Temasek ready to work with carbon-intensive businesses to transition
Singapore’s state-owned conglomerate Temasek said that climate risks – including partnering with carbon-intensive emitters - needs to be considered as part of the investment process to remain competitive over the long-term.
Dr Steve Howard, vice chairman of sustainability at Temasek told AsianInvestor that moving beyond climate-aligned opportunities would require potential exposure to transition risk for investors.
“Beyond investing in low carbon businesses, we are prepared to work with carbon-intensive businesses that commit to a clear transition plan for carbon reduction,” Howard told AsianInvestor at the end of Ecosperity Week 2023 in Singapore.
“For example, we partnered the Civil Aviation Authority of Singapore and Singapore Airlines to pilot the use of sustainable aviation fuel, with the hopes of reducing the carbon footprint of airlines.
“Our long-term investment horizon puts us in a unique position to support companies, including those from carbon-intensive industries, to become more sustainable and adopt carbon abatement strategies,” Howard said..
To mitigate the risks of transition - including the binary risks associated with early-stage investments – Temasek is taking “a very measured approach”, applying illiquidity and venture risk premiums to the cost of capital.
“To account for potential exposure to transition risk for investments, we (have) set an internal carbon price, currently at US$50 per tonne of carbon dioxide equivalent, in our investment evaluations,” he said.
“This informs us of the true cost of capital. We plan to raise this to US$100 by the end of the decade,” he said, adding that 6 out of 10 top global risks for asset owners over the next 10 years would be related to the climate and environmental.
THREE-PRONGED APPROACH
Encouraging the businesses it invests in to decarbonise is one of a three-pronged strategy of the state-owned investor towards net-zero.
Another part involves involves investing in climate-aligned opportunities spanning across trend-aligned focus areas of water, waste, food, energy, clean transportation, and the built environment.“We actively accelerate development across these areas, invest in companies developing novel technologies that can make a real impact,” said Howard.
The global investment giant also plans to enable carbon-negative solutions through investments in nature and technology-based solutions.
To do that effectively, the state-owned investor set up GenZero, a S$5 billion (US$3.72 billion) platform to invest in technology-based and nature- based solutions, while enabling the development of an effective and credible carbon ecosystem.
Together with DBS, SGX and Stanchart, it also set up Climate Impact X, a marketplace for trading carbon credits.
HUGE LANDSCAPE
Investments in the sustainability space probably have the biggest growth opportunity right now, especially in emerging economies such as those in Asia, Howard said.
The 2023 Southeast Asia Green Economy Report, released last week, estimated that around US$1.5 trillion of cumulative investment is needed for the energy and nature sectors in Southeast Asia to reach the 2030 Nationally Determined Contribution targets. The report was produced by Bain & Company, Temasek, GenZero, and Amazon Web Services.
“With more recognition of how sustainability is becoming important for growth in returns, we will likely see more capital providers and asset owners embrace green investments,” he said.
“This includes funding not just large-scale and bankable decarbonization projects, but also innovative, yet nascent, technologies that have the potential to drive deep decarbonization impact. That is why we invest in early-stage companies and form new partnerships that trial new solutions.”
Strides are being made in the right direction.
“For instance, the cost of energy powered by solar has fallen by 80% within the past decade, and it is now more affordable than coal-powered energy. In fact, as of 2023, for every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy,” said Howard.
“Ultimately, we believe strongly that we can both do good and do well at the same time,” he said.