Nearly Half of Berkshire Hathaway's Independent Shareholders Support Climate, Diversity Reporting
Investors reject board advice; a climate report "would be good for investors to hear," Morningstar analyst says.
Rejecting the advice of the board led by legendary chairman and CEO Warren Buffett, nearly half of Berkshire Hathaway's (BRK.A) independent investors supported proposals requesting climate-change-related reports and reporting on Berkshire's diversity, equity and inclusion efforts.
Altogether, Berkshire faced four shareholder proposals. One, led by Federated Hermes (FHI) on behalf of other shareholders, asked Berkshire to publish an annual assessment of how it manages physical and transitional climate-change-related risks and opportunities. It won 27% of the overall vote, or around 47% of the vote excluding insiders. A second, led by shareholder advocate As You Sow, asked Berkshire to report on its greenhouse gas emissions. It also won 27% of the overall vote. A third, also led by As You Sow, asked Berkshire or its holding companies to report on the outcomes of their DEI efforts by publishing data on workforce composition and promotion rates by gender, race, and ethnicity. It won 26% of the vote. The board of directors recommended voting against the proposals.
If insider votes were subtracted, the proposals would have won at least 45%, or nearly half, of the vote of independent shareholders.
A fourth proposal by National Legal and Policy Center to require that the chair now occupied by Buffett be filled by an independent director, won 10.8% of the overall vote.
"Having nearly 50% of independent shareholders is significant," As You Sow president Danielle Fugere said in an interview. "Shareholders have become more concerned about climate and what can happen if a company is not diversifying [its workforce]. Even Warren Buffett cannot continue to ignore shareholder concerns."
Fugere said As You Sow had "a good discussion" with Berkshire about climate change in the past year and will return to engaging with the company on the issues raised by its proposals. In particular, As You Sow is concerned that Berkshire isn't reducing the climate footprint of its insurance operations, which account for more than a fourth of its business. Losses from natural disasters are on the rise, with 2021 being the second most costly year on record for the insurance industry, with losses totaling $120 billion from natural disasters.
Fugere said Berkshire is amplifying the climate-related risks it faces in its insurance business by investing in and underwriting projects in high-carbon activities, which cause climate change. It is one of the largest providers of coverage to the oil and gas industry. Rival insurers American International Group (AIG) and Hartford (HIG) recently committed to achieving net-zero emissions from underwriting and investment by 2050 or sooner. "These companies have to be addressing the very risks they're creating," Fugere said. "I'm hoping [Berkshire] is starting to understand the need to take action."
The California Public Employees Retirement System, the largest U.S. public pension fund, voted for all four proposals.
"It is necessary that Berkshire Hathaway provide shareowners with an annual assessment on how it manages physical and transitional climate-related risks and opportunities. This is especially true for companies in carbon-intensive industries or those that have the potential to be significantly impacted by climate change such as utilities and insurance companies--both of which are contained in the company's portfolio. In our view, the company's existing disclosures are insufficient for investors to adequately assess the company's physical and transitional climate-related risks and opportunities," CalPERS said in an April 19 filing.
Other yes votes on climate and diversity came from asset manager Neuberger Berman, which urged Berkshire for "improved disclosures despite the challenges the company's decentralized structure poses on reporting." In an interview, Caitlin McSherry, director of investment stewardship at Neuberger, said her firm is "quite positive" on Berkshire's efforts to improve disclosure, but "we wanted to signal that [we want] a bit more progress there."
Greggory Warren, who covers Berkshire for Morningstar, said that a report detailing Berkshire's plans to reduce emissions, such as the one proposed by As You Sow, "would be good for investors to hear," even though Buffett "thumbs his nose to most things ESG," meaning environmental, social and governance investing, "at least from a reporting and standards perspective."
Why would it be good for investors to hear? Says Warren: "If the investing world is going ESG, and you're a company that disdains having to report things or collate the reporting from your subsidiaries, then you may be limiting the pool of potential investors longer term."
Leslie Norton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.