Sustainability in Our Investments

At Temasek, we seek to make a difference and to actively shape a better, smarter and more connected world, for today’s and future generations.

Temasek’s DNA is rooted in Singapore’s founding experiences. It shaped our ethos to be financially disciplined; to invest in our people and operate with integrity; to seek growth alongside a clean environment; to foster good governance; and to do the right things today with tomorrow in mind. 

Driven by our views of the trends shaping societies, we invest today with tomorrow in mind.

We aim to build a forward looking and resilient portfolio that delivers sustainable returns over the long term. We deploy capital to catalyse solutions that can enable the transition to a low carbon economy and tap on opportunities to build future growth sectors and leading enterprises through our efforts in innovation. Our investment activities are aligned to four structural trends that shape our long term portfolio construction.

Sustainable Living has been identified as one of the megatrends with a pervasive impact across many sectors as well as on the business models of emerging and established businesses. 

We expect to increasingly align our portfolio with the megatrend. This includes investing into companies that directly enable and drive this trend, as well as those that harness the potential of the trend for growth. We also back innovations and technologies at pre-commercialised stages to be at the leading edge in relevant areas of decarbonisation and advance materials. In addition, we engage closely with our portfolio companies on their decarbonisation efforts and identifying sustainability-related opportunities.

Embedding Responsible Investment Practices

We comply with all obligations under Singapore laws and regulations, including those arising from international treaties and UN sanctions. We comply with the laws and regulations of jurisdictions where we have investments or operations. 

As a responsible investor, we are committed to delivering sustainable value over the long term.

Generating sustainable returns over the long term depends on stable, well-functioning and well-governed social, environmental and economic systems. The decisions we take today, as an asset owner, will impact future generations. Being a responsible investor, we incorporate Environmental, Social and Governance (ESG) considerations into our investment decision-making and management.

Businesses have a stake in the well-being of our wider community. They will find it hard to thrive if society fails. Hence, businesses must play their part as stewards of our communities, for our common good, alongside governments and society more generally.

We believe companies that manage ESG factors effectively, and recognise their importance, are more likely to create sustainable value over the long term. Thus, we evaluate sustainability-related risks and identify opportunities in investments through our ESG framework, which also supports our target to halve the net carbon emissions of our portfolio over 2010 levels by 2030, and our ambition to achieve net zero carbon emissions by 2050.

A safe and supportive working environment, jobs that pay a fair wage, and diverse and inclusive workplaces are foundational to resilient communities, especially as the transition to low carbon and digital economies bring about fundamental changes to businesses and jobs. As economies reposition themselves for growth in new sectors, we encourage companies to help their workers upskill and reskill to stay relevant and employable.

Strong corporate governance, which includes the purpose of a company and the values of its people, helps sustain a committed workforce. The composition of its boards of directors, the rights of shareholders, the interests of stakeholders, and the balance between short term and long term performance measurements are all important to ensuring strong corporate governance and helping to underpin resilient institutions.

While Temasek does not play a day-to-day management role in the companies in which we invest, we expect them to adopt a mindset of continuous improvement; to apply industry best practices in managing relevant ESG factors for their businesses; and to deal openly and honestly with controversial issues, incidents and lapses, if they occur.

What We’ve Done

We have embedded a robust ESG assessment framework across the entire investment process to strengthen portfolio resilience and alignment with our sustainability objectives, while seeking to deliver sustainable returns over the long term. Many of our investment teams have refreshed their market or sector strategies, embedding sustainability as one of the core dimensions that guide their deal origination efforts.

Our Approach

When evaluating investment opportunities, we incorporate sustainability-related assessments into our due diligence process with the goal of not only putting in place the necessary safeguards to minimise any material negative environmental or social impacts, but also accelerating positive outcomes. 

Our investment teams employ a broad-based research approach to assess company-level ESG information, as well as relevant industry, thematic and macro-level sustainability considerations. Their analysis is supported by a team of dedicated ESG professionals as well as external advisors, where appropriate.

Going Forward

We continuously evolve ESG integration efforts across our investment process, especially by applying learnings from our own experiences, as well as those elsewhere. 

We recognise that perfection will be near impossible to achieve, so we look at how a company has been demonstrating its commitment, over time, to improvement, accountability and change. We also look at how our investment can serve as a catalyst for change.

Achieving a balance sometimes surfaces tension between different laudable sustainability objectives. In the right circumstances, we may need to understand where the right balance is, rather than choosing one over the other. We expect companies in which we invest to consider these questions carefully and thoroughly, just as we consider them when making investment decisions. 

Overall Philosophy

We work to understand the impact of our investee companies. While we don’t manage their day-to-day business decisions, as an owner, we engage and encourage them to adopt policies and practices that safeguard and enhance long term performance, including ESG-related areas critical to their businesses. 

As part of our portfolio stewardship activities, we monitor relevant ESG factors in our investee companies throughout the life cycle of the investment, to understand changes in a company’s ESG position.  

We engage our investee companies through their boards and management teams, when we have perspectives to share. Temasek values these engagements and conducts them thoughtfully on the basis of factual evidence. Ultimately, a company’s board is accountable to its shareholders for its total performance: business growth and other economic factors, as well as environmental, social and governance issues.  

As an active investor and shareholder, we exercise our shareholder rights fully.

Temasek seeks to identify sustainability-related issues that are of relevance across our portfolio, regardless of industry or geography. On such portfolio level issues, we may take steps to share insights on trends, best practices and opportunities, or articulate our expectations through engagement with our investee companies.

In our efforts to seek sustainable solutions, we keep abreast of the latest developments and regularly discuss sustainability issues with our stakeholders and partners. We do this through a range of engagement sessions with companies in our portfolio, including our annual Ecosperity conference as well as regular portfolio roundtables.

Portfolio Engagement Strategy

As an asset owner, the success of our companies underpins our own success. Investment stewardship builds resilience and value, with sustainability as a value creation lever.

Our long-term investment horizon, which can span decades, puts us in a unique position to support companies to become more sustainable and adopt carbon abatement strategies. We can deploy catalytic capital in start-ups and growth sectors, partner industries to pilot or scale sustainable solutions, or invest alongside portfolio companies as they transition their businesses. We engage our major portfolio companies regularly on their climate transition plans as part of our efforts to achieve a decarbonised and carbon efficient portfolio. Against the backdrop of a growing portfolio, halving our net portfolio emissions over 2010 levels to about 11 million tCO₂e by 2030 is a bold target that demands determined and sustained action.

We have formalised a portfolio engagement framework which helps us prioritise and target our engagement efforts with companies where we see the highest potential for impact.

At the portfolio level, Temasek targets to reduce the net carbon emissions attributable to our portfolio to half the 2010 levels by 2030 and have the ambition to achieve net zero by 2050.

To account for progress made on our targets, we have been measuring and disclosing the carbon emissions attributable to our investment portfolio as part of our annual reporting. Our portfolio emissions currently encompass Temasek’s direct investments in listed and unlisted equities, which represent 76% of our portfolio as at 31 March 2022.

The portfolio emissions reported include Scope 1 direct emissions and Scope 2 indirect emissions of the underlying companies based on the latest available data sets. We use a combination of company-reported emissions data and modelling approaches to establish our portfolio emissions based on our proportionate shares (i.e. ownership interests) in the assets. We have also engaged consultants and auditors to support our approach and to provide limited assurance.

We adopt the following hierarchy in data sources as we establish our portfolio emissions. The hierarchy takes into account availability and timeliness of reported data, using company-reported data where available:

• Company-reported data: GHG emissions data that is reported by the company, either directly to Temasek or made available through S&P Global Sustainable¹.
• Company-specific estimates: GHG emissions for each company modelled or estimated by Temasek or S&P Global Sustainable1 using relevant industry level carbon intensity or carbon efficiency averages as proxies (GHG emissions normalised by revenue/market capitalisation/other relevant operational unit of measurement). In case industry averages do not provide a meaningful proxy for the company, carbon intensity or efficiency data of the company or its comparable peers may be used instead.

Our estimated Total Portfolio Emissions have decreased moderately over the year, and the Portfolio Carbon Intensity of our equities portfolio has decreased from 103 tCO₂e/S$M portfolio value to 81 tCO₂e/S$M portfolio value for the financial year ended 31 March 2022. The decrease is mainly attributable to the impact of COVID-19 on some of our key portfolio companies’ emissions as well as the time lag in reported emissions data.

To further align with Task Force on Climate-related Financial Disclosures recommendations, we have measured our Portfolio Weighted Average Carbon Intensity (WACI) at 119 tCO₂e/S$M revenue for the financial year ended 31 March 2022. We expect our WACI to decrease over time, as we step up efforts to encourage decarbonisation across our portfolio companies and continue to invest in less carbon intensive businesses.

Pathways towards Net Zero

Three years ago, we shared our target to reduce the net carbon emissions attributable to our portfolio to half the 2010 levels by 2030 and have the ambition to achieve net zero by 2050. We have identified three pathways towards our climate targets:​
 

Set Up Dedicated Investment Platform to Accelerate Decarbonisation

To accelerate and deepen decarbonisation, in June 2022, Temasek launched GenZero, a wholly owned investment platform company with an initial amount of S$5 billion. GenZero looks to catalyse decarbonisation solutions with its ability to deploy long-term and flexible capital. It invests in opportunities ranging from early-stage companies and solutions that require patient capital to commercialise and grow, to more mature ones that are ready to scale.

GenZero has three investment focus areas:

• Technology-based solutions that deliver deep decarbonisation impact through climate-driven technologies.
• Nature-based solutions that help protect and restore our natural ecosystems to generate climate impact while benefiting local communities and biodiversity.
• Carbon ecosystem enablers which refer to companies and solutions that support the development of an effective, efficient, and credible carbon ecosystem.

Together, these focus areas present a holistic and integrated approach to address the emissions gap, with solutions across both the near and longer-term horizons. GenZero seeks to deliver positive climate impact alongside long-term sustainable financial returns.

We established a dedicated Impact Investing team with a mandate to generate positive impact for underserved communities while achieving market rate returns. Beyond our strategic partnerships with ABC Impact and LeapFrog Investments, we committed to the latest funds managed by AXA IM Prime Impact, Elevar Equity and Quona Capital, with an aim to further build a diversified portfolio of impact funds.