Temasek's GenZero: How it picks partners for scalable projects

Scalability of projects, financial returns and viability are some of the key factors that GenZero takes into consideration as it invests in partnerships and projects that promote decarbonisation around the world, a senior executive from the company told AsianInvestor.

“We come in when the project is at the post-feasibility stage, and looking for capital to scale beyond the pilot stage,” said Hoon Ling Min, director in the investment group at Singapore-headquartered 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 state-owned Temasek. It was lauched in mid-2022.

Scalability matters for GenZero as it has a ‘double bottomline’ around financial returns and climate impact measurement, she noted.

“Given our capitalisation, we need to be judicious around capital allocation. So the scalability of a project, financial returns and viability are key factors we need to take into consideration,” she said.

The readiness of a project to scale up is important. “As much as there could be a lot of potential in different projects, they could also be in various stages of readinesss,” said Hoon.

“Some projects could be very early in the feasibility study stage. In those cases, the projects are better placed to receive technical assistance facilities from conservation organisations, philanthropic capital or development finance institutions to help them move to the next phase.”

KEY FACTORS

Examples of GenZero's project partnerships include an investment in Tropical Asia Forest Fund 2, managed by New Forests, an investment manager of nature-based real assets, and a joint venture with social impact project developer C-Quest Capital to fund deployment of clean cookstoves to rural households in Southeast Asia.

It has also invested in Bluesource Sustainable Forests Company, one of the largest forestland owners in the US committed to climate mitigation efforts.

The Temasek unit has certain key criteria for picking projects and partners to collaborate for the medium- to long-term.

One of the first criteria GenZero looks at is programme quality. “How the programme is designed and how credible it is in terms of being able to remove or reduce a tonne of carbon in the way it proposes,” matters, Hoon said.

The Singapore entity considers a host of factors such as permanence, additionality, and baselines to ensure the programme or project has been designed in a way that it delivers on its carbon reduction promise.

Another consideration is the quality and track record of the project developer.

“Having a consistent high-quality track record is important as it provides assurance that the projects, which often operate in different countries, support responsible practices that are beneficial to both the environment as well as local and indigenous communities,” said Hoon.

She said the developer needs to have a solid track record of engaging local implementation partners and developing carbon projects across different parts of the project cycle.

In addition, the broader economic and regulatory environment around carbon credits and projects need to be taken into account, especially when operating in different jurisdictions.

“Above all, we have to overlay the macro lens, especially at the jurisdiction or country level,” said Hoon.

“Given that our projects can involve partnerships with other countries, we need to consider country or jurisdiction risks, and assess their nationally determined contributions, carbon targets, regulatory frameworks and clarity around their stance on exporting credits,” she said.

“These criteria constitute key areas of our due diligence process when it comes to assessing potential projects.”

DRIVE TO DECARBONISE

Well-designed carbon projects and trading mechanisms can mobilise funding and help emerging markets decarbonise, Hoon told AsianInvestor previously.

Singapore is making a big push towards promoting carbon credits and trading.

It started implementing a carbon tax that rises to S$25 ($18.5) per tonne of emissions in 2024 from S$5 a tonne previously.

The tax will climb to S$45 per tonne in 2026, and eventually between S$50 and S$80 per tonne by 2030.

The city-state has also inked a string of memoranda of understanding with countries such as Colombia, Indonesia, Morocco, Peru, Papua New Guinea, Vietnam, Ghana and Fiji on developing carbon credit projects.