February 28, 2022

Warren Buffett Strikes a “Corporate Citizenship” Tone

Warren Buffett’s annual letter to Berkshire Hathaway shareholders came out this weekend. Although he says there wasn’t much “new or interesting” at the company in 2021, there are a few nuggets worth noting in the letter and the annual report that it accompanies. The letter:

– Prominently touts the company’s substantial federal income tax payments as a good thing. Berkshire Hathaway paid $3.3 billion in corporate income tax in 2021 – a figure you’ll find at the front of Saturday’s letter rather than on the back page. Warren Buffett has been a long-time proponent of reinvesting in the business and paying taxes “at the office” versus on take-home taxable income. At a time when the tax obligations of billionaires and their businesses are drawing more national attention (and starting to be discussed as an “ESG” issue), Buffett emphasizes “the invisible and often unrecognized financial partnership between government and American business” and says Berkshire wouldn’t be what it is today if its operations weren’t based in the USA.

– Applauds Apple and its CEO Tim Cook for strong performance and share repurchase decisions that caused Berkshire’s percentage ownership to increase to 5.55%. That might be useful praise heading into Apple’s shareholder meeting this Friday, where the tech company faces 6 shareholder proposals and an adverse ISS recommendation on say-on-pay. Later in the letter, Buffett expounds on Berkshire’s own repurchase decisions.

Additionally, it appears that the Oracle of Omaha is coming around to the business benefits of planning for the net-zero transition. The letter plays up these environmental achievements:

– BNSF’s role in the American supply chain comes with an emissions advantage – “If the many essential products BNSF carries were instead hauled by truck, America’s carbon emissions would soar.”

– BHE has made the “societal accomplishment” of becoming a leading force in wind, solar & transmission – and the letter highlights previously-identified successor Greg Abel’s leadership role in that company’s transformation. Buffett takes a dig at “greenwashing” and brags that BHE has a lengthy history of making climate-conscious moves that soak up all of its earnings.

In a rare move, Abel also gets dedicated space in the company’s annual report. His Vice-Chair letter details annual GHG emissions from BHE and BNSF – and the 2030 targets for those two businesses – which represent more than 90% of Berkshire’s overall emissions. The 2030 targets are about 54% of the 2005 baseline (close to the “halving emissions by 2030″ goal that gained support after the IPCC report last summer). Abel’s letter highlights that BHE has invested in renewables while retiring coal plants and that it routinely communicates its approach to decarbonization. For more info on Abel’s background and the significance of his “sustainability” letter getting space in the annual report, check out this Bloomberg article.

Buffett’s letter ends with a plug for the company’s “annual gathering of capitalists.” This year’s incentives to attend include a discount on a “cousin” Jimmy Buffett-designed pontoon party boat that is manufactured by a Berkshire subsidiary. At a time when other companies are elbowing for positive attention & turnout from retail shareholders, Warren Buffett’s ability to connect the dots in a straightforward way seems to be a continued formula for success.

Liz Dunshee