The Warren Buffett approach to climate change

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At Saturday’s annual meeting of his company Berkshire Hathaway, investing legend Warren Buffett announced that he planned to hand over the chief executive role to energy veteran Greg Abel at the end of this year. The 94-year-old is going out on a high, having comfortably outstripped the financial returns of the wider US market. But his record on climate issues is much more mixed, as I outline below.

Assessing Warren Buffett’s climate record

“I take it seriously,” Warren Buffett said of climate change at Berkshire Hathaway’s 2007 annual meeting. “We ought to be very careful about it.”

Whether Buffett really does take this matter seriously has been a subject of debate in recent years, as Berkshire Hathaway has pumped billions into renewable energy while also placing big bets on fossil fuels.

But a close reading of Buffett’s investment record and public statements suggests a fairly consistent view from the Sage of Omaha: that the energy transition is set to gather pace, but it will be drawn out and messy, and too slow to avert damaging levels of global warming.

Buffett made his big move into the energy sector in 2000 with the acquisition of MidAmerican Energy, a utility that generated nearly three-quarters of its power from coal. Since then, the company — now named Berkshire Hathaway Energy — has invested more than $39bn to become the US’s biggest investor-owned generator of renewable electricity.

It has also outspent rivals to pump about $5bn into grid transmission — an area that, as Buffett has repeatedly emphasised, will be essential to the transition to an electricity system more reliant on intermittent renewable sources.

But while the share of coal in BHE’s generation portfolio has come down to 22 per cent, this is much higher than the overall 15 per cent figure for the US electricity system as a whole. Worse, BHE has done less than other coal-burning utilities to tackle the air pollution from its plants, with damaging impacts on local communities, according to a recent Reuters investigation. Meanwhile, perhaps to take advantage of an easier policy environment under the new Trump administration, BHE this year withdrew commitments to retire its largest coal plants by the early 2030s.

In his approach to public markets investing, too, Buffett has taken what one might call a climate-agnostic approach. Berkshire’s portfolio of listed stocks — worth $272bn, at the end of last year — has been invested almost entirely in the US market. An unusual exception came in 2008 with a $230mn investment in BYD, a Chinese company that has gone on to become the world’s biggest producer of electric vehicles. The value of Berkshire’s stake rose to about $8bn in mid-2022, since when it has been gradually selling it down.

Buffett spotted that low-carbon investment opportunity earlier than most of his peers. In contrast, when investor optimism about the speed of the energy transition was at its peak, he saw a chance to pounce. In 2019 and 2020, as US fossil fuel stocks were languishing, Berkshire made large investments in Chevron and Occidental Petroleum, both of which have yielded substantial gains. Although the world is “moving away” from fossil fuels, Buffett told investors in 2021, “we’re going to need a lot of hydrocarbon for a long time”.

At this year’s meeting, as in previous years, Buffett successfully resisted a shareholder proposal that would have required Berkshire to provide far more detailed disclosures around its climate risks — a suggestion he had previously described as “asinine”. But that stance has more to do with Buffett’s desire to maintain a lean central operation, with light-touch management of Berkshire’s portfolio, than with his views on climate change.

In fact, Buffett’s concerns about financial climate risk seem to have been growing. At that 2007 meeting, even as he talked about the hazards presented by climate change, Buffett was sanguine about the implications for Berkshire’s business — including the insurance arm that makes up a huge chunk of its operations.

This year, however, he’s been sounding a much more cautious tone. In his annual letter to shareholders, he warned that increasingly severe storms last year suggested “climate change may have been announcing its arrival . . . Someday, any day, a truly staggering insurance loss will occur.”

There have been nasty implications for Berkshire’s utility business too, which is facing billions of dollars in claims in relation to wildfires that were allegedly worsened by its failure to shut down power infrastructure (Berkshire is contesting the claims). Buffett sounded a gloomy note on Saturday as he discussed the rising risk from fires, saying it meant “the public utility business is not as good a business as it was a couple of years ago”.

In short, one area where Buffett seems to have been taken by surprise is the climate-related challenges to Berkshire’s core businesses. As those problems mounted, they may have made the prospect of retirement look just that little bit more appealing.

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