Engaging Our Portfolio Companies
As an asset owner, the success of our portfolio companies underpins our own success. We view sustainability as a key lever to drive long-term portfolio resilience and value creation.
Our Engagement Philosophy
As part of our post-investment monitoring, we work to understand the environmental and social positioning, as well as progress of our portfolio companies, both in terms of the products or services they provide and their operational practices.
While we do not manage their day-to-day business decisions, as an owner and shareholder, we engage and encourage our portfolio companies to adopt policies and practices that safeguard and enhance long-term performance, including Environmental, Social, and Governance (ESG)-related areas critical to their businesses.
We engage our portfolio 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 ESG issues.
As an engaged shareholder, we communicate our expectations on sustainability to our portfolio companies. We exercise our shareholder rights through voting at shareholder meetings, including on sustainability-related agenda items. We view voting and engagement as key levers that are essential to long-term value creation and we have formed a dedicated Investment Stewardship function to augment our efforts in this respect.
Engaging on ESG Matters
Our engagement with portfolio companies follows an internal prioritisation process. Taking into account the diverse range of companies within Temasek’s portfolio, we identify where we can drive the most significant impact. We consider company ESG maturity, ESG relevance, and Temasek’s potential influence. Based on the results, we prioritise companies which are long-term holds and are earlier in their ESG journey, in addition to companies where we identify strong opportunities for value creation or foresee a clear pathway for ESG transformation.
We have formulated an ESG Value Creation Playbook, which guides our investment teams in identifying opportunities and driving ESG value creation. We seek to identify opportunities to engage and support our portfolio companies to uplift their ESG practices, for example, accelerating their decarbonisation and driving growth in sustainable products and services. Where relevant, we work with the portfolio companies to establish sustainability-related key performance indicators that can form the basis for outcomes-focused approaches to compensation and financing.
Ultimately, the aim of the ESG Value Creation Playbook is to strengthen their resilience, improve competitiveness, enhance their ability to access capital, and position them for new growth opportunities.
An example of a portfolio company that we have been working closely with on ESG matters is Rivulis, a global micro-irrigation company that can help address water, climate, and biodiversity challenges. The company has made strides in their ESG journey, including implementing measures to reduce the environmental impact of their operations, and the launch of their first ESG report showcasing performance highlights such as energy and water savings, as well as emissions reductions.
We are also encouraged to see the efforts of other portfolio companies in their transition journey. One such example is Topsoe, a global provider of technology and solutions for the energy transition, transitioning itself from a catalysts and technology supplier to a leader in carbon reduction technologies.
Engaging on Climate
Against the backdrop of the global transition to a net zero economy and the expected physical effects of climate change, it is in our interest to encourage effective climate change mitigation and adaptation measures by our major portfolio companies. Our engagement on climate transition with portfolio companies is informed by our Climate Transition Readiness Framework. It provides a structured methodology on the basis of which we can assess the maturity of our portfolio companies in addressing climate-related risks and opportunities. It serves as a starting point for in-depth dialogue, to convey our climate expectations, which include setting a 2050 net zero ambition and interim decarbonisation targets. In addition, it serves as a source of insight on challenges and opportunities for further collaboration.
Utilising publicly available sources and information shared through ongoing engagements, we assess our portfolio companies across several dimensions. These are:
- governance and organisational competencies on climate change;
- climate transition strategy;
- capital allocation;
- scenario planning;
- risk management;
- GHG reduction targets and progress;
- advocacy and engagement;
- external verification and disclosures.
Over the past year, we have engaged with sixteen portfolio companies based in Singapore and three portfolio companies based overseas, which combined, constitute 94% of Total Portfolio Emissions1 for the year ended 31 March 2024. 11 of the engaged portfolio companies, who represent 85% of Total Portfolio Emissions, have set targets to achieve net zero by 2050.
We engaged relevant members of the portfolio companies’ senior management teams, including the Chief Sustainability Officer and Chief Financial Officer, where appropriate. Having been initiated at the Board and CEO level, these engagements provided an opportunity for us to relay our expectations for climate action and establish foundations for regular dialogue and partnership.
Looking forward, we will continue to deepen our engagement on the basis of the Climate Transition Readiness Framework, tailoring our approach to portfolio companies’ respective levels of maturity. As a matter of priority, we will focus on engaging our portfolio companies on developing 2030 or equivalent near-term targets and clear climate transition plans.
We also help build capacity for companies to better understand their exposure to climate-related risks. For example, portfolio companies can gain insights into their physical risks through an ongoing partnership with a leading re-insurance provider. This also enables us to have a better grasp of these risks at the portfolio level.
1 Total Portfolio Emissions reflect the absolute emissions (Scope 1 and Scope 2) associated with our investment portfolio, expressed in tCO2e. Our investment positions in private equity funds, credit, and other assets are excluded.
Top Five Contributors to Total Portfolio Emissions
In line with our internal portfolio prioritisation approach, we engage our top five contributors to the total emissions attributable to our portfolio. Combined, Singapore Airlines, Sembcorp Industries, Olam Group, PSA International, and ST Telemedia contributed to approximately 80% of Total Portfolio Emissions as of 31 March 2024.
Despite being businesses within industries facing inherent decarbonisation challenges, each has made strides in recent years to overcome obstacles, such as lack of commercially viable low-carbon options and opportunities. Their efforts have been largely focused on transformation strategies, climate action plans, net zero ambitions, and the clean energy transition.
Portfolio Value and Total Portfolio Emissions of Top Five Contributors
Decarbonisation Efforts of the Top Five Contributors to Total Portfolio Emissions
New generation aircraft such as the Airbus A350 (pictured) are around 25% more fuel efficient than older generation aircraft that they replace.
Singapore Airlines (SIA) is a global company providing passenger and cargo air transportation services. As part of the hard-to-abate aviation sector, SIA faces decarbonisation challenges arising primarily from a heavy reliance on fossil fuels for its flight operations.
SIA Group is committed to achieving net zero carbon emissions by 2050 as part of its ongoing journey towards environmental sustainability across its operations and collaborates with like-minded partners in the aviation ecosystem. SIA continues to improve operational efficiencies, adopt new technologies, and source for high quality carbon offsets. SIA Group operates a young fleet, with an average age of seven years and three months as at 31 March 2024. It continues to invest in more fuel-efficient aircraft such as the Airbus A350s and Boeing 787s, which are approximately 25% more fuel efficient than older generation aircraft on similar missions. Upcoming deliveries include the new Boeing 777-9s as well as the A350F freighters, which burn up to 40% less fuel than its current freighters.
SIA also participates in the first global market-based measure for any sector in the form of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) under the International Civil Aviation Organization (ICAO). As part of CORSIA, SIA is committed to achieving 85% of 2019 emissions as per CORSIA’s baseline from 2024 until 2035.
Sustainable Aviation Fuel (SAF) is a key decarbonisation lever for the airline industry, given its potential to reduce carbon emissions by up to 80% on a life-cycle basis compared to conventional jet fuel. In September 2023, the Civil Aviation Authority of Singapore (CAAS), Temasek, GenZero, and SIA completed a 20-month SAF pilot. Under the pilot, SIA purchased 1,000 tonnes of neat SAF which generated 1,000 SAF credits, corresponding to approximately 2,500 tonnes of carbon dioxide reductions. These SAF credits were generated through a trusted industry standard – the Roundtable on Sustainable Biomaterials (RSB) Book & Claim System. The pilot found that Singapore is operationally ready to supply SAF but requires additional efforts in areas such as carbon financing to support adoption. The Singapore Sustainable Air Hub Blueprint, subsequently unveiled by CAAS, has bolstered confidence in plans to further operationalise SAF deployment and accelerate uptake in Singapore. As a reflection of SIA Group’s decarbonisation commitment, SIA and Scoot set a target to replace 5% of their total fuel consumption with SAF by 2030.
More details on SIA’s decarbonisation journey can be found here.
Solar PV system on Tengeh Reservoir, one of the world’s largest inland floating solar farms.
Sembcorp Industries (SCI) is an energy and urban solutions provider, led by its purpose to drive energy transition. With the energy sector accounting for almost 40% of global GHG emissions, SCI has an important role to play in supporting Asia’s clean energy future. Committed to a brown to green portfolio transformation, SCI delivers sustainable solutions to support energy transition and urban development by leveraging its sector expertise and global track record. The journey from brown to green holds its own set of operational challenges, particularly in emerging markets that are deeply entrenched in fossil fuel infrastructure and long-term supply agreements. SCI aims to lead the energy transition responsibly with a clearly articulated climate action roadmap and targets.
SCI was the first Singaporean energy company to launch a Climate Strategy in 2018, communicating its emissions intensity target. SCI followed up with a refreshed, more ambitious Climate Action Plan in 2021, focused on growing renewables and reducing emissions.
Having made significant progress against its initial targets, SCI announced an enhanced set of targets in November 2023:
- By 2028, to grow gross installed renewables capacity to 25 GW.
- By 2028, to halve emissions intensity to 0.15 tCO₂e/MWh from 2023 level of 0.29 tCO₂e/MWh.
- By 2030, to reduce absolute emissions by 90% (from 2020 levels) to 2.7 million tCO₂e.
- By 2050, to deliver net zero emissions.
SCI is expanding its renewable energy portfolio to support the transition to net zero. Additionally, they are actively exploring and investing in energy storage and battery technology for the continued growth of renewable deployments. In line with their strategic targets, a significant share of capital will be deployed to support their renewables growth. Capital will also be deployed into hydrogen-ready assets and other decarbonisation solutions including renewables imports and low-carbon feedstock.
In 2023, SCI completed its divestment of Sembcorp Energy India Limited (SEIL) as part of its strategy to transform its portfolio from brown to green. To support the new owners of SEIL in maintaining the highest standards of reliability, operational efficiency of the plants, and best practices in the provision of essential energy to 2.5 million households, SCI offered to render certain technical advisory services to SEIL through a technical services agreement. To underscore SCI’s commitment to sustainability, it will provide ongoing support for SEIL’s initiatives to reduce its GHG emissions intensity through a financial incentive, where the interest rate under the deferred payment note will reduce with improvements in SEIL’s GHG emissions intensity.
More details on SCI’s decarbonisation journey can be found here.
Olam reduces methane emissions through sustainable rice farming projects in Vietnam (above), Thailand, and India.
As a food and agri-business, Olam Group (Olam) operates across land use sectors which contribute significantly to global warming. Companies within the agri-food sector face several obstacles to decarbonisation, including mapping emissions throughout the value chain, aligning actions among stakeholders, reaching smallholders, and implementing fit-for-purpose finance mechanisms.
Driven by their purpose to re-imagine global agriculture and food systems, Olam is committed to reach net zero by 2050 and to reduce emissions across their supply chains through their ability to make a material impact to improve farmer livelihoods, increase community wellbeing, and regenerate our living world. Their decarbonisation approach comprises four key elements:
- Reducing emissions by sequestering carbon in soils and trees, reducing post-harvest loss, and reducing methane emissions from rice farming and coffee washing stations.
- Encouraging regenerative practices through improved crop rotation, composting, mulching, soil erosion control, integrated soil fertility management, and integrated pest management.
- Helping farmers adapt to the impacts of climate change.
- Building resilience by enabling farmers to increase household income through crop diversification and other income opportunities.
Olam launched Terrascope in 2022, an end-to-end decarbonisation platform which enables companies to measure their emissions comprehensively and accurately. Combining proprietary data assets and Artificial Intelligence models with deep sector and sustainability expertise, the platform guides companies to make impactful emission reductions across their operations and supply chains.
More details on Olam’s decarbonisation journey can be found here.
Tuas Port in Singapore to enable greener supply chains through an integrated ecosystem with cross industry collaboration.
PSA International (PSA) is a global port operator and trusted partner to cargo stakeholders, with a portfolio comprising over 60 deep-sea, rail, and inland terminals, across more than 170 locations in 45 countries.
This sector has a heavy reliance on fossil fuels and faces challenges in electrifying terminals equipment and large vehicles as well as decarbonising supply chains. This makes innovative solutions and technologies crucial in advancing decarbonisation efforts.
PSA has committed to achieving net zero carbon emissions by 2050 and has developed a comprehensive strategic approach towards decarbonisation through PSA’s Carbon Abatement Pathways.
The four key levers within these pathways are optimisation and energy efficiency, lower carbon fuel and electrification, investing in renewable energy, and electrical grid optimisation. Several frameworks have been developed to aid the company’s decarbonisation efforts, including PSA’s Renewable Energy Procurement & Generation Framework and Green Financing Framework. The company is also supporting the establishment of green corridors to provide carbon neutral maritime routes which connect PSA terminals globally. In addition to green fuel bunkering, the corridors will offer a suite of value-add green services ranging from berths and equipment to green energy solutions.
More details on PSA’s decarbonisation journey can be found here.
Bi-annual STT Group ESG Forum to encourage collaboration and knowledge sharing.
ST Telemedia (STT) is a strategic investor specialising in Communications and Media, Data Centres, and Infrastructure Technology businesses globally. STT is committed to maintain zero market-based Scope 2 emissions for its own operations since 2022 while supporting its portfolio companies in halving their carbon emissions by 2030, compared to 2020. With a sizeable portion of its emissions originating from its Data Centres portfolio, a naturally energy-intensive sector, STT’s overall decarbonisation efforts are expected to be complex.
To drive action and innovation, STT regularly hosts ESG forums with its major portfolio companies to facilitate sharing of insights, best practices, and collaboration around sustainability initiatives including decarbonisation.
Its Data Centres group, ST Telemedia Global Data Centres (STT GDC), has partnered with ABB to conduct research and development in using artificial intelligence to optimise data centre cooling efficiency.
STT recognises that green financing has the potential to positively impact the environment by directly financing projects that promote sustainability, reduce carbon emissions, and protect ecosystems. It strongly supported the establishment of STT GDC’s Sustainability-Linked Financing Framework for capital raising, thus, helping to boost renewable energy contribution within STT’s energy mix and reducing the carbon intensity of key assets, especially data centres.
More details on STT’s decarbonisation journey can be found here.
Dedicated Platforms with Programmatic Engagements
Temasek convenes two key platforms to bring together the CEOs and Sustainability Leads of our major portfolio companies on specific sustainability topics where we see the opportunity to build capacity or the opportunity to foster collaboration between the companies.
The annual Temasek Portfolio Companies (TPC) Sustainability Council brings together CEOs to share successful sustainability strategies and forge potential collaborations on sustainability initiatives. The bi-annual TPC Sustainability Leaders Network focuses on knowledge sharing and capacity building on top-of-mind sustainability topics which are common across our major portfolio companies. It also seeks to build a strong community of sustainability leaders to advance our shared sustainability agenda together. Across the two platforms, we have covered the topics of climate transition, carbon markets, nature, and the net zero value chain through roundtable or workshop formats. Through these platforms, we hope to accelerate sustainability leadership in our portfolio companies and deliver on investor and other stakeholder expectations.
In a similar vein, we provide the relevant functional leads in our major portfolio companies with training and guidance on climate and sustainability disclosures.
Through our Workforce 4.0 Taskforce, we engage our Temasek Portfolio Companies together with the labour movement and government agencies, to facilitate the development of a future-ready workforce, which is an integral part of business transformation.
We organise the annual Temasek Tripartite Conversations, a thought leadership platform to facilitate dialogue and catalyse solutions to key workforce transformation challenges to support sustainable business growth. Last year, we focused on the topic of Artificial Intelligence (AI), driving discussions on its human-centric and human-led development, as well as the collective responsibility of tripartite partners to ensure a successful and just transition to an AI-enabled workforce.
Such engagements foster mutual learning with the portfolio companies and allow us to extend our capabilities in response to market needs.
Panel discussion at Temasek Tripartite Conversations 2023 on Artificial Intelligence’s Impact on the Future of Work.
We have set up various forums to facilitate dialogue and ideation on key trends with the leadership and functional experts of our portfolio companies. By operating as a networked organisation, we augment our collective ability to catalyse solutions for complex challenges of the future, and advance our shared sustainability agenda together.
