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Evaluation: Buffett's ESG nudge may alienate Wall Avenue

© Reuters. FILE PHOTO: Berkshire Hathaway Inc CEO Warren Buffett takes a break while playing bridge during the company's annual gathering weekend in Omaha, Nebraska, the United States, on May 6, 2018. REUTERS / Rick Wilking

By Ross Kerber, Jessica DiNapoli and Jonathan Stempel

(Reuters) – Berkshire Hathaway (NYSE 🙂 Inc shareholders can accept Chairman Warren Buffett's hostility towards bitcoin, blank check acquisition firms, and wild bets on the Robinhood trading app. But when it comes to environmental, social and corporate governance (ESG) standards, many people draw the same line.

Buffett and his board of directors rejected two shareholder resolutions at Berkshire Hathaway's annual general meeting last week, calling for annual reports on how companies are responding to the challenge of climate change, as well as reports on diversity and inclusion in the workplace.

He prevailed, supported by directors who together with him control 35% of Berkshire Hathaway's voting rights. Some of its top investors, including BlackRock Inc (NYSE :), the world's largest wealth manager, were among the roughly 25% of Berkshire Hathaway shareholders who opposed it and voted for every resolution. The California Public Employees Retirement System, the largest public pension fund in the United States, and Federated Hermes (NYSE 🙂 Inc, the Pittsburgh-based asset manager with a volume of $ 625 billion, were among the sponsors of the resolution on climate change.

It's a growing trend. Environmental proposals at Berkshire Hathaway's 2018 annual meeting had no more than 12% shareholder support, as did a resolution on diversity last year.

As more Wall Street funds manage assets in a mandate to address ESG causes, some corporate governance experts say the pressure on Buffett will increase in the years to come.

"Even an investor of Buffett's reputation may not be immune to such major market trends," said Ric Marshall, executive director, ESG Research at MSCI Inc.

Berkshire Hathaway and Buffett didn't respond to requests for comment on Monday.

Berkshire Hathaway's board of directors rejected shareholders' proposals, arguing that the Omaha, Nebraska-based company's decentralized business model made it inappropriate to set uniform standards for its operating units related to climate change and diversity.

Buffett, one of the world's greatest philanthropists, told investors during Saturday's general meeting that asking for ESG reports from all subsidiaries was "stupid" as many of them are small and Berkshire Hathaway allows them to work independently.

He also said he does not like making "moral judgments" about companies and that it is "very difficult" to decide which ones benefit society.

Berkshire Hathaway is hardly alone. Other large companies including Citigroup Inc (NYSE 🙂 and Amazon.com Inc (NASDAQ 🙂 have defied ESG shareholders' proposals, calling them impractical or inferior to their own.

Meredith (NYSE :), CEO of Whistle Stop Capital, Benton, advisor to the As You Sow group of shareholders, which submitted the diversity proposal for Berkshire Hathaway, said Berkshire Hathaway excelled on the ESG front with little initiative, and Buffett showed a "lack of leadership". ""

"Even Buffett can't ignore what his investors are asking," Benton said.

DISCLOSURES, NOT HOPE

In a notice on its website, BlackRock criticized Berkshire Hathaway for failing to adequately explain how its business model was "compatible with a low-carbon economy" and for failing to disclose information to help investors evaluate its diversity efforts.

Federated Hermes' Tim Youmans, one of the company's engagement directors, said Greg Abel, vice chairman of Berkshire Hathaway, who Buffett said would become CEO this week if he resigned, appeared to be more focused on climate change at the AGM than his boss.

Abel said at the general meeting that all coal-fired power plants in Berkshire would be closed by 2049 and that the utility had already made a major transition to renewable energy.

Youmans said this gives him hope the company would be more responsive to ESG issues, but added, "We're looking for disclosures and targets as opposed to hope."

Shareholder proposals on environmental and social issues at S&P 1500 companies averaged 28% in 2020, down from 20% in 2017, according to proxy attorney Georgeson.

Activists hope to do even better in 2021 after the United States re-acceded to the Paris Climate Agreement and widespread support for the Black Lives Matter movement.

Dupont shareholders overwhelmingly backed proposals last week calling for the disclosure of data on workforce diversity and a report on plastic pollution.

According to Heidi Welsh, Managing Director of the Sustainable Investments Institute, the 81% of the votes cast was a US record for an environmental proposal rejected by management.

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