Martin Marietta Materials, Inc. (MLM)

Proposal #5 “Adopt Greenhouse Gas Emissions Reduction Targets”

Annual Meeting May 11, 2023

Proponent: Amundi Asset Management

Contact: Edouard Dubois, head of Proxy Voting, edouard.dubois@amundi.com

SUMMARY

As long-term investors in Martin Marietta Materials (“Martin Marietta”, or “the Company”), we are concerned that the Company’s emissions reduction strategy falls short of investor expectations to align with the Paris Agreement and does not cover the full range of its operational and supply chain emissions. Without science-based greenhouse gas (GHG) emissions reduction targets covering its entire operational and supply chain emissions and backed by a comprehensive plan to achieve them, investors have no robust way to ensure that the Company is adequately managing the impacts of its climate risk to the Company and to investors.

RESOLVED CLAUSE

Shareholders request Martin Marietta Materials, within a year, issue near, medium and long-term science-based GHG reduction targets aligned with the Paris Agreement’s ambition of maintaining global temperature rise to well below 2°C above pre-industrial levels, and pursuing efforts to limit the temperature increase to 1.5°C, and summarize plans to achieve them. The targets should cover the Company’s full range of operational and supply chain emissions. In addition, these targets should omit proprietary and personal information.

SUPPORTING STATEMENT

In assessing targets, we recommend, at Board’s discretion:

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This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card as it will not be accepted.

RATIONALE FOR A YES VOTE

DISCUSSION

Martin Marietta is one of 166 focus companies engaged by the Climate Action 100+ (CA100+) initiative, a global investor initiative aiming to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. CA100+ signatories, including the Proponent Amundi Asset Management, aim to secure greater disclosure of climate change risks and robust company emissions reduction strategies, consistent with each investor’s own fiduciary duty. This includes setting full value chain targets for reducing GHG emissions aligned with limiting global warming to well below two degrees Celsius above pre-industrial levels and pursuing efforts to limit warming further to 1.5 degrees Celsius.

Martin Marietta has performed poorly against the expectations of the CA100+ Net Zero Company Benchmark since 2021 on almost all criteria assessed (short-term, mid-term, and long-term reduction targets, transition plan, capital alignment, and TCFD disclosure).¹ The Company has so far demonstrated limited responsiveness to the recommendations made by the investor group on behalf of CA100+. The Proponent has struggled to have consistent and constructive dialogues with the Company on topics related to the Company’s sustainability performance and climate risk management. It took 9 months after initial outreach by the Proponent in 2020 for the Company to respond with a meeting. Since this first meeting, the Proponent and other supporting investors have witnessed little to no progress, with dialogue between the Company and the Proponent remaining sporadic and relatively unconstructive.

The Company notes in its opposition statement that it has “made several important commitments in response to this engagement,” including expanding its net zero (long-term) commitment to include its scope 1 emissions. While we acknowledge this is an early step, the Company’s targets still do not cover emissions from its full value chain. Furthermore, after a two-year discussion with the Company, the Proponent, as a lead investor of the CA100+ collaborative engagement with Martin Marietta, believes the Company has demonstrated insufficient progress on its climate-related disclosure and strategy, which still suffers critical issues described below.

¹ https://www.climateaction100.org/company/martin-marietta-materials-inc/#skeletabsPanel5

The Company’s latest publicly disclosed targets (as of 15^th March 2023), available in its 2021 Sustainability report, cover 88% of the Company’s operational emissions (87% of scope 1 emissions and 100% of scope 2 emissions).  By contrast, most peer companies have targets covering at least 95% of their operational emissions, in line with the requirements for validation by the Science Based Targets initiative (SBTi).

Moreover, the Company does not report its scope 3 emissions and has no scope 3 reduction targets. Scope 3 emissions reduction targets are expected for companies in the whole cement and concrete sector², notably for upstream emissions generated by the production of clinker, cement and fuels that the Company has purchased to produce its own products.

The Company’s opposition statement claims that “the Proposal seeks commitments to set targets on a timeframe that is not operationally viable or advisable.” During its dialogue with the Proponent, the Company committed to report its scope 3 emissions in its 2023 sustainability report, expected to be published in 2024. It should therefore be able to develop and announce scope 3 reduction targets in this same report. As such, the proposal’s request to set reduction targets on scope 3 emissions by the next annual disclosure is deemed feasible. Moreover, a scope 3 reduction target is necessary if the Company plans to reduce its emissions in line with limiting warming to 1.5 degrees Celsius, as defined by the SBTi.³

The Company’s mid-term target is to reduce the direct GHG intensity of cement production (scope 1 in t CO2/t of cement) by 15% by 2030 compared to 2010 levels. Despite the Company being largely engaged in the construction aggregates business, direct emissions from cement production accounted for 53% of the Company’s operational emissions (scope 1 & scope 2) and 59% of scope 1 emissions in 2021⁴.

In its 2021 Sustainability Report, Martin Marietta discloses its 2021 cement intensity using both the US EPA’s Clean Air Act and the GHG Protocol’s methodologies. The GHG Protocol is the most commonly used methodology in the cement and concrete industry. In order to compare the Company’s cement carbon emissions intensity target with peers, we first estimated the “GHG Protocol equivalent” of disclosed intensity figure for the base year⁵ (2010), which was not disclosed in the above mentioned report. We then applied the previously mentioned reduction target of 15% to obtain the “GHG protocol equivalent” targeted intensity in 2030. It results in an estimated carbon intensity target of 581

⁵ The Company discloses the GHG protocol equivalent figure only for 2021. In order to estimate the GHG protocol equivalent figure, from the disclosed figure that follows the US EPA’s Clean Air Act methodology (836 kgCO2e/t cement in 2010), we assumed that the ratio between both methodologies is the same in 2010 and 2021 (630/770 = 0.818). We estimated the 2010 836*0.818 = 684 kgCO2e/t cement for 2010.

kgCO2e/t cement by 2030. Both, the 2030 targeted intensity and the 2021-2030 reduction trend fall short of what is required in a 1.5°C pathway or a well-below 2°C one (see table below).

Martin Marietta’s near-term target falls short of what is needed to shield the Company from material climate risk. However, the Company has a chance to increase its ambition with its mid-term targets as the US regulatory landscape for cement recently underwent a change in favor of lifting mid-term ambition. The vast majority of emissions from cement production come from the production of clinker. Since 2022, US industry standards set by the ASTM⁶ allow a displacement of 15% of the clinker in Portland Limestone Cement, thereby bringing the clinker content of cement down to 85%. Moreover, this clinker factor can be further reduced to 80% for products used in transportation. Given that the Company’s current clinker factor ranges around approximately 90%, the Proponent estimates that these clinker substitutions, available in the short and mid-term and well-accepted by customers, could deliver a further 5-10% intensity reduction for the Company. This is considered feasible since US-operating cement companies, such as GCC⁷, are already finalizing this change for Portland limestone cement.

The Company targets a “30% absolute reduction (or offset) on scope 2 emissions by 2030 and a 100% absolute reduction (or offset) by 2050, as compared to 2021 levels”⁸. These goals permit the Company to achieve its emission reductions by offsetting emissions via the purchase of carbon credits. The use of carbon credits is incompatible with a science-based emissions reduction pathway for scope 2 emissions.⁹

Even if financing carbon offsetting projects might contribute to mitigating climate change, their inclusion in a company’s climate targets should be strictly limited to offset residual hard-to-abate emissions (i.e. after all technologically and economically viable emissions reductions have occurred). Scope 2 emissions, which are related to the production of power, heat, steam, and cooling purchasedby companies in order to operate their activities, are not considered “hard-to-abate,” since they can be reduced via renewable energy procurement.

¹⁰ Holcim, Heidelberg, Buzzi, Cemex, CRH, Ambuja, TCC, CSN, Vicat, Titan, Shree, SIG, Siam Cement, Ultratech, Dalmia, Votorantim Cimentos, Cementos Argos, ACC, GCC, and the Company.

The Company describes extensive climate-related risks it faces in its 10-K (including physical risks due to the increased severity and frequency of severe weather and how potential legislation aimed at reducing emissions may increase operating costs). However, the current level of disclosure regarding its emissions and its reduction targets do not allow investors to assess whether these risks are being effectively mitigated.

While the Company argues that it is more prudent to wait for upcoming regulatory changes, the Proponent believes that addressing the requests made in this Proposal would help the Company to manage regulatory risks while aligning with investors’ expectations:

More generally, companies not demonstrating sufficient GHG emissions reductions are exposed to financial risks⁴, including:

TABLE 1 Transition risks and potential impacts on non-financial agents

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This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card as it will not be accepted.

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This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card as it will not be accepted.

This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card; the Amundi Asset Management is not able to vote your proxies, nor does this communication contemplate such an event. The Proponents urge shareholders to vote for Proposal #5 following the instruction provided on the management’s proxy mailing.

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This is not a solicitation of authority to vote your proxy. Please DO NOT send us your proxy card as it will not be accepted.