Subject: OT: Doing Business in the EU Going Forward
Preamble: The Europe Union has recently passed the CSDDD declaration which has significant future impacts on companies doing business in Europe. I’ve attached below an AI summary of the requirements of this action on companies doing business above a fairly low level in Europe. But I’m going to interject XOM’s reactions to this action before copying the AI summary.

Why? Because XOM’s reactions point the way to how this may impact other companies doing business in the European Union.

I don’t think this will have direct impacts on BRK other than how it impacts CVX investments. But, depending upon how BRK does indirect dealings with Europe, they could be caught up in the same situations that impact XOM. Insurance comes to mind – and I don’t know how much.

In a nutshell, the EU has passed a directive CSDDD that requires anyone doing significant business in the EU – AND THEIR SUPPLIERS AND OPERATIONS – to comply with this directive. This directive addresses both human rights issues, and derivative issues including environmental regulations. If you’re doing such business, then ALL of your operations must comply with the new directive.

I’ve debated myself if the BRK board is the proper place to post this. But, on the US Policy Board, it would be lost in the noise. At least on the BRK board, it might attract some intelligent discussion. And, with our international group and members who may invest in other companies that do a lot of business in the European Union, it could be as significant as it is to XOM’s CEO.

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The key link is a 30 minute “discussion” with Exxon’s CEO on doing business in the European Union going forward. It’s a youtube link from a EU forum:

https://www.youtube.com/watch?...

In it, Darren Woods is asked questions about now doing business with the EU. At the beginning, he points out that XOM has been present in Europe for 135 years. And that most XOM projects last for decades. So they must judge how the project will perform over time and business cycles. He’s spent half his career in the EU.

He points out that the combination of the EU windfall taxes and the mandated actions on emissions have made the EU “univestible” going forward. Since the O&G industry operates through oil price cycles, they lose money during the low parts of the cycle, and recover it through the high parts of the cycle. On average, across a cycle, they make a normal return on capital. But, with the EU cutting off the profits from the high points of the cycle, this is no longer true. As a consequence, they’ve quit investing in Europe beyond maintenance capital.

In recent years, they’ve averaged $2.5 billion a year in EU capex. Over the past decade they’ve invested $20 billion. This has stopped beyond maintenance capex – implied that they hope this will change. They’ve also divested a number of downstream and upstream businesses. Early in his comments, Woods made the point that XOM is not tied to one “core region”.



The new OSDDD declaration makes XOM not only subject to new requirements for both human rights and emissions, it also applies to all their operations outside the EU. Woods flatly stated that this is a “no go.” He will not subject all of XOM to this new declaration. Unless it is repealed, or greatly modified,, it’s “game over”. And Europe will be “deindustrialized”.

He was asked if he is taking actions to try to get this message across. He says he is. This is because of the 12,000 employees that XOM has in the EU as well as the large investments. He says he feels obligated to defend them and bring the consequences of the CSDDD declaration to the public. He further says that in many, large and small, public and private conversations there has been agreement to XOM’s views. BUT, little outspeak it public. Woods says: “At least we can say we tried, and look themselves in the mirror.” He calls the CSDDD the most irresponsible legislation he’s ever encountered in any country.

I’ve listened to many Woods presentations over the years since he became CEO. He held his poise and spoke clearly during this discussion. But to those familiar with him, the tension in his voice was obvious. He was delivering a very serious message. XOM is willing to pull out of the EU unless the situation changes.

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Here’s the AI summary of the CSDDD:

The provided statement is a critical assessment of the EU's Corporate Sustainability Due Diligence Directive (CSDDD)'s scope and impact, arguing it imposes European climate regulations on companies globally, requires unrealistic climate transition plans based on current technology, and holds companies responsible for global value chain issues. While the CSDDD does extend due diligence requirements to a company's global value chains, the claim that it applies climate plans "everywhere" and mandates currently impossible emissions reductions is a subjective interpretation.
What the CSDDD Requires
• Global Scope:
The CSDDD mandates that in-scope companies conduct due diligence across their entire global value chains to identify and address adverse human rights and environmental impacts.
• Climate Transition Plans:
In-scope companies are required to develop and update a climate transition plan aimed at aligning their business model and strategy with the 1.5°C goal of the Paris Agreement.
• Legal Accountability:
The directive establishes legal accountability for companies, meaning they can be held civilly liable for failing to prevent, mitigate, or end adverse impacts in their value chains, though the directive excludes liability if a business partner is solely responsible.
Points of Criticism from the Statement
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"Wherever they do business":
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This refers to the directive's application to global supply chains, not that European regulations are being enforced everywhere a company operates.
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"Unrealistic and poorly defined climate transition plans":
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This is a subjective critique of the CSDDD's requirements for aligning with the 1.5°C target.
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"Not technically possible with the solution set available today":
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This expresses a concern about the technological feasibility of the emissions reductions required by the directive's climate transition plans.
Key Takeaways
• Global Reach:
The CSDDD's influence extends beyond Europe to companies' global operations and supply chains.
• Subjectivity vs. Fact:
The statement presents a viewpoint critical of the CSDDD's requirements. The CSDDD itself is a complex directive with specific aims.
• Implementation Timeline:
The directive must be transposed into national law by July 2026 and will be phased in over the subsequent years, with large companies becoming subject first.