1. Mitigating physical risks Phillips 66 operations are affected by nature — droughts, floods, hurricanes, storms, heat, cold and earthquakes. We have substantial systems and processes to help us identify, measure, manage and mitigate risks associated with each of these possibilities. 2. Forecasting policy risks We are subject to changing laws, regulations and judicial opinions; community, national and global preferences; and contractual obligations. We have developed sophisticated, multilevel, integrated systems to anticipate, inform, manage and comply with these requirements and expectations. For clarity, we include cybersecurity risks because cybersecurity can span policy and technology. 3. Seeking technology opportunities As an energy company focused on both the present and the future, we realize the value of our in-house research and development center staffed with scientists and engineers. This differentiator enables us to create solutions to current and future physical or policy risk challenges. Our ERI team members analyze and develop technologies and evaluate feasibility, economics, scalability, key milestones and timing. They find ways to increase clean product yields and overall energy efficiency; make our operations safer, more reliable and more sustainable; reduce water risks and other environmental impacts; and manage changing regulations and expectations. The solutions we develop benefit our company, our customers and our communities. For more details, see the Research and Innovation section in this report. AT A GLANCE Core Components of Planning and Management Effects on Our Assets The potential physical effects of climate change and severe weather on our operations are highly uncertain and depend upon the unique geographic and environmental factors present at the various sites where our businesses are located. We have systems in place to manage potential acute physical risks that could have an adverse effect on our assets and operations, including those that may be caused by climate change. We have incurred, and will continue to incur, costs to protect our assets from physical risks and to employ processes to the extent available to mitigate such risks. Many of our facilities are located near coastal areas. As a result, extreme weather and rising sea levels may disrupt our ability to operate these facilities or transport crude oil, refined petroleum, or petrochemical and plastics products. Extended periods of such disruption could negatively affect our operations. We could also incur substantial costs to prevent or repair damage to these facilities. Finally, depending on the severity and duration of any extreme weather events or climate conditions, our operations may need to be modified and material costs incurred, which could adversely affect our business, financial condition and results of operations. 49 GOVERNANCE