Temasek's green push taps into Singapore's sustainability focus, China's carbon-neutral drive

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When this alliance was viewed alongside a separate US$500 million commitment in March to partner impact investor Leapfrog Investments, the observers added that Temasek was on the correct trajectory to achieve the goals it set out in 2019.

BlackRock and Temasek on Tuesday said their new venture, Decarbonization Partners, would target raising US$1 billion for its first fund, with seed capital of US$300 million alongside third-party capital.

The firms are pledging a total of US$600 million to multiple funds that are expected to focus on varied sectors, from grid solutions to electric and autonomous vehicles. 

According to Bloomberg, Decarbonization Partners will zero in on late-stage venture capital, the point at which start-ups need greater amounts of capital to manufacture at scale and expand into new markets.

The venture's founding comes amid the global corporate sector's growing momentum in setting and advancing towards carbon-neutrality goals.

BlackRock's chief executive Larry Fink, whose views are intensely parsed by the investment world, signalled in his annual letter to corporate leaders in January that he viewed tackling climate change as central to future strategy. 

He said he expected companies to "disclose a plan for how their business model will be compatible with a net-zero economy".

In an interview with Bloomberg Television after Tuesday's announcement, Fink said Decarbonization Partners aimed to manage billions of dollars across multiple funds, adding: "I look at this as one of the greatest investment opportunities over our lifetimes."

GLOBAL MOMENTUM

For Temasek - which has some S$306 billion (US$228 billion) of assets under management - the new partnership was emblematic of its effort to move decisively into the sustainable investment space amid the global momentum, said Lawrence Loh, an associate professor of business at the National University of Singapore (NUS). 

"In fact, we are now seeing a clear mobilisation of funds that will gain even more momentum," he added.

Of a similar view was Vinod Thomas, a visiting professor at Singapore's Lee Kuan Yew School of Public Policy, who said Temasek's involvement in the new venture was aligned with recent moves such as its US$500 million strategic partnership with LeapFrog Investments. 

LeapFrog, the former senior vice-president at the World Bank said, had the potential to shape future consumer trends through its partnerships in sectors such as remittance services, pension management, pharmaceuticals and insurance. 

The alliance "lifts the game by going beyond Temasek itself halving emissions from its portfolio by 2030 and net zero emissions by 2050", Thomas said. 

"This partnership is significant in Temasek's vision for being part of a sustainability movement that can, in turn, help realise the true value addition from sustainability investments," he said. 

Temasek's green push also aligns itself with Singaporeans' increasing concern about climate governance. 

Ezien Hoo, a credit research analyst at OCBC Bank, suggested that sustainability was high up on the island nation's agenda as a country and a popular stance among younger Singaporeans. 

This was evident when the government in February launched a road map, titled Green Plan 2030, that outlined the country's green targets over the next 10 years. 

"Temasek only has one shareholder, being the Singapore Ministry of Finance," Hoo said. "In our view, it is a natural progression for Temasek to continue its trajectory of focusing on impact and sustainability investments to be aligned with its shareholder." 

Moving forward, analysts felt there would be abundant investment opportunities for Decarbonization Partners in China, which is also forging ahead to achieve its plans to peak carbon emissions by 2030 and attain net zero emissions by 2060. 

These goals means China has a "pressing need" for decarbonisation projects, said Loh from the NUS, who is also the director of the university's Centre for Governance. 

Thomas noted that decarbonised projects could also quickly go to scale if implemented in mainland China, given its size. 

There were also areas ripe for investment, including those involving waste steel recycling as well as carbon capture and storage - the latter referring to the process of transporting waste carbon dioxide so it does not enter the atmosphere. 

Other opportunities could also arise from projects such as clean energy, green transport and even green finance, Loh added.

Thomas said China was now witnessing a race between the drive for clean energy and the "insatiable" demand for coal. 

He pointed out how China, the world's largest coal consumer, consumed some 4 billion tonnes of coal last year: "The faster sustainability solutions get a hold in China, the faster the world can see a U-turn in China that is desperately needed to get out of the highly polluting fuels." 

IMPACT ON RETURNS

But will Temasek's assertive push in this space affect its bottom line? 

While the company's decisions continued to be driven by financial - or private - gains, Thomas said there was no doubt its social gains far exceeded private ones. The crucial question was how to match social and private returns, but he added that Temasek's initiatives "potentially provide this bridge".

However, in order for this to be viable, consumers would need to see the value in sustainable products and living. This could in turn reduce the risks for shareholders looking to invest in decarbonisation projects, Thomas added.

Hoo of OCBC Bank suggested that the sum committed by Temasek to Decarbonization Partners was small relative to the state investor's total net portfolio value, noting that the partnership was not expected to move the needle on Temasek's returns in the next few years.

She added that as a global investor with a long-term horizon, it was inevitable that Temasek would continue to face sustainability considerations when it came to investments. 

Hoo also pointed out that there had been a shift in business ethos that saw a reversion to stakeholder capitalism, where businesses tried to reconcile demands from stakeholders, including the need to be greener - meaning Temasek would likely need to contend with the lower equity returns that might result from such a shift. 

Meanwhile, Loh of the NUS felt that environmental, social and corporate governance investments had been demonstrated to perform better than traditional investments, and he described decarbonised investments as promising.

"With the escalating attention on climate change across the world, it can never be wrong to decarbonise - the returns will look after themselves," he said.

This article originally appeared on the South China Morning Post (SCMP).

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