Organization: Valero Energy Corporation

Year: 2015

Description: RESOLVED:
Shareholders request that Valero Energy (Valero) adopt quantitative goals, based on current technologies, for reducing total greenhouse gas (GHG) emissions from products and operations, and report to shareholders by fall 2015 on its plans to achieve these goals (omitting proprietary information and prepared at reasonable cost.)

SUPPORTING STATEMENT:
In November 2014 the Intergovernmental Panel on Climate Change (IPCC) released its latest and most conclusive “synthesis report” reporting that human-caused "warming of the climate system is unequivocal," with many of the impacts of warming already "unprecedented over decades to millennia." In order to mitigate the worst impacts of climate change, the IPCC estimates that a 50 percent reduction in GHG emissions globally is needed by 2050 (relative to 1990 levels.)

Increased regulation of GHG emissions is already underway. In May 2013, President Obama outlined an action plan to address climate change. New Corporate Average Fuel Economy (CAFE) Standards which set new targets for automotive fuel efficiency and the development of state low carbon fuel standards seek to prompt the development of a new generation of fuels that will be economically and environmentally more sustainable.  

Additionally, the U.S. Environmental Protection Agency (EPA) has proposed to strengthen emissions standards for petroleum refineries, which aim to promote air quality and protect the health of local communities where Valero operates.

Creating clear-cut goals can help Valero to significantly reduce its carbon footprint by implementing a disciplined business strategy to cut emissions and to better manage environmental, regulatory and license to operate risks. Management approaches include renewable energy production or procurement, energy efficiency targets, and methane leakage and flaring reduction goals.

Investors with $92 trillion in assets support CDP’s (formerly Carbon Disclosure Project) request disclosure from over 6,000 companies on disclosure of carbon emissions, reduction goals, and climate change strategies to address these risks. CDP received over an 80% response rate in 2013.

A recent CDP study of 386 U.S. companies in the S&P 500 found that 79% of companies “earn a higher return on their carbon reduction investments than on their overall corporate capital investments,” energy efficiency improvements earned an average return on investment of 196%, with an average payback period between two and three years, and “high emitting companies that set absolute emissions reduction targets achieved reductions double the rate of those without targets, with 10% higher firm-wide profitability.”

While over half of S&P 500 companies have set GHG emissions reduction targets, which can protect and enhance shareholder value long-term, Valero lags behind. Peers such as Exxon and Hess report in their CDP responses that they have set energy efficiency and emission intensity reduction targets, respectively. Unfortunately, Valero lags behind, having declined to participate or not responded to CDP’s response request for several years.

Last year this proposal received a vote in support of 39.4% (excluding abstentions), a substantial level of support that management should not ignore.