Berkshire Hathaway's Energy Company Is About To Hit A Big Milestone In Renewable Energy

With the annual meeting season approaching, Warren Buffett's environment record is once again in the spotlight - and campaigners are still not pleased. 

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Berkshire Hathaway, Buffett's conglomerate, is facing three potential shareholder resolutions ahead of its annual "Woodstock for capitalism" on May 6. While no one expects any of the resolutions to pass – Buffett's opposition and 32% voting stake will almost certainly prevent that – they are attracting support from high-profile investors such as California's $445 billion pension giant CalPERS and have seen an increasing base of Berkshire shareholders push up vote totals in recent years, despite Buffett's clearly stated wishes.

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The resolutions urge for more transparency about the climate risks Berkshire confronts through its portfolio of utilities, reinsurance businesses, coal transportation on its Burlington Northern train, and investments in oil stocks, which he has lately increased, most notably through a large interest in Occidental.

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Buffett’s climate metrics getting better

Berkshire Hathaway is a climate paradox: several of its climate measures are improving quickly, albeit not as quickly as its competitors. The largest: Its utilities' completed or under construction renewable power projects are on course to treble the previous national average of renewable electricity output, while revenue from coal shipments has consistently declined over the past decade. Berkshire Hathaway, on the other hand, both generates and absorbs climate risk, through emissions from power plants and, through investments in Chevron and Occidental, gasoline-powered automobiles, as well as through insurance exposure to flooding and wildfires that are predicted to intensify as global temperatures rise. 

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"It's fair to say that for their size, breadth, and complexity of business, their approach to climate change continues to lag behind peers," said CFRA Research analyst Cathy Seifert. "They could be front and center, but I don't think they will be."

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Any discussion of Berkshire Hathaway and climate must begin with its utility sector because power generation accounts for a quarter of all greenhouse gas emissions in the United States. Berkshire Hathaway Energy, whose CEO Greg Abel is the successor apparent to the parent firm's top executive, would be the fifth-largest utility holding company in the United States if it were independent.  

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Brandon Zero, a spokesperson for Berkshire Energy, declined to comment.

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BHE is aggressively shifting its energy mix to wind and solar. According to Berkshire Hathaway Energy's annual report, Berkshire will soon acquire 45% of its electricity from wind, solar, geothermal energy, and hydropower, which will comfortably exceed the 21.5% that the government estimates all utilities generated in 2022. Berkshire will receive 31% of its electrical capacity from natural gas when its new facilities are completed, which is less than the national proportion of 40%. However, it continues to utilize more coal, the dirtiest main electrical source; coal accounts for 23% of Berkshire's power mix, which is more than the national average of 20%.

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This is a significant shift from 2014 when Berkshire obtained around a quarter of its power from renewable sources. Berkshire's Oregon-based utility PacifiCorp used coal for 60% of its power back then; currently, it's 43%, all produced in facilities that opened in 1986. Mid-American Energy, located in Iowa, reduced its stake from 55% to 21%. Mid-Americans erected or extended more than 30 wind turbines along the road, using a Midwestern natural resource, while Pacificorp installed or enlarged 14. 

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According to its annual report, the utility business has decommissioned 16 coal-fired units and decreased its carbon emissions by 27% since 2005, putting it on track to fulfill its aim of a 50% reduction by 2030, aided by stated shutting plans for 16 more coal plants. According to the firm, railroad emissions will be reduced by 30 percent from 2018 levels by 2030.

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That is still less than some other utilities have done, and Berkshire has been either less aggressive or less specific in its commitments to reduce carbon emissions, according to Daniel Stewart, energy and climate program manager for As You Sow, a shareholder-advisory group that is sponsoring a resolution at Berkshire's meeting.

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"At a high level, on the utility side, there are encouraging signs," Stewart said, even though climate champions like Minneapolis-based Xcel Energy are lowering emissions by 80 percent by 2030 and removing coal faster than Berkshire. He noted that new knowledge should allow utilities to push back the date when they will achieve net zero emissions to 2035 or 2040, rather than 2050. "What [also] stands out to me is how inadequate the disclosure is."

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The transparency difficulties are at the center of Berkshire's shareholder resolutions, which have become an annual occurrence. 

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Three resolutions address the issue, one sponsored by California's pension plan, one by Illinois' pension plan, and one by As You Sow.

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As You Sow requests information, specifically on Berkshire's insurance companies, as well as a strategy for assessing and mitigating the climate effect of firms in which the company invests or insures. Proponents point to growing expenditure on natural catastrophe losses, such as the $3.4 billion in claims paid by Berkshire last year linked to Hurricane Ian, according to Berkshire's proxy statement.

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Illinois' proposal requests information on how the company's audit committee assesses climate risks, as well as whether climate problems would be included in Berkshire's carefully scrutinized succession planning.

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In addition, CalPERS requested "an annual assessment addressing how the Company manages physical and transitional climate-related risks and opportunities," according to the proxy. The massive pension fund has also voted early against management's audit committee nominees, citing climate concerns.

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"When I talk to investors, they're focused on transparency," said Kirsten Spalding, vice president of the Ceres Investor Network, a liberal investment advising group. "It's a matter of good governance to know what the plans are." What are the dangers?”

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Regulators and investors can tip the future balance

Berkshire's hand may potentially be pressed quite soon by upcoming state insurance disclosure standards and federal securities disclosure rules requiring climate risk audits, according to Seifert.

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The corporation claims that it already exposes enough information. Berkshire cites its energy division's annual reports, which show direct emissions, in the proxy, and claims that its management and board manage climate risk in part by stress testing its coverage portfolio.

Buffett has previously described shareholder calls for more climate transparency as "asinine."

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At the 2021 annual meeting, Buffett stated, "I don't think I've had three letters from shareholders in the last year" regarding climate issues. He continued, "The proposals would require climate audits of Berkshire's Dairy Queen chain and Borsheims' jewelry stores when the climate impact is concentrated in utilities, the railroad, and the insurance unit." "The people who purchased Berkshire with their own money voted overwhelmingly against those proposals." 

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However, as large index funds have acquired more shares in Berkshire in recent years, the losses have decreased, and younger generations of Berkshire owners within families do have different values than their parents. Votes against Berkshire management in 2021 were more than ever before — about 75% in support of the board, but only about 25% in favor of initiatives, which was twice as many votes against management as ever. 

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Last year, 47% of independent shareholders (or 26.5% of all shareholders) backed a proposal by As You Sow requiring transparency of greenhouse gas emissions. Many climate change ideas over the previous ten years have never gained even 10% backing from shareholders.

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Given that shareholders other than Buffett and his close associates voted in favor of climate disclosure, according to Spalding and Stewart, the losses in the shareholder vote were worthwhile to bear. They also predict that as demand for change increases, it will finally produce results.

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"Things change," Stewart remarked. Because education takes place.

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