Buffett gives successor Abel rare page space for sustainability

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(Bloomberg) — Warren Buffett has included a rare excerpt in his long-awaited annual letter: A note from Greg Abel, his successor in chief at Berkshire Hathaway Inc.

Abel, who was publicly identified as the successor to America’s most renowned investor for the first time last year, was tasked in Berkshire’s annual report on Saturday with giving a breakdown of the company’s sustainability efforts. business – a sign of the growing importance of the subject for the conglomerate and its shareholders.

Buffett, who has faced increasing pressure on environmental issues over the years, typically navigates the subject by referring to Berkshire’s operating model, where each company is individually accountable for how it deals with those risks. Abel’s letter marks one of the most comprehensive explanations of the company’s environmental strategy in a Berkshire annual report to date, while cementing his rise to the top job as Buffett resign.

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“It has a huge signaling effect,” said Edward Jones analyst Jim Shanahan. “This may be the first sign of a real transition at the helm here. He instructed his successor to comment specifically on their efforts – particularly with respect to environmental issues and sustainability – I think that’s a powerful statement.

Abel, who rose to prominence at Berkshire as a key energy operations manager and now oversees all non-insurance business which has more than 320,000 employees, explained how various businesses – namely rail operations and BNSF Energy Managers – manage emissions targets and environmental efforts. BNSF and Berkshire Hathaway Energy account for more than 90% of Berkshire’s direct emissions, he wrote.

“Berkshire’s businesses are uniquely positioned to meet customers’ ever-changing sustainability expectations, both in terms of resources and attitude, while creating value for Berkshire shareholders,” said said the Berkshire vice president. “I support these defined goals and am fully committed to Berkshire’s continued journey to provide sustainable solutions.”

Abel also signaled that Berkshire would continue Buffett’s decentralized approach to the environment under its own control. Managers of its units will continue to make all business decisions, including their approach to sustainability, he wrote.

Among Abel’s sustainability goals: BHE will retire 16 coal-fired units between 2022 and 2030, in addition to the 16 units it has already retired, a step that will help it halve greenhouse gas emissions by 2030. As the company deploys more non-Instead, BHE plans to retire all remaining coal units by 2049, with its fleet of natural gas units phased out by 2050 This will allow the company to achieve net zero greenhouse gas emissions globally, Abel said.

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For BNSF, Abel said the company will continue energy efficiency improvements and increase its use of renewable diesel fuel as it targets a 30% reduction in its GHG emissions by 2030.

“Other subsidiaries, of course, are important, but Berkshire will have failed if BHE and BNSF fail to meet their GHG emission reduction targets,” Abel wrote.

Abel also touted the energy sector’s investments in renewables. He recently proposed a $3.9 billion wind and solar project in Iowa that could rank among the largest in the renewable energy industry to date.

Buffett also touched on sustainability in his annual letter. BNSF — which he called America’s number one commerce thoroughfare — is a cleaner alternative to trucking, he said. The billionaire investor also complemented Abel’s letter by noting that the energy sector had no wind or solar generation in 2000, but is now a major player in that space.

“The profile you’ll find there is by no means one of those fashionable green-washing stories,” Buffett said of Abel’s letter. On Berkshire Hathaway Energy’s website, “you’ll see the company has a long history of taking climate-conscious actions that eat up all of its profits.”

BNSF, along with Berkshire’s utility operations, helped the conglomerate’s quarterly operating profit climb to $7.29 billion, the second-highest level on data dating back to 2010. The company’s cash flow has ended the year at $146.7 billion, as decent offers remained scarce, prompting Buffett to rely on buybacks to deploy the treasury.

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Governance issues

On some other key social and governance issues, Buffett has remained silent, including the change in the composition of Berkshire’s board of directors which accelerated after the announcement of the departure of longtime member Tom Murphy. Buffett did not say whether or not his spot would be filled.

Although he gave Abel space to write his own letter, Buffett made little mention of his role as the billionaire investor’s successor as Berkshire’s chief executive. But nonetheless, it was a chance to get some executive insight, said James Armstrong, who manages assets including Berkshire stock as chairman of Henry H. Armstrong Associates.

“It makes perfect sense to give shareholders a chance to hear from Greg,” he said.

©2022 Bloomberg LP

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