FILE PHOTO: Warren Buffett, CEO of Berkshire Hathaway Inc, plays bridge as part of the company annual meeting weekend in Omaha, Nebraska U.S. May 6, 2018. REUTERS/Rick WilkingReuters

  • Legendary investor Warren Buffett thinks that companies should prioritize shareholders’ returns over social causes, The Financial Times reported.
  • More companies and funds are moving toward environmental, social, and governance (ESG) investments in a bid to curry public favor, but Berkshire Hathaway’s CEO thinks such shifts should be driven by government policy.
  • Berkshire recently spent about $30 billion on wind turbines in Iowa, but Buffett admitted that the investment was driven by “the production tax credit we get.”
  • “The government has to play the part of modifying a market system,” Buffett told the FT.
  • Visit the Business Insider homepage for more stories.

Legendary investor Warren Buffett thinks that companies shouldn’t assign their investors’ cash to social causes, and instead focus on what would benefit the shareholders most, The Financial Times reported. 

More companies and funds are shifting attention from simple profitability to environmental, social, and governance (ESG) issues in a bid to gain public favor. The Berkshire Hathaway CEO opposes the idea, saying that public companies’ primary concern should be maximizing shareholder value. 

“This is the shareholders’ money,” Buffett told the FT. “Many corporate managers deplore governmental allocation of the taxpayer’s dollar, but embrace enthusiastically their own allocation of the shareholder’s dollar.”

Instead of companies deciding which social causes to back, the government should step in to promote select projects, Buffett added. Berkshire recently spent roughly $30 billion on wind turbines and related infrastructure in Iowa, according to the FT, but the investment was driven by “the production tax credit we get,” Buffett admitted.

The chief executive used Berkshire’s coal plants as a hypothetical, telling the FT that “either our shareholders or the consumer is going to pay” if the public wants the coal plants closed. The cost will hit either people whose utilities will become more expensive or the Berkshire shareholders once the company posts weaker earnings figures.  

“So, there’s a cost to somebody … the question is how it gets absorbed, but overwhelmingly that has to be a governmental activity,” Buffett said. “The government has to play the part of modifying a market system.”

Buffett’s sentiment echoes that expressed by many economists and executives for decades. Some fear that a transition into ESG investments could diminish shareholder returns. Institutional fund managers present another threat, as their sizable voting power could force public companies to prioritize ESG concerns over profitability, Cognex chairman Robert Shillman said in the company’s 2018 annual report.

“There must be reforms to the proxy process to ensure that those who vote the shares do so in the best interest of the shareholders who own those shares,” Shillman wrote. “In essence, it comes down to the question, ‘what is the purpose of a publicly traded corporation?'”

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