Warren Buffett, chairman and CEO of Berkshire Hathaway, is for many people the first source to consult when it comes to the development of an investing philosophy. The billionaire investor has has never shied away from sharing his views with the public, either — and not only when it comes to stock market value. Issues of politics, social policy, ethics and simply making money the right way are themes that Buffett has returned to many times.
But one place where Buffett has always drawn the line is making clear his personal views have no place in how he runs Berkshire Hathaway for shareholders. He may be for more taxes on the super-rich, but that doesn’t mean he is against a tax break that helps a Berkshire business. He isn’t going to tell a company he owns how to respond to calls for more corporate support for gun control, an issue that came up at least year’s Berkshire Hathaway annual meeting.
“I don’t believe in imposing my political opinions on the activities of our businesses,” Buffett said.
On one issue of rising social and investing importance, Buffett is still making many trade-offs: climate change.
Berkshire Hathaway Energy, Buffett’s large utility conglomerate, owns western utility PacifiCorp, which has a sizable fleet of coal power plants. Berkshire’s Burlington Northern railroad ships a lot of coal, too. But the Berkshire utility company also is one of the biggest wind energy producers in the U.S. through its MidAmerican Energy utility affiliate based in Iowa, while its NV Energy in Nevada is increasing its renewable generation from 24 percent to a percentage in the high 40s by 2023, mostly using geothermal and solar power.
Berkshire’s largest business of all is insurance, which in recent years has seen massive claims related to natural disasters.
Just take one weather issue that has been linked to climate change: wildfires. Insurers paid out $4.2 billion for insured losses caused by California wildfires in 2016, according to a report by A.M. Best. In 2017, insured losses from U.S. wildfires ballooned to $16 billion — the first year globally that fire losses surpassed $10 billion, according to Aon Benfield. AON Benfield’s preliminary estimate for 2018 is that the record level of claims above $10 billion is going to be repeated.
“These risks are real,” said Mindy Lubber, CEO of Ceres, a nonprofit organization that works with institutional investors on sustainability. “Whether it an insurance company paying out in Houston for hurricanes or a small insurer like Merced [Property & Casualty] going out of business in California because of wildfires.”
Shareholders of Berkshire Hathaway — an entire generation of Americans who have been made wealthy by Buffett’s investing genius — should consider his words on the issue and how well-protected their stock holding will be into the future.
Berkshire shareholders have overwhelmingly rejected the many climate-related proxy proposals brought up for a vote at recent Berkshire Hathaway annual meetings.
At the 2016 Berkshire annual meeting, the eminent climate scientist and former NASA official James Hansen was among the shareholders who made an appeal to Buffett. Buffett was not dogmatic or ideological, but rejected the plea not as a matter of climate denial but his sense of current business reality.
“The issue before the shareholders is not how I feel about whether climate change is real. … I don’t think you and I have any difference in the fact that it’s important that climate change — you know, since it’s something where there is a point of no return — if we are on the course that you think is certain and I think is probable, that it’s a terribly important subject.”
For most of his life Buffett has taken a provincial view of investing, focused almost exclusively on the U.S., and in that sense, many of the changes being wrought by climate change around the globe may not directly bear on his holdings. But right now, Buffett’s home state of Nebraska is experiencing record flooding. Omaha, his lifelong hometown, which averages less than an inch of rain in all of March, already has had over 2 inches of rain this month. More rainfall is a likely consequence of climate change, according to the most recent National Climate Assessment — as many as 25 U.S. states are expected to experience significant flooding this spring. But don’t expect Buffett to rush to a climate change judgment.
Buffett summed up his rejection of climate proposals succinctly at the 2014 Berkshire annual meeting: “I don’t think in making an investment decision on Berkshire Hathaway, or most companies — virtually all of the companies I can think of — that climate change should be a factor in the decision-making process.”
Berkshire vice chairman Charlie Munger has been less subtle, taking a tone on climate that once led Buffett to respond to his comments in front of shareholders by saying, “We don’t want to start a political rally.”
At the 2015 meeting, Munger said: “I don’t think it’s totally clear what the effects of global warming will be on extremes of weather. I think there’s a lot of guesswork in that field and a lot of people who like howling about calamities that are by no means sure, like a crazy ideology. Not that global warming isn’t happening, just you can get so excited and make crazy extrapolations that are not necessarily correct.”
A year later Munger had more to say about shareholder proposals: “We’re asked, as a corporation, to take a public stance on very complicated issues. We’ve got crime in the cities. We’ve got 100 — we’ve got 1,000 — complicated issues that are very material to our civilization. And if we spend our time in the meeting taking public stands on all of them, I think it would be quite counterproductive. And I don’t like the fact that the people that constantly present this issue never discuss any solution, except reducing consumption of fossil fuels. So there are geo-engineering possibilities that nobody’s willing to talk about, and I think that’s asinine, so put me down as not welcoming.”
Buffett’s less blunt, but equally important, views on climate change have been offered at Berkshire annual meetings and in interviews with CNBC over the years. Here are five key points he has made.
Buffett has faced concerns about owning a railroad that carries coal, but he does not see the coal business and renewable energy as “either/or” choices for him to make. He sees Berkshire being in both businesses in the years ahead.
He said: “If you own a railroad carrying a lot of coal it will carry a lot of coal for a long period, a very long period. We will continue to develop alternative sources of energy and continue to use coal in our coal generation plants until a utility commission under which we operate tell us we should do something different. We are happy to carry the coal, but we are a common carrier. We might have loved to turn away chlorine or ammonia because of dangers of carrying it that we can’t get compensated for, but we are a common carrier and by law required to carry the freight offered to us.”
Berkshire’s insurance subsidiary Geico took its single-largest loss in history from Superstorm Sandy, a $490 million loss due to claims on more than 46,000 flooded vehicles. Other insurance companies have created models for climate change. Buffett simply does not see it.
“I get all these questions from people who tell me they want me to fill out lots of forms about how will affect our insurance business,” Buffett told Berkshire shareholders in 2015. “It just doesn’t operate in that time period.”
He told Hansen in 2016, “We’re not denying climate change is an incredibly important subject. We’re not denying its existence. But it will not hurt our insurance business, and it’s immaterial compared to other things that could affect our insurance business.”
Property and casualty, Berkshire’s primary insurance business, is priced annually, unlike life insurance where a company is setting a price for decades into the future. And Buffett has said that is the key: “I see nothing that tells me on a yearly basis that global warming is something that should cause me to change my prices a lot, or even a small amount.”
In a 2016 interview with CNBC, Buffett was asked about recent hurricane patterns and climate risk. That was during a stretch of years that had been the longest multi-year period in history dating back to the 1800s without a category 3 landfall by a hurricane in the U.S. in Florida.
The very next year, in 2017, category 4 Hurricane Irma made landfall in Florida. In 2018, Hurricane Michael, another category 4 storm, made landfall in Florida, and that was the first year that two category 4-plus storms (Harvey in Texas) had made landfall in the continental U.S. within a single hurricane season.
But Buffett was unmoved and used a gambler’s analogy to explain why his insurance businesses doesn’t set rates based on any short-term pattern.
“If two 12s come up in a row, it doesn’t mean the probability of a 12 coming up in any year has increased.”
In a January 2018 interview with CNBC, Buffett referenced those U.S. hurricane records dating back to the early 1800s and how the pattern of landfalls “looks awfully random.”
Berkshire is a major player in the real estate market, with both a homebuilding and mortgage business (as well as significant holdings in many of America’s biggest bank stocks that offer mortgages). In real estate, Buffett expresses one of his few financial fears about climate change.
At the 2016 meeting, Buffett said, “I think you’ll have a reasonable time to move, but I would say, if you’re making a 50-year investment in low-lying properties, it’s probably a mistake. I actually said you may — as a homeowner in a low-lying area — you may wish to consider moving. And I would say that if you expect to be there for 10 years or so, I don’t think I would consider moving. But if I thought I was making a 100-year investment, I don’t think I would make it.”
In a 2015 CNBC interview, Buffett and Munger offered an interesting view of U.S. fossil fuel policy as the shale oil boom grew: We should not be using our oil more than is necessary, or pushing for greater exports. The U.S. should be conserving more oil for a more dire moment in the future, they said.
“I don’t see any real substitute for oil as feedstock for running airplanes,” Munger said. “I am much more afraid of running out of hydrocarbons than climate change. Thirty percent of Holland is under sea level and if we have to spend a few percentage points of GDP to adapt to climate change, I think we can, but I know of no substitute for hydrocarbons if we run out.”
“We have always underestimated the amount of oil and gas in the world,” Buffett countered. However, he added, “I would always have enough for strategic reserves. You do not want to be without oil production capacity if something happened in the world where needed you needed to have your own energy independence. We have great topsoil in this country and wouldn’t dream of exporting it. Hydrocarbons are just as precious. Five hundred years from now, hydrocarbons will be needed and one of the advantages of being a rich country is you don’t need to use your most precious asset.”
While this sentiment may seem to be in opposition to investors who want to divest from fossil-fuel companies today, none of this is to say that Buffett has his eyes closed to the problem of climate change. “I think it is the kind of question that deserves lots of attention … we do have one planet and we ought to pay a lot of attention to what’s going on,” Buffett has said.
To learn more about Warren Buffett’s views on the markets, investing and stocks, consult CNBC’s new Warren Buffett archive.