How Temasek's GenZero invests in nature-based solutions
Nature-based solutions -- one of the key focus areas for GenZero -- are a critical lever in achieving net-zero goals and generating carbon credits, a top company executive told AsianInvestor.
“At GenZero, we are looking to invest in companies and projects that are looking to scale up globally,” said Hoon Ling Min, director in the investment group and at GenZero.
Hoon leads the company’s investments in nature-based solutions and carbon ecosystem enablers. She was previously a director in Temasek’s international sustainability group.
GenZero is the decarbonisation investment platform of Singapore state-owned Temasek. It was lauched in mid-2022.
CRITICAL LEVER
“We have a diverse toolkit that can enable us to engage in decarbonisation, beyond just transition technologies,” said Hoon, adding that nature-based solutions can serve as one of the critical levers in the race to become carbon-neutral.
Nature-based solutions aim to protect and restore natural ecosystems while benefiting local communities and biodiversity.
Some examples include forest conservation and restoration, blue carbon, and sustainable agriculture.
“We will work with project developers and project proponents who already have a network of farmers or rural households, but need capital to enable them to roll out their solutions. We invest in these projects and, in turn, get a portion of the carbon credits generated,” said Singapore-based Hoon.
She added that GenZero remains extremely mindful that a good part of the returns emerging from these activities should be rechannelled back to the communities.
HELPING CARBON FINANCING
One of GenZero's portfolio companies in this arena is BlueSource Sustainable Forests Company.
“We invested in the company because they took a carbon-first approach rather than only managing the properties, which spans about 1.7 million acres of forest land in North America,” Hoon said.
"They are transitioning to what we call ‘sustainable harvesting’ with better rotation cycles while preserving the biodiversity in terms of native species. Had it not been for carbon finance – the ability to monetise the carbon stock in the form of carbon credits – very few timberland managers would think about moving away from or reducing the rate of commercial harvesting.”
In that sense, nature-based solutions will play a pivotal role in promoting carbon finance, or carbon credits.
“Carbon finance comes into play through the ability to generate carbon credits by measuring the reductions in emissions. Carbon credits serve as a source of returns to the investors and beneficiaries of the financing," said Hoon.
It's an example of how straightforward carbon financing can unlock a solution that otherwise would not have existed, she noted.
DIFFERENT NEEDS
As more nature-based solutions come ‘to market’, different investors and buyers will align themselves at different levels along the chain of activities, based on their risk appetite and returns requirements.
“There may be investors or buyers who might not necessarily want to take the risk of project development," she said.
"When investing upfront in a particular project, you are taking a view on the project implementation including the costs, and returns are derived from the price of the carbon credits generated. There are other investors, particularly corporates, who come in at later stages of the project to purchase the credits when issued."
Institutional investors are increasingly keen to access carbon credits so that they can offset those against their own emissions.
“What they can do is purchase the carbon credits, after they have been issued from a project for purposes of offsetting against their own emissions.
"They can purchase carbon credits via avenues such as carbon credit exchanges. Climate Impact X is one such platform that we hope will introduce some liquidity and transparency towards how carbon credits can be traded.”
Climate Impact X, a global market place for carbon credits, was set up by Singapore Exchange, Temasek, DBS and Standard Chartered.
MORE INSTITUTIONALISATION COMING
Nature-based solutions involve harnessing natural ecosystems, which are in themselves, naturally occurring carbon sinks.
These carbon sinks have the potential to reduce emissions by up to one-third by 2030 if capital and other resources are mobilised and if effective market mechanisms to promote conservation and restoration of natural ecosystems.
“When we talk about nature-based solutions, we are referring to solutions that revolve around forest conservation and restoration, regenerative agriculture to improve soil health and in some cases, reduced water usage, as well as conservation and restoration of marine and coastal ecosystems. For example, mangroves are a good carbon sink.
"Some community-based projects for the distribution of energy-efficient household devices are a form of nature-based solutions too as open-fire cooking often generates household air pollution on top of deforestation,” Hoon explained.
Traditionally, these activities were undertaken by conservation organisations, non-profits, or environmentalists but the key constraint is often scalability.
“But now, with more global companies looking to accomplish net-zero and carbon neutrality targets as well as increasing reporting requirements (around sustainability), we are moving the market towards a more institutionalised mechanism where we can have more participation from the private sector,” she said.
"That’s why you hear more asset managers saying that they would like to participate in ESG-related activities although they lack the technical know-how," Hoon added.
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