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…
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.