Buffett Buys Burlington Northern: The Green Dimension

Warren Buffet’s decision this week to acquire railroad freight company Burlington Northern Santa Fe highlights questions about the the business cycle in the U.S. and the prospects for rail transport.

It also shines a light on the influence of sustainability on corporate strategy. It is well established that rail transport is the most efficient form of surface transportation. (I looked at passenger rail transport in a previous blog post.) Beyond that, BNSF has for years been pursuing a green strategy.

The company has for years been working to improve the energy efficiency of its operations and has achieved a 7.7% increase in fuel efficiency since 1999. It has deployed a variety of clean and energy efficient technologies, some of them experimental, in its trains and in its cargo facilities. It claims, for example, to be the first rail carrier in North America to use zero-emissions electronic wide-span cranes at some of its intermodal facilities. In 2007, BNSF became the first railroad to pilot the use of low-emissions, natural-gas hostler trucks to move containers at their Los Angeles Hobart Intermodal facility. BNSF is the first railroad in the world to develop an experimental hydrogen fuel cell switch locomotive.

The company has also been assiduous about engaging with business groups and non-profits on issues of climate change and sustainability. It voluntarily reports its greenhouse case emissions to the Carbon Disclosure Project and the Business Round table. The Carbon Disclosure Project ranked the company second in the Global 500 industrials category of its Carbon Disclosure Leadership Index, with a score of 85 out of a possible 100.

 And Goldman Sachs singled the company out earlier this year in a report I wrote about that looked at the impact of climate changes on investment strategy and company performance. According to the Goldman report, BNSF ranks in the 90% percentile of the road and rail sector in return on capital, and gets the top climate change score. As Goldman Sachs has pointed out, while climate change may reduce demand for freight-intensive products it will increase the value of energy- and carbon-efficient transport.

Clearly many factors were behind Buffet’s decision to buy the railroad (including, he said, the fact that his father never got him a train set as a kid). But the company’s leadership position in climate change strategy and sustainability did not hurt.

What do you think?

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4 Comments

Filed under efficiency, sustainability, transportation

4 responses to “Buffett Buys Burlington Northern: The Green Dimension

  1. Dikaios Logos

    I agree this is the biggest cleantech play yet. One point in sustainability you missed relates to network effects and cities. Cities are much more sustainable/green than remote areas served by Wal-Marts located out on miles of empty highways. By strengthening their rail links, cities, including ‘rust belt’ ones become much more cost competitive with sprawling areas.

    • David Schatsky

      I suspect that becomes even more true as the cost of carbon-intensive fuel rises relative to other things. Thanks for your comment.

  2. Although a very efficient form of transport, one of BNI’s largest passengers is coal, for our energy use, as well as Chinas. Stepping away from coal powered power plants to something more clean like natural gas, isn’t something BNI is going to be happy about.

    • David Schatsky

      Very interesting point, Anthony. Indeed you are right that the company ships vast amounts of coal–the say “enough coal to generate nearly 12 percent of the nation’s electricity.” The company reported loading some 274.7 million tons of coal in the Powder River Basin in 2008. Judging from EIA figures that’s 55% of all the coal mined in that region and 23% of all coal produced in the U.S. last year. EID forecasts increased coal production in the Western Region through 2030, though with slowing growth. I suspect Buffett would posit a shift in freight from trucks to rail in coming years which could foster growth for the company while also mitigating a slowdown in coal shipments.

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