Berkshire Hathaway Shareholders Push for Progress on Climate, Workplace Diversity

Berkshire Hathaway BRK.B is being pushed to disclose its progress on reducing emissions and improving workplace diversity. These are the subjects of three proposals up for shareholder vote at Berkshire’s May 4 annual meeting. They stand out because similar proposals received significant support from Berkshire’s independent shareholders in 2023, according to research from Morningstar Sustainalytics.

Berkshire has two share classes, with CEO Warren Buffett and other related entities owning just over 38% of the superior voting shares. That effectively gives him 32% voting control over all shares, making it unlikely a resolution would pass without his support.

While Berkshire and Buffett are widely admired and largely escape criticism on many issues, climate isn’t among them. Berkshire recommends voting against the shareholder resolutions, two of which request better climate disclosures. Still, the popularity of similar proposals with independent shareholders is likely to make Berkshire directors look even more closely at this year’s voting results. “Any time that more than 25% of independent shareholders oppose the board to support a shareholder resolution, shareholders typically expect some board-level engagement on the issue,” says Andrew Spurr, analyst at Morningstar Sustainalytics.

Proposal One

Shareholder advocate As You Sow, on behalf of Elizabeth Kantor Trust, wants Berkshire to report on how it will measure, disclose, and reduce the greenhouse gas emissions associated with its underwriting, insuring, and investing activities. Catastrophe losses in the first half of 2023 were the highest in over two decades, suggesting Berkshire is “amplifying risk by continuing to invest in and underwrite high greenhouse-gas-emitting activities,” according to the filing. In 2019, Berkshire owned approximately 12% of all oil and gas assets held by insurance companies, according to environmental watchdog Ceres, and the second-largest insurance industry stake in coal. Berkshire doesn’t disclose or set targets for its invested or insured emissions, despite growing climate-related financial risk. “Berkshire is falling behind peers,” says As You Sow.

Writes Jekaterina Spiridonova, analyst at Morningstar Sustainalytics, Berkshire “does not provide shareholders with the disclosure that the proponent seeks. Peer companies appear to be taking steps to address their emissions associated with underwriting and investment activities through initiatives such as the Net Zero Insurance Alliance and by setting targets to address full value chain emissions. However, Berkshire continues to lag, with insufficient disclosures on its efforts in this regard.”

This could be a popular proposal, adds Spiridonova. In 2023, a similar proposal won 43% support from independent shareholders. Meanwhile, a 2023 resolution asking Berkshire to publish an annual assessment on how it manages physical and transitional climate-related risks and opportunities received 50% support. Berkshire has two share classes, with the supermajority voting shares controlled by Warren Buffett and other related entities.

Proposal Two

Should Berkshire report detailed emissions data for Berkshire Hathaway Energy, including scope types and its progress toward net zero? That’s the view of Illinois State Treasurer Michael Frerichs, who is also trustee of Illinois’ Bright Start college savings plan. BHE is one of the company’s largest emitters and among the top 10 largest owners of US coal power capacity. BHE has taken steps to disclose emissions, but it’s not enough, says Frerichs. And while BHE has set medium- and long-term net zero targets, Frerichs wants Berkshire to disclose its progress. Other US energy companies are publishing more-substantive emissions data and goals, including Sempra SRE, PPL PPL, Duke Energy DUK, and ConocoPhillips COP, he notes. And states and the US government are likely to require better reporting by scope. (For a primer on net zero, the different types, or “scopes,” of emissions, and other global warming concepts, read this.)

Writes Spiridonova: “It has become a minimum expectation that companies adopt a formal plan for effectively managing climate risks and presenting climate plans to shareholders. Berkshire significantly lags its peers in the financial industry, as well as most other large US companies when it comes to climate risk disclosure.”

This proposal is thematically related to the As You Sow proposal and could likewise be popular.

Proposal Three

Whistle Stop Capital on behalf of Berkshire shareholder Myra K. Young wants Berkshire to report on the effectiveness of its diversity, equity, and inclusion efforts, using quantitative metrics for workforce diversity, hiring, promotion, and retention of employees, including data by gender, race, and ethnicity. Whistle Stop Capital maintains that the data show a positive correlation between manager diversity and corporate performance and that companies that practice discrimination “tend to be less profitable.” Berkshire hasn’t shared “sufficient hiring, retention, or promotion data to allow investors to determine the effectiveness of its diversity and inclusion programs,” according to Whistle Stop’s proposal.

Buffett acknowledges that “inequities exist in the workplace between women, people of color, and their White male counterparts,” the proposal continues. Berkshire has bolstered its diversity data disclosure by releasing its consolidated EEO-1 form, showing the gender, race and ethnic composition of its workforce. In 2021, 2022, and 2023, 40%-plus of Berkshire’s independent investors supported this data disclosure. “However, in a review of each Berkshire company, the release of this data had not improved over the last three years. Investors remain without key information on the hiring, promotion, and retention rates of Berkshire employees,” Whistle Stop says.

Writes Morningstar Sustainalytics analyst Ignacio Garcia Giner: “Berkshire … is falling significantly behind peers who by now disclose material data on hiring, retention, and promotion across gender, race, and ethnicity.” Giner adds that Berkshire doesn’t disclose adjusted and unadjusted pay ratios across gender, race, and ethnicity and doesn’t say if pay parity has been achieved. Meanwhile, it employs just four female directors, less than a third of the board, and just two racially and ethnically diverse directors, making up just over 10% of the board. Both levels are “falling below the average of the S&P500,” says Giner.

And More

Separately, shareholders are also asking Berkshire to form a railroad safety committee of independent directors, report on the potential impact on its finances of a study’s assertion that the International Energy Agency has made “questionable assumptions and milestones” for net zero, and report on how dependent Berkshire is on businesses that are in and controlled by China.

You can find the proposals and Berkshire’s recommendations to vote No in Berkshire’s proxy statement. Morningstar Sustainalytics recommends investors support the first three proposals.