Last week, in a note to investors, Warren Buffett wrote …
…[renewable power development] will make great sense, both for the environment and for Berkshire’s economics. It seems highly likely to me that climate change poses a major problem for the planet.
Actually, it poses a major problem for inhabitants of the planet, not that big beautiful rock running laps around the sun.
Semantics aside, it is encouraging that Buffett’s Berkshire Hathaway has pledged to spend another $15 billion on renewable energy development. This is in addition to the billions it’s already spent. Still, there was another part of that note that rubbed me the wrong way.
In the note, Buffett recommended shareholders reject a proposal that would require Berkshire to report on the danger of climate change to insurance companies, which happens to be Berkshire’s biggest business, writing …
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.
And therein lies the problem.
A shareholder is not an inanimate object. It’s not a widget, a sprocket or a thing. Shareholders are human beings, and human beings require a planet that is not devoid of natural capital. I’m talking about things like healthy soils, oceans, rainforests, and coral reefs. All of which are at risk due to a rapidly changing climate. This, dear reader, is why we should give a crap about the environment and take the threat of climate change seriously.
Buffett argues that for shareholders of a major insurer, climate change should not be on a list of worries. But while these folks may be shareholders of a major insurer, they’re also major shareholders of the planet. And rest assured, dear reader, the potential risks of climate change for shareholders of the planet are much worse than the potential risks of climate change awareness for shareholders of an insurance company.
Of course, shareholders of Berkshire Hathaway should also realize that by not considering climate change risks, they’re actually doing a disservice to the company they’re looking to profit from.
A Multi-Trillion-Dollar Risk
With climate change comes extreme natural disasters that can cost insurance companies trillions.
In fact, last year, Stanford University’s Jeffrey Ball commented on this very issue, writing …
One of the most serious climate risks is flooding, according to The Geneva Association, an insurance-industry research group, which suggested in a July report that climate change could massively drive up worldwide flood losses. New property, generated by economic growth and then destroyed, is expected to raise flood losses from the annual average of approximately $30 billion that prevailed between 2004 and 2013 to an average of about $52 billion in 2050, the group said. Adding climate change to the mix, it projected, will boost the expected annual loss in 2050 to $1 trillion or more. That’s an increase of a factor of 20.
Climate change represents a massive risk to insurance companies that aren’t taking this threat seriously. And it shouldn’t be on the “list of worries” for Berkshire Hathaway shareholders?
The bottom line is that any insurance company that isn’t actively working to prepare for a rapidly changing climate today will suffer great losses tomorrow. This is a reality, and one that investors must seriously consider.