The Nebraska Peace Foundation is an organization in Lincoln that fights against climate change, racism, and nuclear weapons. It also owns one share of Berkshire-Hathaway Class A Common Stock. Recently, the group says it filed a shareholder resolution that would make the company’s insurance division report on how it addresses climate change risk.
Warren Buffett responded in his annual letter, which was released over the past weekend. (The company didn't immediately comment on NPF taking credit for raising the issue.) Buffett's eight-paragraph, almost 600-word position statement simultaneously achieved two things: It provided a simple and direct explanation of the dangers of climate change. It also showed how difficult it is for business and government to tackle the problem.
Here are five sections of the letter that tell the big story:
1) Buffett has a mixed portfolio when it comes to climate change.
“[Berkshire Hathaway Energy] has invested $16 billion in renewables and now owns 7 percent of the country’s wind generation and 6 percent of its solar generation. Indeed, the 4,423 megawatts of wind generation owned and operated by our regulated utilities is six times the generation of the runner-up utility. We’re not done.”
Buffett didn’t become Buffett by ignoring which way the wind blows. And one thing that’s going on around him is an energy revolution that's brought the costs of solar- and wind-powered electricity down to levels unthinkable a decade ago. It’s a terrible time for the U.S. coal industry, which is suffering through bankruptcies brought on by abundant, inexpensive natural gas. Coal is also public enemy No. 1 among those fighting climate change. Buffett’s support for the climate accord reached in Paris last year seems less than full-throated when you consider his ownership of BNSF Railway, the company that, according to its website, “hauls enough coal to power one out of every ten homes in America.”
2) There's no such thing as certainty.
“It would be foolish, however, for me or anyone to demand 100 percent proof of huge forthcoming damage to the world if that outcome seemed at all possible and if prompt action had even a small chance of thwarting the danger.”
Buffett offers a powerful way to think about climate risk, even in the context of his own stated lack of expertise on the topic. He says that climate change is “highly likely” while seeking to excuse his lack of total certainty.
This is an important idea because he's not alone. Experts often make the same statement because the entire scientific enterprise is predicated on lack of certainty. Buffett applies a similar, theoretical opposition to absolutism throughout his letter, in which "almost certain" is a phrase used multiple times to express high confidence in something. (Where he's "certain" in the letter, it's the thing he's possibly most famous for: "[I]nvestors who diversify widely and simply sit tight with their holdings are certain to prosper.")
Buffett's (and scientists') penchant for "almost-certainty" stands in sharp contrast to U.S. political culture. It’s no wonder that climate change is an intractable political problem in America: How can politicians, who so frequently deal only in absolutes, embrace science, wherein "100 percent" is a philosophical impossibility?
3) Climate change in a nutshell.
“This issue bears a similarity to Pascal’s Wager on the Existence of God. Pascal, it may be recalled, argued that if there were only a tiny probability that God truly existed, it made sense to behave as if He did because the rewards could be infinite whereas the lack of belief risked eternal misery. Likewise, if there is only a 1 percent chance the planet is heading toward a truly major disaster and delay means passing a point of no return, inaction now is foolhardy.”
This is a nice synthesis of climate risk. It's worth pointing out, however, that Buffett’s “if” dramatically underplays the risk of a modernity-pounding catastrophe. Such risk is closer to 10 percent, according to economists Martin Weitzman of Harvard University and Gernot Wagner of the Environmental Defense Fund, who explore the question in their book Climate Shock.
4) The elephant in the room.
"As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries."
After his thoughtful statement on climate risk, Buffett writes that Berkshire Hathaway's insurance properties are safe from it, judging by their past growth. "So, paradoxically, the upward march in loss costs has made insurance companies far more valuable," he says.
The question then is, if climate change should be addressed, as he suggests—and it's not him (or someone like him) who should address it—then who? The whole eight-paragraph episode is, perhaps inadvertently, a presentation of the climate conundrum in a nutshell: Sure seems like this is a problem; but it's not anybody's responsibility to solve everybody's problem.
This is the elephant in Buffett's climate passage. He agrees that we may have a calamity brewing but posits no means to address it. Citizens have the opportunity to lose sleep. Homeowners can move, but shareholders can't think about it under conventional bookkeeping rules. (To be sure, he noted that Berkshire has "de-emphasized catastrophe coverages and greatly expanded" its more traditional lines of insurance business over the past two decades, which makes underwriting income less volatile over time).
5) Except for a heating climate, the future looks great.
“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history.”
Don't get me wrong. It's not that Americans born today aren't the luckiest "crop" in history. It's just that tomorrow they can expect to face unlucky challenges unprecedented in human evolution. You know the kind: shifting coastlines, dangerous heat, catastrophic floods. Until shareholders are allowed, directly or indirectly, to consider utterly disabling global risks, the challenges will continue to gather.
