Warren Buffett's Chilling Climate Change Warning: Is It Time to Sell Berkshire?

Billy Duberstein, The Motley Fool

Sun, Mar 16, 2025, 9:00 AM 7 min read

Last month, 94-year-old Warren Buffett published his annual letter to shareholders. The yearly letter from the greatest investor of all time typically offers timeless bits of investing and business wisdom, tinged with homespun humor.

However, this year's letter had a chilling warning on a subject Buffett doesn't usually address: climate change.

Remember, while Buffett is known for his investing, Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) core business is insurance. In fact, it's the insurance business that enables the investing business, as it raises the float for Buffett and his team to reinvest in equities or buy entire businesses.

Given the seemingly inevitable acceleration in climate disasters that Buffett highlights, insurers will likely be on the hook for larger and larger damages in the future. So, should Buffett's stark warning worry Berkshire investors?

In the letter published Feb. 22, Buffett wrote:

Insurance pricing strengthened during 2024, reflecting a major increase in damage from convective storms. Climate change may have been announcing its arrival. However, no "monster" event occurred during 2024. Someday, any day, a truly staggering insurance loss will occur – and there is no guarantee that there will be only one per annum.

Interestingly, Buffett hasn't addressed climate change this directly in prior letters, despite property and casualty (P&C) insurance being the core of what Berkshire does. So, does this year's mention mean there's a heightened threat? If so, does that mean you should sell the stock?

According to a study published last year by the Potsdam Institute for Climate Impact Research (PIK) in the industry journal Nature, climate disasters could cost the global economy a whopping $38 trillion per year by the middle of this century. That would be a massive 90-fold increase from the estimated $417 billion in estimated economic losses the world experienced last year from natural catastrophes.

Increasingly damaging catastrophes, such as the recent $164 billion Los Angeles wildfires, have been the result of something called "compound weather." Compound weather occurs when a combination of two different climate change symptoms occurs together, making the combined effect worse than the two factors on their own. So, one plus one equals more than two -- only in this case, the higher number isn't good.

In the case of the Los Angeles fires, the city saw two years in a row of above-normal rain during the winter, spurring lots of vegetation growth. However, the summer and fall of 2024 were among the warmest on record, causing a rapid drought. The drought dried out all that extra vegetation, essentially producing lots of kindling. We all know what happened next: Record-high winds in January created wildfires, which had more "fuel" to burn.