Warren Buffett faces renewed climate change challenge by investors

Investors concerned about climate change have developed an effective playbook for getting companies to set more ambitious goals for reducing greenhouse gas emissions by pressuring, shaming and cajoling executives.

But those tactics are not working on Warren Buffett and his Berkshire Hathaway conglomerate, which owns energy companies, a railway, insurance companies and other businesses that pump huge amounts of carbon dioxide into the atmosphere. As Buffett holds out, critics complain that Berkshire’s businesses are doing less to cut emissions than similar companies.

Buffett has repeatedly resisted shareholders who want Berkshire to provide detailed climate disclosures that encompass the whole company, not just parts of it, and spend more on sustainability. His stand may seem odd to some people, given that he has at times backed progressive causes, including higher taxes on the wealthy. He has also pledged to give away nearly all his wealth and has given billions to causes embraced by the left.

Buffett has argued that subsidiaries such as Berkshire Hathaway Energy disclose plenty of information about their emissions and are spending billions of dollars on renewable energy.

“I don’t think they read our annual reports,” Buffett said at last year’s meeting, referring to the shareholder group.

Berkshire and its energy subsidiary declined to comment for this article.

Despite Buffett’s insistence that his businesses are doing a lot to fight climate change, the company’s energy subsidiary, in particular, has set weaker targets for carbon emissions than other utility companies such as Duke Energy and Dominion Energy.

“They’re lagging behind their peers,” said Dan Bakal, a senior program director at Ceres, a nonprofit group that works with investors and companies on environmental issues.

The confrontation between climate activists and Buffett is likely to flare again next weekend at Berkshire’s annual gathering — a folksy affair often referred to as “Woodstock for capitalists.” Shareholders will vote on a proposal from the dissident investors that asks Berkshire to overhaul how it views climate risks and take other environmental measures.

The proposal, like a similar one last year, is not binding and is likely to be defeated because Buffett holds special shares that give him more votes than other shareholders.

But the vote tally could still be embarrassing to Buffett if it signals that most shareholders disagree with him.

The activist investors contend that their proposal last year won majority support among the many shareholders, including large investment firms such as BlackRock, Vanguard and State Street, that are not part of a Berkshire inner circle made up of Buffett and people and entities he has long-standing ties to.

Some analysts who follow the company say they are not surprised Buffett is opposed to the climate change proposal because they have long felt that Berkshire doesn’t disclose enough details about its corporate empire.

“This is just a continuation of a corporate style — and a corporate style that is becoming antiquated,” said Cathy Seifert, an analyst at CFRA Research who follows Berkshire. “And I think we’re going to see just how antiquated with the shareholder vote.”

The activist investors said that if Buffett was set in his ways, so were they. Their playbook is well honed and relatively straightforward. First, they try to compel companies to rigorously estimate and disclose their carbon emissions under the principle that you can’t improve what you don’t measure. Once companies know roughly how much carbon they are releasing, activists pressure them to release a plan to cut emissions over the medium term and long term. Companies can then be judged against those plans, and more pressure can be applied when businesses fail to meet targets.

So far, the activists are stuck at the first stage with Buffett — Berkshire does not disclose its comprehensive emissions across its businesses, although some subsidiaries, including Berkshire Hathaway Energy, provide some information. Others, including its insurance businesses, which invest in companies that may produce and consume fossil fuels, provide very few details about their impact on the planet.

As companies take measures to become greener, they have pledged to cut emissions from their own operations and the power plants from which they buy electricity. Some go even further and intend to reduce the carbon footprint of their suppliers and customers, known as Scope 3 emissions.

The gold standard of climate commitments is to get to “net zero” — which means that a company is no longer emitting greenhouse gases overall, including any from its supply chain and use of its products by customers. Many businesses hope to get to that point by switching to renewable energy and finding ways — such as tree planting and direct capture of carbon from the air — to offset any carbon dioxide they are still emitting.

As more companies publish details of their emissions and plans, it is becoming easier to compare businesses.

Climate Action 100+, an investor-backed group that tracks climate commitments of the largest corporate emitters, said that last year Berkshire Hathaway failed to fulfill any of the group’s criteria. It found that other big U.S. companies met or partly met at least some of its criteria.

For example, three large electric utilities — Duke, Dominion and Xcel Energy — aim to reduce some Scope 3 emissions. But Berkshire Hathaway Energy has not publicly pledged to reduce Scope 3 emissions.

“Both Duke and Dominion are now leading energy companies on this front,” said Danielle Fugere, president of As You Sow, a shareholder advocacy group that represented investors on recent shareholder proposals on climate change at those companies. The proposals were withdrawn after the companies revamped their climate plans.

On getting to net zero, Berkshire Hathaway Energy uses looser language than other utilities, saying it is “striving to achieve net zero greenhouse gas emissions by 2050 in a manner our customers can afford, our regulators will allow and technology advances support.” Xcel Energy and Duke Energy have said they are committed to reaching net zero carbon emissions by 2050.

Since net zero target dates are decades away — usually 2050 — many investors also want companies to set interim goals. By 2030, Berkshire Hathaway Energy aims to have halved its greenhouse gas emissions from 2005 levels, according to Berkshire’s latest annual report. Over the same period, Xcel Energy plans an 80% reduction in emissions from its electricity operations.

“It’s a step in the right direction,” Bakal, of Ceres, said of Berkshire Hathaway Energy’s interim target, “but it is not anywhere near what the leading companies are doing.”

Berkshire may soon have to produce the sort of fuller climate disclosures that the dissident shareholders want. The Securities and Exchange Commission has proposed a rule requiring public companies to do standardized climate reporting. But the rule would most likely face legal challenges and could be watered down or struck down by the courts.

Rebel Berkshire shareholders include the California Public Employees’ Retirement System and a New Jersey pension fund, and they can probably again count on the support of BlackRock, Vanguard and State Street, the index mutual fund giants.

Berkshire is fighting back, saying the shareholder group’s assertion that it won a majority last year among outside shareholders was “incorrect,” but the company has refused to reveal detailed vote tallies that would back up its claim.

One potential wild card is how the Bill & Melinda Gates Foundation votes its large block of Berkshire shares, which Buffett donated to the nonprofit over years. Gates might be expected to back Buffett, a long-standing friend, in a difficult shareholder vote. But Gates has made addressing climate change a priority in recent years.

The Berkshire shares held by the Bill & Melinda Gates Foundation Trust are managed by Cascade Investment. Representatives for the foundation and Cascade declined to comment.

Although the activists are frustrated by Buffett’s refusal to accede to their demands, they argue that their pressure has made an impact. For example, Berkshire’s latest annual report has a section written by Greg Abel, who heads Berkshire Hathaway Energy, that details some of the subsidiary’s climate-related efforts.

Even so, the activists say they will keep pressing Buffett to release comprehensive climate disclosures and risk assessments for the entire conglomerate.

“They have $130 billion of cash,” said Timothy Youmans, an executive at EOS at Federated Hermes in North America, which is a sponsor of the climate proposal that Berkshire shareholders will vote on. “Spend some money, please, and bring this all together.”