ESG Due Diligence and Engagement in Practice
The logistics and transport infrastructure sector is inherently exposed to material ESG risks due to its asset-heavy operations, emissions-intensive footprint, and reliance on large workforces and contractors. In a recent transaction, Temasek considered a potential investment in an integrated logistics player operating assets across ports, terminals, and transportation. The transaction was led by an experienced infrastructure sponsor, who commissioned third-party ESG due diligence as part of the investment process.
In line with our ESG due diligence approach, we adopted a financial materiality lens in identifying ESG issues. We further assessed whether the sponsor’s scope adequately covered these areas and where additional diligence might be needed.
Climate and decarbonisation emerged as a core ESG issue given the hard-to-abate nature of logistics and transport operations, the significant Scope 1 emissions, and the initial lack of clarity on how the company’s publicly stated targets would be achieved. This led us to probe the credibility of transition levers, capital allocation, management accountability, and whether decarbonisation would be embedded into the post-investment work plan. Worker health and safety, particularly contractor safety, was another priority given sector risk and historical incidents.
The diligence findings confirmed that the company had well-established governance structures and strong board oversight of traditional ESG risks.
It had articulated long‑term climate ambitions and initiated transition planning, including preliminary emissions reduction targets and technology trials. However, decarbonisation initiatives were still at a relatively early stage and largely restricted to site-specific initiatives, with limited evidence on decarbonisation pathways, capital allocation, and how climate considerations would be embedded into enterprise risk management and incentives. There is potential to further formulate a more structured and holistic approach to managing transition risk. This reinforced the importance of post‑investment measures to translate ambition into execution, particularly in a sector facing increasing regulation, cost, and customer expectations associated with decarbonisation.
On the health and safety front, the company demonstrated strong performance in management systems, supported by board oversight and improving safety metrics. Nevertheless, the inherent risk profile of the sector and the reliance on contractors underscored the need for continued focus on consistent implementation and ensuring health and safety outcomes across the supply chain.
The sponsor’s commitment to working with the company on the identified areas of improvement was an important consideration in giving us confidence that the company will continue to make progress on its material ESG topics. The sponsor committed to an ambitious climate target, supported by a fully costed business plan containing specific decarbonisation projects that will be integrated into the divisional budgeting process, incentive plans, and key performance indicators. Safety management will also be further reviewed using a structured framework to drive improvements.
The diligence findings, alongside the post-investment priorities and timelines, have been documented in our investment committee materials for accountability. We plan to follow up with the sponsor on a quarterly basis and at annual board meetings to track the progress of ESG initiatives.
