Temasek ramps up sustainable living, decarbonisation drive
Temasek is looking to increase its investments in areas that promote sustainable living, focusing on companies whose products and services align with environmental and social objectives.
“Amidst the four structural trends around which we make investments...This is the fastest growing part,” Temasek Chief Investment Officer Rohit Sipahimalani said at the release of the fund's inaugural sustainability report.
The document outlines the fund’s strategy to achieve net zero by 2050.
Temasek’s four structural trends around which investments are made include sustainable living, digitisation, the future of consumption, and longer lifespans.
Sustainable living used to be the smallest segment among the four from 2016 to 2022. It now grows into the largest.
As of March 31, the value of investments aligned with its sustainable living investment trend reached S$44 billion ($32.6 billion). Temasek has invested S$3 billion in this structural trend over the past financial year.
This is the first time the state-owned investor has publicly disclosed the figure.
Relevant investments include companies in real estate, including Mapletree and CapitaLand. Agri-food companies such as DeHaat, and industrials such as Ascend Elements are also part of the portfolio. Sembcorp Industries and Topsoe are among its climate transition investments.
EMISSIONS ACCOUNTING
Temasek increased its internal carbon price on April 1 by 30% to $65 per ton of carbon dioxide equivalent (tCO2e). An internal carbon price is a monetary cost that companies can assign to their carbon emissions. The fund intends to progressively raise its carbon price to $100 per tCO2e by 2030.
Annually, Temasek deducts the carbon footprint of its portfolio multiplied by a carbon price from a portion of returns above the cost of capital, earmarking this amount for management incentives. The returns above the cost of capital are deferred until it achieves the 2030 goals.
"So, this is not just a theoretical number," Sipahimalani said.
He said Temasek reviews its internal carbon price every two years, and even the 2030 target could be raised or lowered based on forward-looking estimates.
The investor has seen a year-on-year reduction in total portfolio emissions by 22%, or 6 million tCO2e.
The reduction was primarily driven by three factors: the sale of Sembcorp Energy India Limited, decarbonisation efforts by Temasek’s portfolio companies, and changes in portfolio composition.
“We should, however, expect a nonlinear trajectory of portfolio emissions as we journey towards net zero,” Sipahimalani caveated.
The state investor is also selectively looking to invest in comparatively high-emitting industries such as businesses involved in energy-transition commodities. Such investments come under consideration if they have a clear transition pathway, according to Temasek.
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The top five companies making approximately 80% of total portfolio emissions are Singapore Airlines, Sembcorp Industries, Olam Group, PSA International, and ST Telemedia.
PATHWAYS TO DECARBONISATION
Temasek is also committed to decarbonising via three key pathways, the fund announced at its sustainability briefing.
Firstly, it plans to step up investments that support the transition to a low-carbon economy, including hydrogen technologies, energy-efficient solutions, and alternative production processes in hard-to-abate sectors.
Secondly, Temasek will engage major portfolio companies with the highest potential for impact on their climate transition journeys and decarbonization plans.
Thirdly, it will leverage voluntary carbon markets to enable nature and technology-based solutions that support decarbonisation and conserve natural systems.
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Sipahimalani noted that the firm has looked at early-stage investments in innovative technologies around green cement, green steel, as well as non-fossil fuel based chemicals.
“These are companies we are willing to put small amounts in, but as they prove themselves, we will sort of step up our investments. However, if we do not see these investments meet their milestones, then we will not make further investments in them,” he said.
ANNUAL RESULTS
In its latest annual results, Temasek reported a S$7 billion increase in its net portfolio, driven by investment returns from the US and India, which offset underperformance in China.
As of March 31, the state investor's net portfolio was valued at S$389 billion, up from S$382 billion the previous year. Excluding Singapore, the US continued to be the leading destination for its capital, followed by India and Europe. It also stepped up investment activities in Japan during the financial year.
“The top-of-mind issues we have identified since 2021 – a challenging economic environment, geopolitical tensions, rising protectionism, the climate crisis, cyber risks, and the rise of Industry 4.0 – continue to prevail. Against this backdrop, we will remain disciplined in our investment approach guided by the four structural trends, especially in opportunities in green transition and Artificial Intelligence,” the fund wrote in its annual report.
This article has been updated in the 4, 5, 6th para for clarification purposes.