ADDRESS OF PERSON RELYING ON EXEMPTION: PO Box 4831, Silver Spring,
MD 20914
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.
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Vote AGAINST Chair and Chief Executive Officer Joseph W. Gorder (Item 1.B), and
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Vote AGAINST Lead Director Robert A. Profusek (Item 1.H)
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The physical and financial risks posed by climate change
to long-term investors are systemic, portfolio-wide, unhedgeable and undiversifiable. Therefore, the actions of companies that
fail to align to limiting warming to 1.5°C pose risks
to the financial system as a whole, and to investors’ entire portfolios, in addition to specific risks to those companies. See Appendix
A for more information regarding Majority Action’s Proxy Voting for a 1.5°C
World initiative and the transformation required in key industries.
Valero is the world’s largest independent refiner.1
It is among the 167 target companies named by Climate Action 100+ as one of the largest global emitters and “key to driving the
global net-zero emissions transition.”2
Petroleum and fossil gas products, including those used in transportation,
buildings, industrial processes, and electricity production, account for 79% of carbon emissions from the U.S. energy system.3
In recent years, the U.S. has overtaken Saudi Arabia and Russia to become the largest petroleum and fossil gas producer in the world.4
Failure to set ambitious decarbonization targets in line with 1.5°C
pathways, and align companies’ business plans and policy influence to those targets is a failure of strategy and corporate governance,
for which long-term investors should hold directors accountable.
Failure to set net-zero targets
Net-zero by 2050 commitment that covers all relevant emissions sources, in particular Scope 3 emissions from the burning of products sold, and on a full equity share basis
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Net-zero commitment has limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including carbon capture and storage
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The company provides no Scope 3 emissions data in its November
2020 “ESG Company Overview”5 and has set no Scope 3
targets. It has set a very limited target of reducing carbon intensity of Scope 1 and Scope 2 emissions by 20% by 2035 from a 2011 base.6
According to Climate Action 100+, Valero meets none of the criteria for net-zero and long-term greenhouse gas reduction
target setting, its targets do not cover the most relevant Scope 3 emissions categories for its sector and are not 1.5C-aligned.7
Capital allocation and investment plans not aligned with 1.5°C
pathways
Plan to realign capital expenditures to meet a net-zero decarbonization commitment
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Valero plans to invest about $800 million on growth projects in
2021 with almost half of that amount devoted to the expansion of its “renewable diesel” business.8
Despite the name, “renewable diesel” fuel is a source of greenhouse gas emissions, though at lower carbon intensity than fossil
fuels.9 The company’s recent disclosures do not say how the
balance of its growth capex budget will be spent.10 According to
Climate Action 100+, Valero does not meet the criteria for capital allocation alignment.11
Misalignment of policy influence activities with net-zero commitment
and 1.5°C pathways
Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C
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Valero “appears to be broadly lobbying negatively on climate
policy” and has been especially active in opposing the Renewable Fuel Standard, according to InfluenceMap, which gave this company
one of its poorest grades in the energy sector. Despite its public enthusiasm for “renewable” fuels, Valero has taken legal
action against the Environmental Protection Agency arguing that the “volume of biofuel set by renewable fuel targets was too high.”12
Valero also petitioned the US Supreme Court in opposition to EPA standards which make refiners and fuel importers obligated parties under
the RFS.13 It was also a major contributor to a campaign against
a carbon tax in Washington State.14
According to Climate Action 100+, Valero does not meet any of
the criteria for climate policy engagement alignment.15
Conclusion: Valero has failed to set net-zero targets, align
its capital investments with limiting warming to 1.5°C, or ensure its policy influence activities would support doing so.
Therefore, we recommend that shareholders vote AGAINST Chair and Chief Executive Officer Joseph W. Gorder (Item 1.B) and Lead Director
Robert A. Profusek (Item 1.H) at the company’s annual meeting on April 29, 2021.
Appendix A: Proxy Voting for a 1.5°C World
The world is currently on track to disastrous levels of warming,
driving massive harm and threatening the lives and livelihoods of millions. Corporate leaders in the industries responsible for this
crisis have failed to take up the leadership required to change course.
“Climate risk” is a systemic, escalating, and irreversible
crisis––for which corporate boards urgently need to take responsibility. The UN Intergovernmental Panel on Climate Change
(IPCC) in 2018 made clear that in order to have at least a 50% chance of limiting warming to 1.5°C
and avoiding the most catastrophic effects of the climate crisis, we must bring global, economy-wide carbon emissions down to net-zero
by 2050 at the latest.16 That means that corporate directors must
ensure that companies set ambitious decarbonization targets in line with 1.5°C
pathways, and align companies’ business plans, executive pay, and policy influence to those targets.
The physical and financial risks posed by climate change to
long-term investors are systemic, portfolio-wide, unhedgeable and undiversifiable. Therefore, the actions of companies that directly
or indirectly impact climate outcomes pose risks to the financial system as a whole, and to investors’ entire portfolios. In order
to manage this systemic portfolio risk, investors must move beyond disclosure and company-specific climate risk management frameworks,
and focus on holding accountable the relatively small number of large companies whose actions are a significant driver of climate change.
When directors fail to transform corporate business practices
in line with 1.5°C pathways, responsible investors must use their most powerful tool –– their proxy voting power––to
vote against directors. Bold and unprecedented action by investors is a prerequisite to averting further global economic and financial
catastrophe. While past shareholder efforts at standard setting, disclosure and engagement have laid important groundwork, company commitments
won have been far too incremental, far too hard fought, and collectively insufficient to the scale of the crisis.
In particular, major asset managers like BlackRock and Vanguard,
who hold outsized voting power at the majority of S&P 500 companies, must use their power to oppose directors on boards who have
failed to take up this leadership.
Action this year is critical, and momentum is growing to oust
the directors who are ill-equipped to lead companies to rapid decarbonization. In 2020, a coalition successfully pushed for Lee Raymond,
the chief architect of ExxonMobil’s climate denial strategy, to lose his position leading the JPMorgan Chase board of directors.
Business-as-usual proxy voting will not suffice to address
the seriousness of the crisis at hand. We urge investors to vote against these directors at companies failing to implement plans consistent
with limiting global warming to 1.5ºC.
Four Key Sectors Are Critical To Curbing the Climate Crisis
The electric power, finance, transportation, and oil and gas sectors
must all make dramatic transformations to curb the worst of catastrophic climate change and protect long-term investors. Substantial votes
against board members at these companies could help realign business and investment plans to the goals of the Paris Agreement, hold companies
accountable for dark money used to influence critical climate policies, and align executive compensation to key decarbonization goals.
While each industry and company will need to chart its own path
in pursuing decarbonization consistent with limiting warming to 1.5ºC, setting a target to reach net-zero emissions by no later than
2050 is a critical first step. In the absence of such a target, investors can have no confidence that the company will be able to transform
its business consistent with limiting warming to 1.5ºC.
Voting Guide: Oil & Gas
Petroleum and fossil gas products, including those used in transportation,
buildings, industrial processes, and electricity production, account for nearly 80% of carbon emissions from the U.S. energy system.17
In recent years, the U.S. has overtaken Saudi Arabia and Russia to become the largest petroleum and fossil gas producer in the world.18
As a result of the COVID-19 pandemic, global demand for oil experienced its largest ever annual decline, falling 8.6% in 2020.19
While the near-term outlook for oil remains highly uncertain, according to Carbon Tracker, all of the largest oil companies have projects
available for approval in 2020-2022 that would exceed the carbon budget for a 1.5°C future.20
Target setting
In order to be aligned with limiting warming to 1.5°C, oil
and gas companies must set net-zero by 2050 targets that contemplate absolute greenhouse gas emissions reductions rather than carbon intensity
reductions and include all corporate emissions, including emissions from the use of the products they sell (Scope 3 emissions).21
Net-zero commitments should also incorporate interim targets and
milestones that allow accelerated emissions reduction between now and 2030 rather than delaying the hard task of emissions reduction until
after that date. Net-zero commitments must cover projects on a full equity share basis, such that all joint ventures and subsidiaries
are covered by the company-wide target. Finally, robust net-zero targets should not rely on substantial use of offsets, negative emissions,
or technologies that are not yet developed or commercialized to avoid short-term greenhouse gas emissions reductions. Any use of such
offsets or negative emissions should be clearly disclosed to allow investors to assess the quality and credibility of oil and gas company
plans.
Key data sources:
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Climate Action 100+ (CA100+), Disclosure
Indicators 1-4
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Science-Based Targets Initiative
(SBTI), Companies list and Sector
Guidance
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Carbon Disclosure Project
(CDP), search company survey responses
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Oil Change International,
Big Oil Reality Check
report
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Capital allocation and investment
Given that oil supplies currently in production already exceed
the carbon budget for limiting warming to 1.5°C, oil and gas companies must immediately cease approving investment in new projects
that fall outside the carbon budget. According to Carbon Tracker, the 15 largest projects sanctioned in 2019 that exceed the carbon budget
to limit warming to 1.65-1.8°C accounted for $60bn in new capital expenditures from oil and gas companies.22
At minimum, Arctic and oil sands projects are inconsistent with limiting warming to 1.5°C, economically unviable due to elevated production
costs, and fraught with additional environmental and human rights risks.23
Key data sources:
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Climate Action 100+ (CA100+), Disclosure
Indicator 6
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Carbon Tracker, Company
Profiles: Oil & Gas Companies
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Policy influence
Oil and gas companies must fully align their policy influence
activities, including political spending and lobbying activities, with the policy settings required to accelerate sector-wide emissions
on a timeline necessary to limit warming to 1.5°C. Oil and gas companies must provide full disclosure of all political and lobbying
spending in all jurisdictions to allow investors to assess this alignment. Finally, companies must ensure the alignment of the policy
influence activities with 1.5°C outcomes of any trade associations or similar entities of which they are members or to which they
contribute, or cease membership of such organizations.
Key data sources:
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Climate Action 100+ Disclosure Indicator
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1 https://www.valero.com/refining/oil-refining
2 https://www.climateaction100.org/whos-involved/companies/
3 https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T11.01#/?f=A&start=1973&end=2019&charted=0-1-13
(Petroleum accounted for 2365.214 million metric tons of carbon dioxide and natural gas 1685.73 MMT, from a total of 5137.908 MMT).
4 https://www.eia.gov/todayinenergy/detail.php?id=40973
5 https://www.valero.com/sites/default/files/valero-documents/Valero%20ESG%20Deck_11_10_2020%20FINAL.PDF
6 https://www.valero.com/sites/default/files/valero-documents/Valero%20ESG%20Deck_11_10_2020%20FINAL.PDF,
Slide 10. Valero’s “Comprehensive Roadmap” slide deck further says the company aims to “reduce and offset
[emphasis added] Scope 1 and 2 GHG emissions by 63%,” but almost all of that is in the form of offsets and credits. The slide
further indicates that the absolute reduction in emissions the company projects for this period is from 31.8 million metric tons of carbon
dioxide to 30.4 million metric tons, a 4% decrease.
7 https://www.climateaction100.org/company/valero-energy-corporation/,
at Indicators 1-4
8 https://investorvalero.com/news/news-details/2021/Valero-Energy-Reports-2020-Fourth-Quarter-and-Full-Year-Results-and-Declares-Regular-Cash-Dividend-on-Common-Stock/default.aspx#:~:text=Capital%20investments%20attributable%20to%20Valero%20are%20forecasted%20at%20%242.0%20billion,expanding%20the%20renewable%20diesel%20business.
9 https://www.eia.gov/todayinenergy/detail.php?id=37472#:~:text=The%20average%20carbon%20intensity%20of,from%20used%20cooking%20oil%20feedstock
10 https://www.valero.com/sites/default/files/valero-documents/Valero%20ESG%20Deck_11_10_2020%20FINAL.PDF
and https://s23.q4cdn.com/587626645/files/doc_financials/2020/q4/VLO-4Q20-Earnings-Release.pdf
11 https://www.climateaction100.org/company/valero-energy-corporation/,
at Indicator 6
12 https://influencemap.org/company/Valero-Energy,
as of April 5, 2021.
13 https://influencemap.org/evidence/-5d09cb5d4c5304e2627f15084070de66
14 https://influencemap.org/company/Valero-Energy/projectlink/Valero-Energy-In-Climate-Change
Second lowest ranking in energy sector: https://influencemap.org/filter/List-of-Companies-and-Influencers#4
15 https://www.climateaction100.org/company/valero-energy-corporation,
at Indicator 7
16 Intergovernmental
Panel on Climate Change. Special Report on Global Warming of 1.5 Celsius, https://www.ipcc.ch/sr15/
17 https://www.eia.gov/totalenergy/data/browser/index.php?tbl=T11.01#/?f=A&start=1973&end=2019&charted=0-1-13
18 https://www.eia.gov/todayinenergy/detail.php?id=40973
19 https://www.iea.org/articles/global-energy-review-co2-emissions-in-2020
20 https://carbontracker.org/reports/fault-lines-stranded-asset/
; Carbon Tracker defines a carbon budget as, “the cumulative amount of carbon dioxide (CO2) emissions permitted over a period of
time to keep within a certain temperature threshold.” https://carbontracker.org/carbon-budgets-explained/
21 https://carbontracker.org/reports/absolute-impact/
22 https://carbontracker.org/reports/fault-lines-stranded-asset/
23 https://carbontransfer.wpengine.com/wp-content/uploads/2019/09/Capex-report-2019_Infographic.pdf
; https://www.ran.org/funding_tar_sands/