Temasek’s sustainability-aligned investments valued at S$44 billion in FY2024

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• S$38 billion in businesses that address climate crisis; S$6 billion in climate transition investments

• First time Temasek has disclosed this value; inaugural sustainability report

• Emissions down by 22 per cent from a year earlier 

TEMASEK’s portfolio value of investments aligned with sustainability stood at S$44 billion in FY2024, with some S$3 billion of capital being deployed over the past year into various low-carbon technologies, such as a sustainable battery solutions provider and an electrolyser manufacturer.

Including its institutional assets and liabilities, sustainability-aligned investments account for 12 per cent of the investor’s net portfolio value of S$389 billion for the year, an increase from 5 per cent of its S$382 billion net portfolio value in the previous year. This jump is a result of Temasek reclassifying what buckets of its investments are defined as sustainable.

The reclassification is a result of Temasek applying its own sustainability classification framework – referenced from global taxonomies and industry practices – across its investment portfolio for the first time. Hence, the portfolio value of sustainability-aligned investments for the previous fiscal year is not known.

This is the first time the Singapore state investor disclosed the value of its sustainability-aligned investments in its inaugural sustainability report out on Tuesday (Jul 9), alongside the release of its annual financial performance for the financial year ended Mar 31.

Out of this S$44 billion, S$38 billion are businesses that Temasek deems to have the potential to address the climate crisis, is nature-positive and contributes to inclusive growth. 

The other S$6 billion is in another bucket known as climate transition investments, which refer to high-emitting sectors that are finding ways to transition its business model to be more low-carbon. 

Investments that fall under this framework have to be aligned with the long-term trend of sustainable living, which is one of the four structural trends the state investor has been aligning its portfolio towards since 2016. The other three are digitisation, future of consumption and longer lifespans. 

As a whole, these four trends make up 39 per cent of Temasek’s 2024 net portfolio value, up from 13 per cent in 2016. The allocation to sustainable living was almost negligible then. 

Currently, it has the highest allocation out of the four trends at 12 per cent. Digitisation comes next at 11 per cent, while future of consumption is at 10 per cent and longer lifespans take up 6 per cent. 

Measuring decarbonisation progress

Park Kyung-ah, managing director of sustainability at Temasek, said that the decision to release its first sustainability report was not because of any sustainability reporting requirements for asset owners. 

Rather, they wanted to be able to measure their own decarbonisation progress more transparently and decided to take this opportunity to develop their own classification framework, which is “a much more systematic way of defining and measuring sustainability-aligned investments,” said Park last Friday. 

Portfolio emissions down 22 per cent

In its inaugural sustainability report, Temasek also reported that its FY2024 total portfolio emissions came in at 21 million tonnes of carbon dioxide equivalent, a 22 per cent reduction from 27 million tonnes the year before. The carbon intensity of its portfolio fell to 73 tonnes of carbon equivalent per S$1 million in portfolio value, compared with 93 tonnes last year.

In 2020, the investor had made a commitment to halve its emissions from its 2010 levels by 2030. The current level of emissions is 5 per cent lower than its 2010 baseline. The state investor is also targeting to be net zero by 2050.

Part of the reason behind Temasek’s drop in portfolio emissions was Sembcorp Industries’ sale of its Indian coal plant, which was completed in January 2023. The energy company is one of Temasek’s portfolio companies. 

Other contributing factors included emission reductions in other portfolio companies due to their decarbonisation efforts, as well as changes in portfolio composition, though this was partially offset by an increase in emissions attributable to Singapore Airlines, as global air travel resumed post-Covid-19. 

Sembcorp’s sale of its coal plant had attracted some criticisms that its carbon intensity reduction targets were achieved only because it had divested a high-emitting asset, but that did not translate to real-world decarbonisation.

When asked about these criticisms given that Temasek’s emissions profile also benefited from the sale, its director of sustainability and climate change strategy Franziska Zimmermann said that they fully acknowledge the criticisms on the drop in emissions resulting from a shift in reporting boundaries. 

However, she added that Sembcorp had made a strategic shift two years ago to be a renewable energy company, and it divested from the coal plant simply because it was no longer part of their forward-looking strategy. 

Sembcorp is still required to report the emissions arising from this coal plant under its Scope 3 emissions – which refer to indirect emissions resulting from its supply chain – as it had loaned money to the eventual buyer. 

“Sembcorp hasn’t taken just the easy way to say ‘I’m selling this off, and I’m out of it.’ They’ve actually committed to keep working with the new owner in order to provide services to those assets, but also to tie some of the financing to actual incentives that the new owner will be incentivised to keep reducing greenhouse gas emissions from these assets. 

“So I think we understand the criticism, but I think we need to see the bigger picture. We need to see also the massive effort that Sembcorp Industries have taken,” she added. 

Temasek’s chief investment officer Rohit Sipahimalani added that the divestment had allowed Sembcorp to accelerate its deployment of renewable energy. 

“The impact that they’re having is much more than just moving the coal plant away. It’s giving them the freedom to accelerate renewable rollout much faster than they would have been able to otherwise,” he added. 

When asked if Temasek would deem it appropriate for its portfolio companies to finance such divestments, like what Sembcorp did, Zimmermann said it would not be a structure deliberately used across the board. It will depend on the conditionalities of each individual transaction instead. 

Sembcorp, along with SIA, Olam Group, PSA International and ST Telemedia, are the five biggest contributors to Temasek’s portfolio emissions. As a whole, these five entities account for about 80 per cent of total emissions, noted the report.

Temasek had always maintained that it will not divest from nor exclude carbon-intensive companies. It prefers instead to work alongside such companies on their decarbonisation journeys. However, it has set an internal carbon price – recently raised from US$50 per tonne of carbon dioxide equivalent to US$65 – and applies this charge across its investments.

Over the course of last year, the investor had engaged with 19 major portfolio companies that make up 94 per cent of their emissions. Out of the 19 companies, 11 had already set net zero by 2050 targets.

“As we continue stepping up efforts to encourage decarbonisation across our portfolio and to invest in less carbon-intensive businesses, we expect a non-linear decline in portfolio emissions over time,” the report indicated.