Temasek favours engagement and technologies in ESG transition
Singapore’s Temasek emphasises ESG in helping companies transition to a decarbonised future. It commits to understanding their specific situations and helping them to find technologies that will deliver innovative solutions.
“We do understand that in a company’s ESG journey, it is not just intent but sometimes you need additional capital and technology at competitive prices. Therefore, all our effort is to try and catalyse change through financial capital and innovations, bringing in other partners and technologies as needed,” said Purnima Gandhi, director, portfolio development at Temasek International, during a panel discussion at AsianInvestor’s annual Asian Investment Summit last week.
Temasek has pledged to halve the net carbon emissions of its portfolio by 2030 using 2010 as a base and achieve net zero by 2050.
As of March 31, 2021, Temasek had S$381 billion ($278.7 billion) of assets under management and went past $300 billion this year.
Temasek tries to invest in more climate-positive opportunities, such as renewables and carbon capture. It also looks at carbon negative investments where it can help with things such as carbon offsets, nature-based solutions which will help reduce carbon emissions, according to Gandhi, who focuses on energy transition and climate-tech sectors globally.
Nature-based solutions refer to actions or policies that harness the power of nature to address pressing societal challenges, such as threats to water security, rising risk of disasters, or climate change.
ENGAGEMENT IS KEY
Rather than looking for an exit, Temasek works with its portfolio companies to help them transform to a decarbonised future.
“We prefer to engage with our portfolio companies on ESG than just divesting. Divesting does not solve the problem and makes it someone else’s problem,” said Gandhi, who works closely with Temasek's portfolio companies on growth, restructuring, strategy and ESG.
“I don't think there is any company that doesn't want to transform or transition. It's about the availability of the technologies at a cost that makes sense. That is the hindrance for most of them and that’s where we try and catalyse solutions,” she said.
Temasek does not have the same stake in each of its portfolio companies – it could be the majority or minority shareholder or its holdings could be in the form of equities or credits – so it adapts its engagement style accordingly. Its engagement framework is based on key factors such as level of influence, materiality and scope of transition.
“We focus on portfolio companies which are material contributors in terms of carbon emissions in our portfolio,” she said, adding that it targets its engagement on companies where it feels it has enough influence to push for transition.
For example, like other airline companies, Singapore Airlines, one of Temasek’s portfolio companies, struggles to reduce the level of its relatively large carbon emissions, so Temasek is championing sustainable aviation fuel and funding the airline's transition to start using it this year.
Gandhi stressed that Temasek doesn't handicap companies in emerging markets in ESG evaluation.
“I don't think we would put them against any different benchmark, but we would help build capabilities, innovation and try to get the best practices from other parts of the world in case there is a difference in the learning,” she said. “Our portfolio companies are at different stages of the ESG journey, and we look for the opportunities to enable them to get to global best practices.”
Temasek is also happy to bring in other partners and technologies to make the decarbonisation transition.
In April 2021, Temasek and BlackRock, the asset manager, established a partnership called Decarbonization Partners to launch a series of late-stage venture capital and early growth private-equity investment funds that will focus on advancing decarbonization and net zero by 2050.
The two firms have committed a combined US$600 million in initial capital to the funds launched by Decarbonization Partners, which wants to raise $1 billion for its first fund.
Temasek is also one of the three founding partners of the Brookfield Global Transition Fund, along with Brookfield Asset Management and the Ontario Teachers' Pension Plan.
The fund, with a hard cap of $12.5 billion, is built on Brookfield’s capacity in renewable power and clean energy and will invest capital in the transformation of carbon-intensive businesses to achieve alignment with the Paris Climate Agreement, whose goal is to limit global warming to well below 2 degrees Celsius, preferably 1.5 degrees, compared to pre-industrial levels.