Clean equity: People in Singapore’s central business district. The country’s investment company Temasek invests with the future generation in mind, making sure it sees where things are headed and that its portfolio companies are future-proof. — AFP
SINGAPORE: Singapore investment company Temasek is steering its strategy towards companies with clear decarbonisation plans and sustainable business models, with a goal to secure long-term profits.
“The success of our portfolio companies is effectively our success. Them being resilient and them creating sustainable value ultimately comes back to our returns,” Temasek managing director for sustainability Park Kyung-ah said in an exclusive interview with The Straits Times.“Our remit is so every generation prospers, so when we do well, that helps Singapore’s future generations as well.”
While Temasek does not directly interfere with company decisions on a daily basis, it exercises voting rights as a shareholder, and uses those rights to nudge companies in more sustainable directions.
It also engages company boards and sets expectations for companies it has invested in, said Park.
That strategy is vital for Temasek to realise its sustainability goals, as five major companies currently contribute around 80% of the total emissions from its portfolio.
They are Singapore Airlines, energy group Sembcorp Industries, commodities manager Olam Group, port operator PSA International and ST Telemedia.
Park brought up the example of Sembcorp, which demerged from its rig-building unit Sembcorp Marine in 2020.
The rig builder then merged with its rival Keppel Offshore and Marine, eventually forming offshore and marine engineering company Seatrium.
Park said Temasek had voted for Sembcorp to divest its holdings in Sembcorp Marine because doing so aligned with its values.
The move resulted in Sembcorp recording a net loss of S$997mil for the year ended Dec 31, 2020 but Park said that Temasek is also prepared to wait for returns to materialise, as companies take time to realise gains from pivoting towards more sustainable business models.
She said of Sembcorp: “It took a few years, it was not overnight when the value creation happened. But we are ‘patient capital’ and we had conviction that this will generate value for the longer term.”
In 2021, Sembcorp returned to the black and posted a net profit of S$279mil.
Its share price has more than doubled from S$2.32 in January 2020 to S$5.51 in October 2024.
Park noted that in some sectors like energy, it is easier to see the path ahead and know where profitability will be.
Coal and fossil-based fuel production, for example, will likely shut down.
“That is going to be, eventually, a shrinking business, and in many cases, if you don’t move out of it, a stranded asset.”
In contrast, renewable energy businesses are more promising and fast-growing investments. “Whether it’s hydrogen or other things, and grid storage in and around that, you can create a lot more value and have real economy impact as well.”
Temasek is prepared to accept fluctuating returns in the short term, as long as it is satisfied that a company in its portfolio is headed in the right direction and able to execute its long-term targets.
The company should also have a healthy balance sheet that gives it the ability to meet those targets, Park said.
“We invest with the future generation in mind, and with that, we have got to make sure we see where things are headed and that our portfolio companies are future-proof.”
Climate change affects how Temasek makes new investments, as any company that it invests in adds to the overall carbon emissions of Temasek’s portfolio and affects its sustainability targets.
Park said around 90% of the economy comprises firms that do not yet have green sources of revenue.
“We have got to figure out how to do more around that 90%. We’re an ecosystem in the real economy, and that’s why it’s super important for us to engage our portfolio companies and help them on the transition pathway,” she said.
“As patient long-term capital, we are willing to take more investments, to create a greater impact from a climate perspective.”
To this end, Temasek has specific checklists and assessments for a company’s carbon emissions and how it performs relative to its peers.
But Park said Temasek will not shun companies just because they have a higher carbon intensity. She noted that Temasek will look at whether the firm has a clear decarbonisation plan.
Still, Temasek has an internal carbon price, which means that if a company has higher emissions, it also has to deliver higher returns. — The Straits Times/ANN
Hence, if a company is not moving fast enough on its sustainability journey and the risks of investing in it remain high, Temasek might also choose to divest its holdings, although it is not the preferred route to take.
“We will take strategic decisions because we are a commercial investor,” she said, revealing that Temasek has previously dropped companies for reasons that are not limited to their greenhouse gas emissions.
“We take a look at the holistic risk-return profile and whether it makes sense to divest or not,” she added.
By 2030, Temasek expects to cut its emissions to 11 million tCO2e.
This refers to tonnes of carbon dioxide equivalent, a standard unit of measurement used in greenhouse gas emissions accounting.
It aims to reach net-zero emissions by 2050.
“If we can get as close to that goal as we can, then not only have we made sure that our companies have decarbonised and are resilient, we enable Singapore to decarbonise faster as well,” she said.
“Our core mission is very much aligned to the future generation in Singapore.
“So if we can have an impact from a carbon and climate perspective, we can create sustainable value that benefits Singapore more broadly.” — The Straits Times/ANN
