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Charlie Munger on global warming: ‘The people who ask the questions think they know the answer’ – Yahoo Finance

At the annual Berkshire Hathaway shareholders meeting live streamed on Yahoo Finance, Warren Buffett and Charlie Munger discuss ESG.

Video Transcript

On the other side of that argument, because there were lots of emails that came in on both sides of these ESG questions. This one comes from Christina Gallegos, who’s been a shareholder since 2018. And she says, “On items 2 and 3 of the proxy materials, the board recommended voting against on the shareholder proposal regarding the reporting of climate-related risks and opportunities, as well as on the shareholder proposal regarding diversity and inclusion reporting. Berkshire is such a force for good when it comes to financial literacy and empowerment through wealth creation. Why not be a force for good and an example when it comes to these two very important issues? Please share with us more about the against recommendation.”

WARREN BUFFET: Well, I think maybe Greg can talk little bit about what Berkshire has done as opposed to in terms of the environmental. I would say this. It’s very interesting. I think we have over a million shareholders. I mean, you can’t be 100% sure because of street name and duplicate accounts and all that sort, but it certainly seems very, very likely.

And I get the letters that are written. I don’t think I’ve had– I only have three letters in the last year from shareholders. Now, I have them, and our vote on this, as you’ll see later, is that overwhelmingly, the people that bought Berkshire with their own money voted against those profits. But most of the votes for it came from people who’d never put a dime of their own money into Berkshire, and I don’t think they’ve read our annual reports. And I don’t think they read the reports of Berkshire Hathaway Energy, and I don’t think they know.

I talk about what we’re doing in high-voltage transmission. We’re doing more than any company in the country. The president talked about what the government is going to do and how important it is. And we have a record that’s, overall, is incredibly good but, we have a group of organizations, just generally in, and they’re nice people. But they want us to answer a bunch of questionnaires their way.

So they want us to go to Dairy Queen and Borsheim’s, and all those people have them fill out reports that show a bunch of figures when the reports that count are the reports that Greg gets on Berkshire Hathaway Energy and the railroad. And you talk about three of our companies, and you’ve covered 95% of it. And it’s asinine, frankly, in my view.

Now, we do some other asinine things because we’re required to do them, so we’ll do whatever is required, but to have the people at Business Wire, Dairy Queen, all these places– filling out reports or making some common report that comes in, we don’t do that stuff at Berkshire. During the pandemic, we probably have about 12 people to come into headquarters, and we got 360,000 people working in a company that all kinds of diverse activities.

And it’s built. I don’t want to get into the whole thing, but it’s built on autonomy. And I am probably the only CEO of an S&P 500 company that does not get a consolidated income statement every month. I mean, every other company, I’ll bet in the S&P 500, prints out the earnings they had at the end, from February and March, and the CEO gets and a whole bunch of other people get it. I don’t get it. I don’t need it.

I could put six years, 70 companies, a whole lot of trouble and everything, and they’d hand me something, and I know the answer to it already, and it doesn’t make any difference. I mean, they’ve got the money they need. So we don’t do things just because we’ve got a department of this or a department of that, and we don’t want to set up a lot of departments like that. And what’s important is what we’re doing in the end.

Well, primarily, Berkshire Hathaway Energy and the railroad. And I’ll let Greg tell you about that in just one second.

CHARLIE MUNGER: I don’t think we think we know the answer to all these questions about global warming and so forth. And the people that ask the questions think they know the answers. We’re just more modest.

WARREN BUFFET: Well, but even if we knew the answer, I mean, in terms of the reports, we would not collect a whole lot of things that don’t mean anything to us to satisfy people who actually don’t own any stock themselves, and in many cases, I can tell, they haven’t read our report even. We, as I pointed out in the annual report, nobody would have guessed it, people think we’re a bunch of guys that own stocks and all that sort of thing.

Berkshire Hathaway owns, by GAAP accounting, more property plant and equipment, business infrastructure, which the president just got to talk about Wednesday night, the infrastructure and the importance of it. We have, measured by GAAP accounting, more than any other company in the United States. We have more than any of those companies that are on the list of the largest companies in the country, and we’ve got it by a substantial margin.

So we have an investment in what makes this country move and work. 15% of the interstate goods move on them on our railroad. We’re building transmission, and we started in 2006 or ’07 planning how we would close coal plants, but you can’t close coal plants until you get the electricity from where it’s generated to the customer. And if you’re going to generate it in Wyoming and it’s going to go to Las Vegas or someplace– and previously, they had a coal plant near the place, because that was the way it was done 50 years ago or 75 years ago– you’d better have the transmission. There’s no sense having the wind blow in Wyoming and people try and turn on the lights in Las Vegas.

So we went after transmission plan question a lot earlier than people were talking about. And we’ve said $16 billion or whatever it was in the annual report that went underway, and we just added $2 billion since the annual report came out, and there’s no utility in the country that’s coming anywhere close to that. Tell them a little bit about it.

GREG ABEL: Sure. Thank you. And really, as Warren touched, on BHE and BNSF have this significant carbon footprints when you think of Berkshire. And Warren, you touched on the disclosure that we’ve provided in the past going all the way back to 2007. I did pull those two investor presentations, one from 2007, and then our most recent one in 2021. So if we could pull up BHE1 as a slide, I think it would just highlight going all the way back to 2007, we’ve been doing investor presentations for what we call our fixed income investors, and we’ve done that through every year through 2021.

We’ve provided very similar disclosures to our board on an annual basis and had discussions around Berkshire Hathaway Energy’s plans to decarbonize. Now, it’s interesting. If you go back to the 2007 fixed income conference, and we are having a conference at that point in time, we have third-party debt, capital debt that are utilities raise. It’s a traditional capital structure used across our regulated entities to manage our total cost to the customer.

So we have investors we present to them as we’re highlighting on an annual basis. And if you go back to that 2007 Investor Conference, it’s interesting. In that presentation, we’re highlighting climate change, that it’s a fundamental risk, and we discussed what good policy would be. We discussed innovation, we discussed market transformation, and the importance of setting targets at that point in time, and we had recommendations for our industry.

And then since then, each year, we’ve presented, really, a plan and a strategy around how each of our businesses in BHE, but each of our regulated entities, how they’re going to transform. And the whole transformation has been around carbonization, managing that risk on behalf of our stakeholders in our many States, our customers that we serve, and ultimately, managing that risk for Berkshire Hathaway’s shareholders.

Now, as you go through those presentations, there’s a common theme, and Warren touched on it already. You have to build the foundation first, and that foundation is around building the high voltage, the transmission system. Warren touched on it in his annual report this year. In a letter he highlighted that at Berkshire Hathaway Energy, we’ll be spending just in the West $18 billion on transmission. $5 billion of that’s already been spent, as we sit here today, and that $13 billion will be spent over the next 10 years.

That’s the foundation that then allows us to build incremental renewable resources and move it to our many States that we serve at Berkshire Hathaway Energy and well beyond that. I would highlight what we’ve been building, the transmission infrastructure in place. We have been building renewables. If you look at our investment through the end of 2020, we’ve invested $30 billion or in excess of $30 billion into renewables, and have really completely changed the way our businesses do business, i.e. our utility businesses.

They’ve been decarbonizing and delivering a valued product to our stakeholders, to our customers. And I think the results are really amazing when you look at them, and I’ll give you a couple of reference points. If you go back to 2015, when the US was discussing joining the Paris Agreement, very specific targets were set. Prior to those targets being set, Berkshire Hathaway Energy and 12 other companies, including the Apples of the world– Google, Walmart– committed to Paris and that targets needed to be set. Berkshire Hathaway Energy was one of those companies in 2015.

WARREN BUFFET: Yeah, how many other utilities were there?

GREG ABEL: Right Warren, there were no other energy companies that made any type of commitment at that point in time. I’m happy to report we made a variety of pledges. Well, one of them was, at that point, we’d invested $15 billion in renewables and that we would commit $30 billion in total. Well, we far exceeded that total now. So there’s been a clear commitment to reduce decarbonizing our businesses. We have focused on very identifiable quantifiable outcomes, and I think that’s very important.

If you look at the standards that were the original US government’s commitments associated with the Paris Agreement, the target was 26% to 28% reductions in carbon footprints, going back to 2005, so that’s the reduction period, through 2025. And they wanted the 26% to 28% reduction level. We committed to that at BHE, and I’m happy to report– warning too, we’ve briefed our board– we achieve that in 2020. So we met our pledge, and we met the commitment under the Paris Agreement.

And then if you fast forward to the discussions that are occurring right now or have occurred around rejoining the Paris Agreement, the current administration has proposed that, again, using 2005 as a starting point, that the emission goals or reductions should be 50% to 52% by 2030. Again, I’m happy to brief to our shareholders and briefings we’ve provided to our board, but Berkshire Hathaway Energy will achieve that by 2030. Our reductions will hit the Paris Agreement target.

Again, the reason we can do it is we’ve built the foundation through transmission, the substantial investment that Warren has highlighted and then followed that up with very specific investments on the renewables side. I have one incremental slide that I hope pulls it all together, and that’s BHE2. Because as people discuss carbon, they often go to coal units, how many you own, how many have you closed, and there’s no question, that can be an important metric, but it is a transition.

And we are very much focused across the three utilities we own and the ones we’ve highlighted on the slide is to transition from our existing fleet to renewables using transmission. We have not become overly dependent on transitioning to gas. That’s been a clear strategy. So over a period of time, our coal units will retire. I’m happy to report or pleased to report to our shareholders that through 2020, we’ve closed 16 units to date.

If you look at from 2021 through 2030, there’ll be an incremental 16 units closed. And then if you go through to the end of 2049, our remaining 14 units will be closed. And at that point in time, all our coal units are closed. That slide is just an aggregation of all the activities each of our business units have been taking to help facilitate that transition and really transitioning to decarbonizing those units and I said decarbonizing our businesses on behalf of, first and foremost, our customers, the many stakeholders they represent in the various States, and then equally important, decarbonizing those businesses on behalf of our Berkshire Hathaway shareholders.

The only other thing I would add, because it is the entity that has the second largest carbon footprint in Berkshire, and when you combine BNSF and BHE, you’re talking the material set of emissions within Berkshire. BNSF has also been very active in managing their carbon profile. They’ve committed to have science-based targets established for 2030. So again, those targets will, again, be consistent with the Paris Agreement.

We’ve seen what the other participants or some of them in the class, in the industry that have committed to. And our commitment will be very similar, i.e. it’ll be consistent with the Paris Agreement, but it’ll be a 30% reduction in BNSF’s footprint by 2030. And that’s been publicly disclosed. That’s on the BNSF website. Everything I’ve discussed regarding BHE is on their website, filed in [? AK’s, ?] completely accessible by our many shareholders.

So when I look at it from the perspective of our Berkshire shareholders, I really believe this risk is being well managed, and we’re positioning ourselves for the long term. Thanks, Warren.

WARREN BUFFET: Yeah. Incidentally, I mean, the president the other night talked about $100 billion for infrastructure. We’d love to spend $100 billion, but he was talking about transmission is really the problem, I mean, a big problem because you got to get from where the sun is shining and where the wind is blowing essentially to concentrations of population. And you cross State lines, and you go through people’s backyards.

Whether the federal government has better luck in just saying this is the way it’s going to be done and ramming it down the throats of where they go and getting it done, I mean, they may have that power, and they’ll be able to do it faster than we are. On the other hand, we’d love to do it. We’ll spend $100 billion, but the speed at which we can do it, we bought PacifiCorp in 2006, and we had a bunch of customers out in the far West, and they had coal plants serving them. And to change that, you’ve got to be able to go to where wind blows and deliver it.

But it is interesting that we have published this information. We spent far more than any utility in terms of renewables and transmission in the United States. And we started with nothing, a little operation. But the people who bought the stock with their own money, the individuals, they seem to understand, and they read the reports, and we get calls, and they say, well, we want to come out and talk to you about it.

Well, we’re not talking to them and ignoring the million people that have been with us over time and bought it with their own money. We will not give special treatment to either the analysts or to institutions over the individuals that basically trust us with their savings for their lifetime.

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