared to manage the risks posed by climate change.2 Hurricane Harvey’s impacts also contributed to
a $123 million decrease in pre-tax income from Phillips 66’s Chemicals segment in 2017, which could burgeon if facilities
are hit by worse and more frequent events in the future.3
_____________________________
1 http://www.cpchem.com/en-us/news/Pages/Chevron-Phillips-Chemical-and-Qatar-Petroleum-announce-plans-to-jointly-develop-U-S--Gulf-Coast-petrochemical-project.aspx
2 https://www.environmentalintegrity.org/wp-content/uploads/2018/08/Hurricane-Harvey-Report-8.16.18-final.pdf,
p.12
3 https://s22.q4cdn.com/128149789/files/doc_financials/annual_report/2018/PSX_2018_AnnualReport.pdf
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2020 Proxy Memo
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Phillip’s 66 | Petrochemical Risk Proposal
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Growing
storms and the costs they bring our company are predicted to increase in frequency and intensity as global warming escalates.
Flood-related damage is projected to be highest in Texas, where many of CPChem’s petrochemical plants are concentrated,
and Houston alone has seen three 500-year floods in a three-year span. Hazardous chemical releases, such as those experienced
by CPChem’s petrochemical facilities during Hurricane Harvey, put surrounding communities at risk and have eroded the Company’s
social license to operate. The Center for International Environmental Law (CIEL) published a report in 2019 noting the extent
to which petrochemical refining operations use and produce hazardous pollutants that cause health impacts, including cancer, reproductive
and birth defects, etc. The report emphasized that fenceline communities are especially vulnerable, and that the risk is exacerbated
by extreme weather events. During Hurricane Harvey roughly one million pounds of dangerous air pollutants like benzene, 1,3-butadiene,
sulfur dioxide, and toluene were released by local refineries and plants.4
Outside of more extreme events, leaks are an ongoing danger and liability for Phillips 66 that can compound vulnerabilities
and impacts. Its facilities have been listed as the 2nd and the 6th largest emitters in the Houston region.5,6
Peer companies are already facing civil legal action regarding the emerging issue of climate resiliency. In 2019, a judge
in a Boston federal court allowed a lawsuit to move forward seeking $110 million for Exxon’s failure to fortify an oil storage
facility to withstand the physical impacts of climate change.7
The financial sector, including insurance companies, are also becoming more acutely aware of climate-specific risks, especially
in areas subject to greater climate impacts such as hurricanes and flooding. Swiss Re has published a report on the rapidly growing
costs of natural disasters, which reached $337 billion in 2017; Lloyd’s of London cited natural disasters for its first
loss in six years; and AXA has spoken out saying that major global warming would make the world uninsurable this century.8
BlackRock, the world’s largest asset manager, with $6 trillion in assets under management, released a report in April
of 2019 on its assessment of physical climate risks, noting: “Our early findings suggest investors must rethink their assessment
of vulnerabilities. Weather events such as hurricanes and wildfires are underpriced in financial assets.”9 Potential
lack of insurance coverage may be a growing concern for the Company.
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2)
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Phillips
66 does not provide shareholders with sufficient analysis and disclosure on managing
growing risk to its petrochemical operations.
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Despite
clear risks, Phillips 66 provides investors with minimal discussion of how it is responding to growing physical risks from climate
change. In Phillips 66’s “Energy: Policy Risks and Disclosures” report, the Company states that “the possible
physical effects of climate change on coastal assets are incorporated into planning, investment, and risk management decision
making.”10 Similarly vague and non-descriptive language is offered by Phillips 66 in its 10-K, as the Company
states “[t]he potential physical effects of climate change on our operations are highly uncertain and depend upon the unique
geographic and environmental factors present… [w]e have systems in place to manage potential acute physical risks...”11
_____________________________
4 https://www.ciel.org/wp-content/uploads/2019/02/Plastic-and-Health-The-Hidden-Costs-of-a-Plastic-Planet-February-2019.pdf,
p.17-22
5 https://environmentalintegrity.org/wp-content/uploads/2020/02/Benzene-Report-2.6.20.pdf
6 https://www.environmentalintegrity.org/wp-content/uploads/2019/09/Plastics-Pollution-on-the-Rise-report-final.pdf,
p.21
7 https://www.wbur.org/news/2019/03/13/exxonmobil-conservation-law-foundation-lawsuit-moves-forward
8 https://www.ft.com/content/0f530242-02c1-11e9-9d01-cd4d49afbbe3
9 https://www.blackrock.com/us/individual/literature/whitepaper/bii-physical-climate-risks-april-2019.pdf
10 https://www.phillips66.com/Sustainability-site/Documents/energy-policy-risks-disclosures-2018.pdf,
p.8
11 https://d18rn0p25nwr6d.cloudfront.net/CIK-0001534701/2c2b7a68-e8de-45fc-9871-9b1b2bf16e22.pdf,
p.21
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2020 Proxy Memo
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This
lack of transparency is especially worrisome considering Phillips 66’s large pollution leaks and loss of earnings during
Hurricane Harvey, which underscore that its current risk management strategy is inadequate.12 For instance, the company
does not: identify which of its current and planned facilities are in areas at high risk of experiencing climate-related severe
weather events; provide assumptions made and describe measures used to evaluate how climate change will affect its Gulf Coast
facilities and respond to increasing risk; report estimated emissions from unplanned upsets such as those that occur during hurricanes;
outline strategies to communicate with key local stakeholders during emergency situations; or describe measures taken to minimize
health impacts of associated chemical releases.
While some information on major spills must be reported to state and federal governments, companies are not required to
report this to counties.13 Current reporting requirements can leave communities in the dark about the health risks
they face; companies should therefore improve disclosures beyond what is required by law to retain and improve the goodwill and
trust of local communities and governments and to demonstrate to shareholders the type of best management practices in place.
As the risks of climate change become more apparent and urgent, shareholders require robust analysis and transparent disclosure
of risks and company mitigation strategies in order to make appropriately informed investment decisions.
RESPONSE TO
PHILLIP’S 66 BOARD OF DIRECTORS’ STATEMENT IN OPPOSITION
Phillips 66’s Board of
Directors (“the Board”) argues against this shareholder proposal on the basis that current “practices are designed
to ensure that any potential public health risk…can be managed to safe and acceptable levels” and that it discloses
enough information on its “performance and efforts.” It also states, “operational and economic advantages of
investments are weighed against any potential for environmental, socioeconomic, and health risks…” and that “identification
of risks in the project development phase allows CPChem to develop measures to avoid, mitigate, or remedy them before making new
investments.” However, the Company provides no insight into how it analyzes, weighs, and mitigates the risks raised
in the Proposal. The Company does not explain how it determines what is or is not considered to be a “safe and acceptable”
level of risk to public health, and past events indicate that such risk was not sufficiently considered. Furthermore, climate
science makes clear that future weather patterns will be different from the past - moving into a paradigm that is more extreme
and destructive, erratic and unpredictable. New weather paradigms necessitate new methods of analysis and approaches to minimize
risks to companies’ assets. The Board’s Statement does not indicate it is factoring future climate change impacts
into its analysis or processes to protect community health.
While the Board’s Statement
claims that Phillips 66’s “Operation Excellence” Policy takes into consideration “physical risks such
as flooding and storms” among the many risks the Company might face, recent events call this assumption into question, and
there is no mention of how climate change factors into such consideration. As noted, alarming chemical releases that occurred
during Hurricane Harvey demonstrate that Phillips 66’s current risk management systems are not sufficient to responsibly
manage extreme weather events, especially as these intensify in the future. The Company does state that it has implemented “lessons
learned” from Hurricane Harvey at “existing facilities and newly completed facilities.” However, the Company
does not explain what these lessons learned are or provide support that resulting changes are sufficient to withstand the heightened
future risks climate change is bringing for vulnerable coastal infrastructure.
_____________________________
12 https://s22.q4cdn.com/128149789/files/doc_financials/annual_report/2018/PSX_2018_AnnualReport.pdf,
p.41
13 https://apnews.com/e0ceae76d5894734b0041210a902218d
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2020 Proxy Memo
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Phillip’s 66 | Petrochemical Risk Proposal
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Climate-related risks are of
significant concern to investors and require comprehensive disclosures to fully inform shareholders about Company management of
these evolving risks. The high-level references in the Board’s Statement are insufficient to assure investors that risks
raised in the Proposal are being appropriately managed. In fact, “climate change” is not mentioned anywhere in
its Statement. As such, investors desire more clarity on Phillips 66’s management of the new risks that climate change
poses to local community safety.
CONCLUSION
Vote “Yes” on
this Shareholder Proposal regarding the Company’s efforts to limit public health and environmental impacts of building out
hazardous petrochemical infrastructure in high-risk climate-affected areas.
Phillips 66 is investing billions
in the construction and expansion of petrochemical infrastructure projects in regions that are exposed to increasing climate risk
such as destructive weather and flooding. Shareholders urge strong support for this proposal, which will bring increased transparency
to shareholders on a significant and emerging business risk facing the company.
--
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