Temasek to reassess its 1.8°C climate threshold strategy
Singapore's sovereign wealth fund, Temasek, has released its latest climate scenario analysis, conducted in 2023, as part of its ongoing efforts to enhance its approach to climate risk assessment. The analysis highlights the fund's commitment to responding actively to the evolving climate realities, encapsulated in its strategic theme of "Sense, Adapt, Thrive."
According to the report, Temasek's carbon intensity has decreased by 52% since 2010, yet operational emissions rose to 19,731 tCO2e, primarily due to business travel. The fund has, however, made significant strides in its sustainability efforts, growing its green and transition-themed holdings by US$2 billion. As of now, Temasek has S$39 billion (US$30.5 billion) in sustainability-focused investments and S$7 billion (US$5.5 billion) allocated to climate transition solutions.
One of the key challenges Temasek faces is decarbonising the aviation industry, as sustainable aviation fuel (SAF) remains costly. This is reflected in Singapore Airlines' (SIA) emissions, which accounted for 43% of the total portfolio emissions in the report.
To address these challenges, Temasek is pivoting its strategies where necessary. The fund is increasing its focus on resilient sectors and sustainable assets, such as core-plus infrastructure, AI, and alternative assets, to build a forward-looking portfolio that delivers sustainable returns over the long term.
The accelerated warming rate is another concern for Temasek. The latest climate science suggests that if 1.5°C is passed, there could be permanent changes in the Earth system, posing systemic threats to the financial sector and the global economy. In response, Temasek is reviewing the 1.8°C warming assumption used in its climate scenario analysis, gathering insights from experts to assess how expected changes to policies and technology adoption might affect temperature outcomes.
Temasek is also actively engaged with its portfolio companies, having interacted with 17 companies last year, covering 91% of its portfolio emissions. 14 of these companies have set net zero targets by 2050 or earlier.
The Inevitable Policy Response (IPR), a research consortium backed by the United Nations Principles for Responsible Investment (PRI), actively tracks global policy changes against its 1.8°C climate scenario each quarter. While 67% of emissions are addressed by supportive policies in advanced economies, they are not yet sufficient to meet IPR's 1.8°C forecast policy scenario.
Progress towards net zero is unlikely to be linear, according to Temasek's chief sustainability officer Kyung-Ah Park, due to the high costs of decarbonizing sectors like aviation and the lack of commercially viable solutions. Despite these challenges, Temasek remains committed to its climate goals, with five companies - SIA, Sembcorp, Olam Group, PSA International, and ST Telemedia - contributing over 80% of total emissions.
Temasek is also invested in carbon capture developer Svante, jointly developing carbon capture technology for natural gas-fired turbines with General Electric, recognising natural gas' continued role in the energy mix for the foreseeable future.
As Temasek continues to refine and update its approach to climate scenario analysis, it emphasises the need to "Sense, Adapt, Thrive"—which reflects a strategy of monitoring environmental changes, spotting investment opportunities, and managing risks amid uncertainties, including climate-related ones.
- Temasek's renewable energy investments have grown significantly, currently totaling S$39 billion (US$30.5 billion).
- The funds allocated to climate transition solutions stand at S$7 billion (US$5.5 billion).
- Despite a decrease in carbon intensity by 52% since 2010, Temasek's operational emissions have risen, primarily due to business travel.
- The aviation industry decarbonisation is a significant challenge for Temasek, as sustainable aviation fuel (SAF) remains expensive.
- Achieving net zero emissions will not be linear, especially in sectors like aviation, as costs are high, and commercially viable solutions are lacking.
- Temasek is actively engaging with its portfolio companies to set net zero targets and address climate change.
- The IPR, a research consortium, suggests that current policy changes are not yet sufficient to meet the 1.8°C forecast policy scenario to limit climate change.
- As part of its strategy, Temasek invests in carbon capture technology developers like Svante, recognizing the continued role of natural gas in the energy mix.
