Temasek's GenZero: High global interest in decarbonisation despite short-term setbacks
Energy markets volatility, geopolitical tensions and a host of other factors are prompting some companies and investors to slow the pace of decarbonisation, although there is no going back on the drive to decarbonise in the long term, the CEO of GenZero told AsianInvestor.
"There is a lot of global interest in decarbonisation,” said Frederick Teo. “Although in the past two years, there has been a slight shift in priorities because of the Russia-Ukraine war and the resulting heightened international tensions,” he said.
Teo noted that countries and entities are increasingly concerned that they will be unable to meet their decarbonisation targets.
“But there is no going back here. Even if you don’t care very much about issues such as carbon and climate, you will have to worry about the long-term financial viability of investing into things that could become stranded assets,” the Singapore-based executive said.
GenZero is Singapore state investor Temasek's decarbonisation platform.
SLOWING EFFORTS
While energy and natural resources companies remain optimistic about long-term ambitions towards net-zero, they anticipated a short-term slowdown in the pace of decarbonisation due to energy market volatility since the Russia-Ukraine war, a May 2023 report from Bain and Company noted.
The report anticipated more coal being burnt to make up for cutbacks in Russian-supplied natural gas as well as a shift in focus back towards natural resource affordability and security over the next few years. Other experts have reinforced these trends last year.
Recent Middle East political tensions have also added to resource concerns among nations.
“There is a retreat from globalism and multilateralism, and it’s not just on climate issues,” noted Teo.
“Across the world, people are becoming more cautious with regards to securing supply chains and are increasingly worried about national security.
"This is because climate issues are inherently linked to energy resources. That energy and national security nexus (related to resources) will always be there.”
Many countries are thinking about how they can secure energy resources in the future.
In addition, rising cases of greenwashing and green-shaming -- shaming people and entities for not being green enough – is prompting some investors to take a step back and sit on the sidelines when it comes to implementing decarbonisation initiatives.
“Once we revert to normal, and when the short-term energy crisis is over, I am almost certain that there will be a redoubling of efforts to decarbonise,” Teo said.
Investors are also being guided by their own entity’s values, which, in turn, are being influenced by a more environment-conscious broader community.
“Environmental protection, for instance, has become a priority now because consumers have demanded for it over decades.
"Today there is consciousness about various things from pollution to climate action. With consumers and public expectations changing, along with new regulations, you will see more and more external pressure to decarbonise different aspects of business,” added Teo.
COUNTRY-LEVEL COLLABORATION
As a climate-focused investor, GenZero focuses on hardest-to-abate sectors, or technology areas that can have a meaningful impact in the long term.
“However, they currently need to be underwritten by a very high carbon price to become economically viable and scalable in the next 5 to 10 years,” Teo said.
GenZero has been driving efforts to develop a carbon market in Asia.
Carbon markets are trading systems in which carbon credits are sold and bought. Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions.
Another issue revolves around how the global economy catalyses finance to facilitate energy transition and decarbonisation at scale.
“All of this speaks to the importance of catalysing radical collaboration between countries,” said Teo.
“For some countries, it will be very hard to decarbonise if left completely to their own devices and resources. Global cooperation will be necessary to achieve global decarbonisation goals.”
Image credit: Shutterstock
PRAGMATIC INVESTING
Several institutional investors have expressed interest in participating in decarbonisation projects yet have been hampered by a lack of scalable solutions.
The Asian Development Bank, which has made climate funding a key part of its new Strategy 2030, has also said it wants to engage various types of capital from philanthropic to private capital, to develop scalable blended finance solutions.
GenZero typically comes into the picture when a project is ready to be scaled up and has gone past the post-feasibilty stage.
“We are commercial investors – we will always have a bias towards taking pragmatic action,” said Teo.
“Is it better to invest in something, however imperfect, that can help mitigate the worst effects of climate change than to do nothing at all while waiting for perfect solutions? It’s better to do something as long as it does no harm.”