Warren Buffett on Climate Change

We recently gave space to Bill Gates to talk about energy, so it’s time to provide equal time to the Sage of Omaha, Warren Buffett. You know, when two of the richest people on the planet team up…

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Mr. Buffett’s business judgment and acumen is widely respected across the planet. As he has frequently been labeled the richest man on the planet (an annual award that probably doesn’t mean very much to him) his ideas carry a lot of weight. Mr. Buffett has built a conglomerate covering a wide variety of sectors, some of the biggest being in insurance.

An activist organization bought one share of Buffett’s company so they could ask Buffett’s company (Berkshire Hathaway) to discuss how climate change posed a risk to the company’s future.

In his letter to shareholders (which everybody should read in its entirety) Mr. Buffett was blunt: “It seems highly likely to me that climate change poses a major problem for the planet. I say “highly likely” rather than “certain” because I have no scientific aptitude and remember well the dire predictions of most “experts” about Y2K. It would be foolish, however, for me or anyone to demand 100% 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.

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% chance the planet is heading toward a truly major disaster and delay means passing a point of no return, inaction now is foolhardy. Call this Noah’s Law: If an ark may be essential for survival, begin building it today, no matter how cloudless the skies appear.

It’s understandable that the sponsor of the proxy proposal believes Berkshire is especially threatened by climate change because we are a huge insurer, covering all sorts of risks. The sponsor may worry that property losses will skyrocket because of weather changes. And such worries might, in fact, be warranted if we wrote ten- or twenty-year policies at fixed prices. But insurance policies are customarily written for one year and repriced annually to reflect changing exposures. Increased possibilities of loss translate promptly into increased premiums.”

…”Up to now, climate change has not produced more frequent nor more costly hurricanes nor other weather-related events covered by insurance. As a consequence, U.S. super-cat rates have fallen steadily in recent years, which is why we have backed away from that business. If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire’s insurance business would be to make it larger and more profitable.

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.”

I wrote this and then realized I don’t have anything to add, except to mention that one of Warren Buffett’s companies makes an awful lot of money transporting oil by rail because the Keystone Pipeline was not approved. Perhaps my commenters will have more to say. The floor is open.

7 responses to “Warren Buffett on Climate Change

  1. The problem with Pascal’s Wager is that it assumes that the choice is binary and both possibilities are sufficiently known. Once you recognize that there are many religions, the wager is seen to be silly: on which religion do you bet your eternal soul?

    In the case of climate, there are at least two dimensions that greatly complicate the choice. One is, as Tom has often emphasized, that there are trade offs with lifting the world’s poor out of poverty. Another is that anthropogenic greenhouse gases might be stabilizing the climate and preventing the planet from sliding into another ice age. The “logic” of Pascal’s Wager implies that if cutting CO2 emissions has even a miniscule chance (much less than 1%) of triggering glaciation, then such an action is foolhardy.

  2. “one of Warren Buffett’s companies makes an awful lot of money transporting oil by rail because the Keystone Pipeline was not approved. “

    It also makes gobs of money shipping coal.

  3. Buffett has been an interesting evolving figure in recent history. I wonder if his use of the word “possible” instead of the more correct word “probable” was a deliberate choice? The catastrophic storm premiums he casually mentioned have cost Home owners and consumers a lot of money, by the way. And insurance companies are still using so-called extreme weather or “catastrophic exposure” as an excuse to jack up properly insurance rates much higher than the cost of inflation.

  4. Two years ago, on CNBC, Buffett stated the same message about climate:

    “The effects of climate change, “if any,” have not affected the insurance market, billionaire Warren Buffett told CNBC on Monday—adding he’s not calculating the probabilities of catastrophes any differently.

    While the question of climate change “deserves lots of attention,” Buffett said in a “Squawk Box” interview, “It has no effect … [on] the prices we’re charging this year versus five years ago. And I don’t think it’ll have an effect on what we’re charging three years or five years from now.” He added, “That may change ten years from now.”

    He said the U.S. has been “remarkably free of hurricanes” in the past five years with only slightly more tornadoes.

    “The public has the impression that because there’s been so much talk about climate that events of the last 10 years from an insured standpoint and climate have been unusual,” he continued. “The answer is they haven’t.”

    http://www.cnbc.com/2014/03/03/no-climate-change-impact-on-insurance-biz-buffett.html

  5. Pingback: Climate Change and Company Risk | The Lukewarmer's Way

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