Engage, Don’t Divest: How Temasek Plans to Decarbonize Its Portfolio

It’s no secret that airlines are, by their very nature, high carbon emitting companies. So when you own a major stake in a major airline company but want a net-zero investment portfolio, you’ve got your work cut out for you.

That’s the position that Temasek, Singapore’s state-owned investment company, finds itself in. But it’s not just the controlling shareholder of the country’s flagship airline, Singapore Airlines. It also owns big chunks of Keppel and Sembcorp Marine, which both make oil rigs, and agri-business company Olam International. In other words, it has a lot of carbon emissions on its books

Still, Temasek has committed to reducing the emissions of its S$381 billion ($281 billion) portfolio to 50% of 2010 levels by 2030, just nine years from now, and to net-zero by 2050. It plans to get there through multiple means including targeted investments in cleantech companies, carbon credits, an internal price of carbon and engaging with its portfolio companies to reduce their emissions. Divestment, it seems, is not on the table.

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“The firm has made a genuine effort to embed sustainability at its core,” chief sustainability officer Steve Howard said in a recent podcast interview. He took that role at the start of this year, having earlier held that title at IKEA. “How do we work with our portfolio companies? How do we shape our future investments? How do we think about climate change, environmental impact, social equity issues, and how do we unlock positive impact? My role is really to work with people across the firm, to look at how we put strategies in place.”

As a state-owned investment firm, Temasek acts, and invests, differently from a pension fund or endowment. It’s also generally not considered a sovereign wealth fund, though it shares characteristics with SWFs. The company owns large, sometimes controlling stakes in Singaporean companies that are crucial to the country’s economy — besides names like Singapore Airlines and Keppel, it also owns big pieces of telecom provider Singtel, leading local bank DBS, and real estate developer Mapletree Investments, a private company, and more.

It doesn’t invest much in traditional equity or fixed income funds, though it does have a small sleeve — about 8% of all assets, or more than $22 billion — in multi-sector funds, private equity and absolute return strategies, and credit funds. It has a relatively high proportion of its total portfolio, about 45%, in unlisted assets.

To meet its decarbonization goals, the company needs to cut its emissions to 11 million tonnes of carbon dioxide equivalent by 2030, down from 22 million in 2010. Last year that figure stood at 30 million, about the same it was the year before.

Slashing that to 11 million tonnes by 2030 is “a bold target that demands determined and sustained action,” Temasek says in public reports. “Our success in this mission for a decarbonized and carbon-efficient portfolio depends to a significant extent on the vision and commitments of the companies we are invested in.”

Investing in Low-Carbon Companies and Funds

To that end, Temasek has invested in a number of startups working on a range of low-carbon solutions. “We have a strong interest in sustainable solutions that facilitate the transition to a low carbon and more sustainable economy,” the company says.  Among its recent investments, all of which have been made in the past 12 months:

  • Solugen, a US company working to decarbonize the chemicals industry.
  • Eavor Technologies, a Canadian company that harvests geothermal energy.
  • Svante, a Canadian company that works on carbon capture and storage in the cement, limestone and hydrogen production industries.
  • InnovaFeed, a French biotechnology company that makes sustainable animal feed out of insect protein.
  • Rivulus, an Israeli company that uses technology to reduce the use of water in agriculture; Temasek acquired an 85% stake last December.


Temasek generally doesn’t disclose its investment amounts, although Nagi Hamiyeh, joint head of investments at the company’s investment arm Temasek International, said recently that it has made “tremendous” investments in sustainability; as one specific example, he said the company has invested roughly $5 billion in agri-food companies over the last decade, with the bulk of that dedicated toward sustainability efforts and startups that are improving the food system.

Those agri-food investments have been centered around names that help reduce carbon emissions of the sector, including plant- and cell-based food companies, including Impossible Foods and, this past summer, participating in the $105 million Series B funding round of Israeli cultivated meat company Aleph Farms.

Last year, Temasek set up a new platform, called simply Agribusiness, that’s meant to help its agri-food portfolio companies grow and get their products to market while reaching scale. Also last year, Temasek partnered with Bayer’s impact investing arm to form a new company, Unfold, to focus on vertical farming. Temasek is active in the vertical farming sector, having recently invested in New York-based vertical famer Bowery Farming’s Series C round in April as well as in its Series B round in 2019.

Besides all these direct investments, Temasek also has been boosting its investments in third-party funds that back low-carbon solutions. In July, the company was announced as one of two founding investors in Brookfield Asset Management‘s new Brookfield Global Transition Fund, which had an initial close of $7 billion. Temasek will also make strategic investments alongside the fund.

“The global transition to net-zero emissions presents unique opportunities for investors seeking to deliver sustainable value over the long term,” Howard said in the announcement, adding that the partnership with Brookfield “complements our strategy to invest in climate-aligned initiatives which we believe will be instrumental in accelerating carbon abatement and helping deliver on the Paris Agreement.”

Earlier this year, Temasek and BlackRock announced the formation of Decarbonization Partners, an investment fund that will invest in early stage growth companies working toward decarbonization. Likely areas of investments include renewable energy, battery storage, grid solutions, electric and autonomous vehicles, and the built environment.    

Temasek is also putting pressure on its third-party private equity and credit fund managers. The goal, the company says, is to “review the alignment of their focus with our ESG stance as well as the maturity of their ESG practices. The assessment will inform our future engagement with these fund managers and other like-minded investors, to promote ESG practices and reporting for funds.”

For all of its investments, Temasek has set an internal carbon price, $42 per tonne of CO2 equivalent to use in its investment analyses. Doing so has “helped to guide decision making in line with broader climate targets and model the likely future impact of carbon pricing on the investments we make,” the company says.

It expects to increase that price every year through 2030 at least. “We will refine our carbon pricing strategies during this coming decade, likely with increasing internal carbon pricing, as we get further clarity on the economic and policy levers of change,” Temasek says. To help ensure an internal alignment of interests, Temask says it will tie long-term incentive pay, in part, to how well the company performs in hitting its annual carbon reduction targets.

Engagement, not divestment

Besides Singapore Airlines, Keppel and Sembcorp Marine, Temasek’s wide-ranging investment portfolio includes numerous other companies with links to the oil and gas industry, shipping and other high-carbon-emitting sectors. The company has shown no indication of divesting from these companies.

“We never said we will not invest in an emitter of carbon,” Hamiyeh told Bloomberg recently. “As long as this emitter is on a journey, a path, and we can be helpful in terms of how we can shift them.”

To that end, Singapore Airlines has set a target of being net-zero by 2050, which it hopes to achieve in part through sustainable aviation fuels. Keppel has announced it is exiting the oil rig business altogether and pivoting to clean energy. And Sembcorp, the former parent of Sembcorp Marine and a company that Temasek owns 49.5% of, is also moving away from carbon-heavy projects and toward clean energy.

Those moves all seem to endorse Temasek’s plan to use engagement as the key driver to getting its portfolio companies to decrease their own carbon emissions.

“If our investee companies are trying to decarbonize and we can be helpful, we’d rather do that, because being serious about sustainability is not pushing the problem to somebody else. We’d rather deal with it ourselves,” Hamiyeh said.

CEO Dilhan Pillay detailed Temasek’s approach toward engagement, as opposed to divestment, in a speech in early September.

“We choose to lean in to work with companies in our portfolio, supporting their transformation of business models and abatement actions where it makes financial sense to do so, rather than simply divest them,” he said. “Divestment of carbon-emitting businesses could easily allow us to show a lower carbon portfolio in a shorter period of time, but that does nothing to actually reduce emissions.”

So Temasek chooses engagement. “We need to work with the boards and management teams of our portfolio companies in their climate change mitigation and transition strategies and initiatives, so that they too can contribute to a better world. By doing so, they will have more robust business models, and be more future-ready, than the status quo,” Pillay said.

Aside from having large investments in carbon-intensive sectors and companies, disclosure and measurement is shaping up as one of the major challenges that Temasek, like all institutional investors, has to overcome as it strives for a net-zero portfolio.

Among the issues are “the inherent limitations of data availability, timeliness and consistency,” Temasek documents state. “The latest datasets for some portfolio companies date back to pre-Covid times. This challenge is even more pronounced as we look back to 2010, and as we look ahead to estimate the size of our ambition by 2030.”

Still, the company says it will report the carbon emission of its equities portfolio annually going forward. It has endorsed the Task Force on Climate-related Financial Disclosures (TCFD) framework as part of that.

And despite the challenges, Temasek is committed to its net-zero goals. “This is a $50 trillion investment opportunity. We have to lean in and look to the future we want to invest into,” Howard said on the podcast interview. “And the future of investing in new low-carbon, zero-carbon technologies and businesses is inherently massively lower risk than staying invested in the carbon economy of the last century.”

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