PROXY MEMORANDUM To: Marathon Petroleum Corporation Shareholders Subject: Shareholder Resolution Requesting of the Business I

PROXY MEMORANDUM

To: Marathon Petroleum Corporation Shareholders Subject: Shareholder Resolution Requesting of the Business Impact of Limiting Global Warming to 2 Degrees Celsius Date: February 23, 2017 Contact: Mary Minette, Director of Shareholder Advocacy, [email protected]

Mercy Investment Services, Inc. recommends a vote “FOR” the shareholder resolution described below. The proposal was filed by Mercy and will appear on Marathon Petroleum Corporation’s (MPC) proxy ballot and be voted on at MPC’s Annual Meeting.

Resolved: Shareholders request that Marathon Petroleum issue a report by December 30, 2017 with board oversight, at reasonable cost and omitting proprietary information, on the Company’s strategy for aligning its business plan with the well below 2 degree Celsius goal of the Paris Agreement, while continuing to provide safe, affordable and reliable energy.

Supporting Statement: This report could include: • The impact of a below 2 degree scenario on Marathon Petroleum’s current business model, business lines and products; and • Plans to integrate technological, regulatory and business model innovations such as advanced biofuels, fuel cells, and electric vehicle charging infrastructure.

Summary 1. The core business of Marathon Petroleum Corporation faces risk as policies and markets move to address climate change and transition from fossil fuels to other forms of energy. 2. The company’s disclosures to date do not fulfill the request of the shareholder proposal because they do not indicate that MPC is planning for market changes as governments move to hold global warming within a range of 2 degrees Celsius over

1 pre-industrial levels. 3. Two-degree scenario analysis will help MPC to adapt its business model and capital allocation processes and better position the company for a low-carbon future. 4. Tools for scenario analysis are readily available and will help to reduce future financial risk and inform strategic planning.

Discussion

1. Marathon Petroleum Corporation is at risk due to its current business model.

Marathon Petroleum Corporation’s core business—refining and marketing carbon-based fuels for transportation—faces risks from policies aimed at keeping temperatures below 2 degrees and from technological and market changes that are likely to reduce demand.

According to the International Energy Agency, transportation accounts for more than one-fifth of global carbon dioxide emissions and is likely to rise, requiring rapid adoption of new technologies to keep temperatures within the 2-degree Celsius limit set by the Paris Agreement.1 The International Energy Agency and the International Council on Clean Transportation forecast that electrification of transport will play a critical role in achieving required greenhouse gas reductions by 2050.2 Sales of electric vehicles are already on the rise: in 2016, U.S. EV sales rose by 37 percent in the U.S. and 41 percent globally.3

The company has acknowledged that demand for gasoline in the U.S. is likely to continue dropping.4 However, some industry analysts predict that U.S. liquid fuel demand could decrease even more quickly than MPC is assuming, threatening the value of the company’s fixed assets: ratings agency Fitch has described EVs as a “resoundingly negative” threat to the oil industry and urged energy companies to plan for “radical change”5; Statoil’s CEO recently predicted that oil demand will peak in 2020 with " a shrinking oil industry" as vehicles are electrified.6

Increased fuel efficiency for internal combustion engines will also decrease demand for gasoline and diesel fuels: in the U.S., efficiency requirements for light-duty vehicles will rise to 54.5 miles per gallon by 20257 and agencies are considering standards leading to significant reductions in fuel consumption for medium and heavy-duty trucks.8

MPC acknowledges that climate change regulations pose a potential material risk to the company’s core business.9 The company also acknowledges that rules to increase fuel economy as well as increased use of alternative fuels pose a risk to MPC’s operations.10

2. The company’s current plans are not enough to reassure investors and markets that MPC is planning for a low-carbon future.

2 The company’s disclosures to date do not fulfill the request of the shareholder proposal because they do not indicate that the company is aligning its business plans with the goal of the Paris Agreement to limit global warming to an increase of no more than 2 degrees over pre-industrial levels.

In its 2016 Citizenship Report, MPC notes that it has worked to improve the energy efficiency of its refineries and has been recognized by the EPA ENERGY STAR program for its efforts.11 The company also outlines small recent investments in solar and wind power that may lead to more investments in the future as a means to power its facilities.12 The company reports its greenhouse gas emissions by facility, and with the exception of the Galveston Bay refinery, its emissions per unit of production are trending down.13 The company produces corn-based ethanol and biodiesel and a percentage of its Speedway retail facilities sell biofuels; a few Speedway stations also offer compressed natural gas in areas where demand exists. The company also has a partnership with Argonne National Laboratory that works to improve engine efficiency.14

While these efforts are commendable, they do little to prepare the company for a low-carbon future. This is because the majority of the company’s greenhouse gas emissions—and therefore its climate risk—are in its products rather than its operations. The company’s top three products are carbon-based transportation fuels that produce significant greenhouse gas emissions.15 Globally, demand for petroleum-based fuels will have to fall significantly by mid-century to meet the 2-degree goal of the Paris Agreement: the U.S. Mid-Century Strategy for Deep Decarbonization, released last year, anticipates that emissions reductions in the transportation sector will be achieved through a combination of increased fuel efficiency, electrification of passenger vehicles, advanced biofuels, and transportation planning that allows for fewer miles traveled per capita.16 All of these measures will reduce demand for the petroleum-based transportation fuels that are the core of MPC’s business.

To the extent that demand for liquid fuels is likely to remain robust, it is largely in developing markets rather than in the U.S., where all of MPC’s production is located. In addition, these expectations are based, in part, on predictions that demand will continue to grow in the developing world.17 However, as countries like China and India begin to align with the 2-degree goal of the Paris Agreement, they may decide to adopt policies to discourage individual car ownership, and encourage adoption of lower carbon transportation options. For example, China recently announced that it will begin to replace Beijing’s 67,000 conventional engine taxis with EVs.18 A recent report from Carbon Tracker and the Grantham Institute calls “business as usual” predictions of slow growth in the market for EVs “a high risk strategy” and urges use of a range of scenarios to evaluate future demand.19

The company’s disclosures indicate that MPC has made some small investments in lower carbon product lines, but a business plan that incorporates 2-degree scenario analysis will help the company to identify more opportunities and determine the potential range of projected 3 revenues associated with various scenarios. Without additional details indicating that the company is setting long-term goals that incorporate changing levels of demand, using an internal price on carbon to inform decision-making, or testing the company’s short- and long- term business plans and capital expenditures against different scenarios designed to reach a 2- degree goal, investors lack critical information about the company’s plans to manage their business in light of regulatory, technological and market challenges.

3. Two-degree scenario analysis will help MPC adapt its business model and capital allocation processes and better position the company for a low-carbon future.

Robust scenario analysis is increasingly critical in the rapidly changing regulatory and technological world in which MPC operates.

In December 2016, the Task Force on Climate-related Financial Disclosures (TCFD) of the G20’s Financial Stability Board released a set of draft recommendations for climate-related disclosures in financial filings. The TCFD framework includes recommendations that relate to the way firms consider the impact of climate change on their governance, risk management and strategy, and sets out metrics and scenarios firms should consider disclosing. The TCFD guidelines recommend that all companies “describe the potential impact of different scenarios, including a 2°C scenario, on the organization’s businesses, strategy, and financial planning” but also includes more specific guidance for companies in the oil and gas, coal and electric utilities sectors due to the unique vulnerabilities of these industries.20

While we are interested to see the types of actions MPC is undertaking to address climate change, our shareholder proposal asks not for actions taken but rather for ways in which the company is incorporating different climate change scenarios into its overall business plan. Global energy companies are increasingly using this type of scenario analysis to identify both vulnerabilities and opportunities for their business, and to reassure investors and markets that they are poised to manage and take advantage of both. For example, BHP Billiton, a global mining, metals and petroleum company, has adopted a planning process that “uses scenario analysis to encompass a wide spectrum of potential outcomes for key global uncertainties.”21 In a publicly available report issued in 2015, BHP Billiton outlined four possible scenarios ranging from an orderly transition to a 2-degree world to a shock event that leads to a much more rapid transition to a 2-degree Celsius world by 2030.22

Other oil and gas companies are also using scenario analysis to assess the direction of their business and to assure investors that they are poised to take advantage of new opportunities. For example, Total issued a report in 2016 that discusses how a 2-degree scenario impacts the company’s decision-making process, discusses its targets for reducing the carbon intensity of its operations over time, and includes the endorsement of its board of directors for this approach.23 Other companies beginning to use a 2-degree scenario analysis in their business planning include ConocoPhillips,24 Statoil,25 and Shell.26 4

4. Tools to implement scenario analysis are readily available and will help to manage the company’s future risk.

The scenario analysis requested in the shareholder proposal could help to prevent potentially costly mistakes in future plans and capital allocation decisions. In addition, numerous tools and examples exist to aid the company in carrying out a 2-degree scenario analysis within existing strategic planning processes.

Many of MPC’s assets have long planned lifespans and represent major capital investments; for example, performance upgrades underway at MPC’s Galveston Bay and Garyville refineries have cost the company $900 million since 2013.27 The Galveston Bay refinery and related assets were acquired from BP in 2013 for $1.49 billion28 and the company plans an additional $400 million in environmental upgrades to the facility in coming years.29 These are significant capital outlays that may not pay off if demand for the company’s products were to drop significantly.

Scenario analysis would help MPC to evaluate potential risks and also identify possible market opportunities; the Task Force on Climate-Related Financial Disclosures discusses scenario analysis as a means to “allow an organization to explore and develop an understanding of how the physical and transition risks and opportunities of climate change might impact the business over time.”30 Along with its recommendations, the task force also issued a technical report to help guide companies in carrying out scenario analysis.31

In November 2016, the U.S. government released its Mid-Century Strategy for Deep Decarbonization32, which outlines several approaches by which the U.S. could achieve greenhouse gas reductions of 80 percent or more by 2050. The report highlights ways that the entire energy system can transition to low-carbon resources, and provides multiple scenarios by which the U.S. could dramatically reduce carbon emissions by 2050, which can inform any 2- degree scenario analysis by MPC.

Investors need information to understand how capital allocation decisions are being made and how those decisions may impact the future value of our holdings. Assessing the resilience of the company’s business operations and planned capital projects against a scenario (or scenarios) consistent with achieving the 2-degree target will provide MPC and its investors with valuable information about the viability of company assets and important information for strategic planning.

Conclusion Climate change and various responses to it create fundamental risks to Marathon Petroleum Corporation, its operations, and its profitability. While MPC explicitly acknowledges that energy and climate policies could have material adverse impacts on the company, it does not provide any further disclosure needed by investors to inform decision-making. Accordingly, 5 investors are encouraged to vote “FOR” this important request for enhanced disclosure.

1 International Energy Agency, CO2 Emissions from Fuel Combustion Highlights 2016; International Energy Agency, Transport, Energy and CO2: Moving toward Sustainability. 2 International Energy Agency, Global EV Outlook 2016; International Council on Clean Transportation, Global Climate Change Mitigation Potential from a Transition to Electric Vehicles (Working Paper 2015-5) 3 https://www.forbes.com/sites/rrapier/2017/02/05/u-s-electric-vehicle-sales-soared-in-2016/#30a4151e217f 4 Slide 41 at http://www.marathonpetroleum.com/content/documents/investor_center/presentations/2016/MPC%20November %202016%20General%20Presentation.pdf 5 https://www.ft.com/content/b42a72c6-94ac-11e6-a80e-bcd69f323a8b 6 http://www.climatechangenews.com/2016/10/19/statoil-chief-rise-of-electric-cars-will-shrink-oil-industry/ 7 EPA Regulatory Announcement (August 2012) https://www.epa.gov/regulations-emissions-vehicles-and- engines/regulations-greenhouse-gas-emissions-passenger-cars-and 8 EPA Regulatory Announcement (June 2015) https://www.epa.gov/newsreleases/epa-and-dot-finalize- greenhouse-gas-and-fuel-efficiency-standards-heavy-duty-trucks-1 9 See Marathon Petroleum Corporation 2015 Form 10-K at p. 25 noting: We believe it is likely that the scientific and political attention to issues concerning the extent and causes of climate change will continue, with the potential for further regulations that could affect our operations. Currently, legislative and regulatory measures to address greenhouse gases are in various phases of review, discussion or implementation. The cost to comply with these laws and regulations cannot be estimated at this time, but could be significant. 10 MPC 2015 Form 10-K at p. 28 (“New or alternative transportation fuels such as compressed natural gas could also pose a competitive threat to our operations.”) and 29 (“We may experience a decrease in demand for refined petroleum products due to an increase in combined fleet mileage or due to refined petroleum products being replaced by renewable fuels.”) 11 MPC 2016 Corporate Citizenship Report at 1. 12 Ibid at 29. 13http://www.marathonpetroleum.com/Corporate_Citizenship/Health_Environment_Safety_Security/Environmen t 14 MPC 2016 Corporate Citizenship Report at 27. 15 MPC 2016 Corporate Citizenship Report at 3. 16 United States Mid-Century Strategy for Deep Decarbonization (http://unfccc.int/files/focus/long- term_strategies/application/pdf/us_mid_century_strategy.pdf) at 55-56. 17 See, e.g. Exxon Mobil Energy Outlook 2016 (http://corporate.exxonmobil.com/en/energy/energy-outlook/charts- 2017/transportation-demand-varies-by-region-and-sector) 18https://cleantechnica.com/2017/03/01/china-will-replace-67000-fossil-fueled-taxis-beijing-electric-cars 19 Expect the Unexpected: The Disruptive Power of Low-carbon Technology at 23 (http://www.carbontracker.org/wp-content/uploads/2017/02/Expect-the-Unexpected_CTI_Imperial.pdf) 20 Recommendations of the Task Force on Climate-related Financial Disclosures, December 14, 2016. https://www.fsb-tcfd.org/wp-content/uploads/2016/12/16_1221_TCFD_Report_Letter.pdf 21 BHP Billiton, 2015 Annual Report http://www.bhpbilliton.com/~/media/bhp/documents/investors/annual- reports/2015/bhpbillitonannualreport2015.pdf 22 BHP Billiton, Climate Change: Portfolio Analysis, September 2015; http://www.bhpbilliton.com/- /media/bhp/documents/investors/reports/2015/bhpbillitonclimatechangeporfolioanalysis2015.pdf? BHP Billiton, Climate Change: Portfolio Analysis – ‘Views after Paris’, October 2016 http://www.bhpbilliton.com/- /media/bhp/documents/investors/reports/2016/bhpbillitonclimatechangeporfolioanalysis2016.pdf? 23 Total, Integrating Climate into our Strategy, May 2016

24 http://www.conocophillips.com/sustainable-development/environment/climate-change/Documents/10222015- COP-CarbonAssetRisk-PresbyterianSymposium.pdf 25 https://www.statoil.com/content/dam/statoil/documents/energy-perspectives/energy-perspectives-2016.pdf 26 http://www.shell.com/energy-and-innovation/the-energy-future/scenarios.html 27 MPC 2015 Form 10-K at 5. 28 Marathon Petroleum Corporation 2013 10-K at 81. 29 http://www.marathonpetroleum.com/Corporate_Citizenship/Health_Environment_Safety_Security/Environment/ 30 Task Force on Climate-related Financial Disclosures, Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities, December 14, 2016. https://www.fsb-tcfd.org/wp- content/uploads/2016/11/TCFD-Technical-Supplement-A4-14-Dec-2016.pdf 31 Ibid. 32 http://unfccc.int/files/focus/long-term_strategies/application/pdf/us_mid_century_strategy.pdf