Buffett Ignores ESG Trend By Betting Big on Fossil Fuels

Warren Buffett and his investment conglomerate Berkshire Hathaway have been increasing stakes in oil and gas industry operators this year as cheap valuations and attractive returns make fossil fuels good investments amid the ongoing ESG considerations from many other investors.

“I love ESG” because oil and gas stocks are cheap now partly due to this, Cole Smead, CEO at Smead Capital Management, has told Bloomberg.

“I’m sure Buffett and Munger love ESG as well,” Smead, whose firm manages $5.4 billion worth of assets, including Berkshire Hathaway and Occidental shares, said.

So far this year, Buffett has materially raised Berkshire Hathaway’s stake in Occidental Petroleum, to more than 25%, as of the end of June.

Berkshire Hathaway, however, doesn’t plan to buy control of Oxy, Buffett told Berkshire Hathaway’s shareholders at the company’s annual meeting in May.

“There’s speculation about us buying control, we’re not going to buy control,” Buffett added. “We wouldn’t know what to do with it.”

But returns are good while valuations in fossil fuels are cheap, so Berkshire Hathaway has made several other bullish bets on oil and gas.

Data from Bloomberg show that the energy sector is currently the cheapest of any S&P 500 sector in terms of price/earnings ratios, while it generates the highest cash per share. 

Last month, Berkshire Hathaway increased its passive stakes in each of the five leading Japanese trading companies, Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo, to over 8.5% in each of the firms.

Earlier this month, Berkshire Hathaway bought Dominion Energy’s share in the Cove Point LNG project in Maryland. The stake, which cost Berkshire $3.3 billion, has brought the company’s stake in Cove Point to 75%.

The acquisition comes at a time when U.S. LNG is one of the hottest growth areas in global energy. Following Europe’s gas squeeze last year, when Russia turned most taps off, U.S. LNG became a key source of gas for Europe.

Originally published on OilPrice.com