Warren Buffett made his billions by being a contrarian investor. “Be fearful when others are greedy, and greedy when others are fearful,” one Buffett dogma runs; “detach yourself from the crowd,” he said elsewhere. But his recent bets on oil companies are contrarian in a new way, doubling down on fossil fuels when the rest of the world is trying to divest from it.
By the end of 2021, more than 1,400 institutions (pdf), with $39.2 trillion in assets under management, had committed to selling some or all of their stakes in fossil fuels. Buffet, though, is doing the opposite. His investment company, Berkshire Hathaway, became Chevron’s fourth-largest equity stakeholder in April, the value of its investment jumping to $25.9 billion, from $4.5 billion in Dec. 2021.
Berkshire has simultaneously been buying up shares in Occidental Petroleum. After first buying $10 billion in preferred Occidental shares in 2019, Buffett repeatedly topped up his stake this year, becoming the company’s largest shareholder with nearly 19% of it. And according to at least one analyst, Berkshire may want to purchase all of Occidental.
Buffett has no deep affinity with oil and gas, or indeed with any other sector. He is, as the phrase goes, a “value investor,” picking stocks only because he thinks they’re trading for less than they’re worth. But he has a long history of investing in fossil fuels—in PetroChina, for instance, or in the natural gas pipeline business.
One of his Buffett’s earliest articles, in 1957, argued that Oil & Gas Property Management, which looked after oil and gas facilities, was his favorite inflation hedge. That logic holds just as well today. The rising price of oil is, in fact, one of the factors behind inflation, so Berkshire Hathaway is right to view oil as a good investment at a time of climbing prices. Companies like Chevron and Occidental are flush with cash. Additionally, Buffett will have seen, from the chaos in energy markets caused by the Russia-Ukraine war, that the world hasn’t weaned itself off oil and gas as much as it would like to believe. The age of oil, Buffett knows, is not over yet.
But one thing that will hasten the great energy transition is for investors like Buffett to starve oil and gas companies of capital—even if the oil and gas company in question is Occidental, one of the more conscientious majors around. Defenders of Buffett may argue that he is putting himself into a position to influence Occidental and Chevron—to steer them towards the green energy sector in a way that avoids deep, sudden energy shortages. The hedge fund Engine No. 1, for instance, did just that with ExxonMobil.
But Buffett doesn’t have a track record of being that kind of activist investor. In March, for the second year in a row, Berkshire’s record on climate was given the lowest possible score by the Climate Action 100+ group, alongside Saudi Aramco. The company has also long rebuffed shareholder calls to divulge its climate risk.
Buffett’s pursuit of oil profits at a time of massive climate change is at odds with his generous philanthropy. But it also presents an unfortunate model to other investors who find themselves on the fence about divesting from fossil fuels, and who may decide, after watching the otherwise-progressive Buffett and his recent bets, to land on the side of dirty energy.