QUESTION: I want to clarify the elevation of sustainability and climate change into a core pillar for Temasek’s T2030 strategy. What is the practical difference on aday‑to‑day basis, given that Temasek has always talked about sustainability being at its core. Would there be a change in the way Temasek engages with its portfolio companies with sustainability being elevated to one of the core pillars?
Secondly, Temasek’s Total Portfolio Emissions increased from 26 million tCO2e for the financial year ended 31 March 2022 to 27 million tCO2e for the financial year ended 31 March 2023. What is the reason for the increase? I assume it has to do with the economy reopening, but do you have other insights you could share? And with regards to your 2030 target to reduce your emissions to 11 million tCO2e, is Temasek on track for that?
DILHAN PILLAY: The first question has to do with what has changed. Actually, everything is a journey for us. We started thinking about sustainability in 2011, to keep a watchful eye. In 2016, we stepped up and set up a group called the Sustainability and Stewardship Group. And in 2019, we put together all that we were doing and the new initiatives into the T2030 strategy.
That has really got three main components to it. The first is that we should invest more in climate‑aligned sectors. I mentioned our seven focus areas – food, water, waste, energy, materials, clean transportation, and built environment. More capital should be going into these areas, where wecan see the opportunity for growth over a multi‑year basis. Some of this will involve early stage investments, while others will be a little bit more mature.
For example, last year, we took a majority ownership in the number two drip irrigation company in the world called Rivulis, which will be very significant for water resource management because 70% of freshwater goes into the agricultural sector – so that is an area that needs to have solutions to lower the use of water, which is important for the sustainability of the planet, including the production of food, for example.
The second prong is that we want to invest in carbon negative areas or solutions that contribute to asignificant reduction in carbon. Nature‑based solutions are a clear example of the former. The second refers to our investments in companies like Electra, which can hopefully contribute towards reducing emissions in the production of steel. And the same thing, for example, for cement.
And the third prong is that we work with our portfolio companies on their journey to reduce their own carbon emissions. The good thing is that all the key companies within our Singapore portfolio are on the journey – some are more advanced than others, while some are in really challenged sectors. Take for example aviation, which bring us to your second question, why did our portfolio emissions increase from 26 million tCO2e to 27 million tCO2e? Well, alot of it is attributed to air travel. We are not quite at pre‑pandemic levels yet, because Singapore Airlines (SIA) is only at 79% of fleet capacity utilisation, but a significant amount of travel has come about in the last two years. To calculate our Total Portfolio Emissions, we take the pro rata part of SIA’s emissions, which accounts for significant part of the increase.
But what is SIA doing? Well, part of the S$15 billion that we committed to them went towards fleet renewal. They have done a fleet renewal programme over three years that has brought about a newer fleet which is 25% to 30% more fuel‑efficient than the pre‑existing fleet.
The other thing that we are working with them on is sustainable aviation fuel – already, that is being mandated in Europe, for example. It will be mandated in stages around the world and so the question there is for airlines, for engine makers, for airports, et cetera, to come together and figure out how we can make sustainable aviation fuel more of a reality, in terms of blended fuel for aviation.
On the third question, it comes back to the second question, which is that much depends on SIA. But let me tell you why.
What we are investing in today as part of our four structural trends is very much on low carbon‑emitting businesses which generate good returns over the future – so in terms of that part of our investment allocation, there is less of an issue. On the other parts, actions can be taken to reduce the emissions of power generation by changing the mix and so on. You can do something about the port as well to make it greener for usage. You can do more things in the built environment over time, when solutions come about to reduce emissions in the production of steel or, for that matter, in the production of cement – or even using alternative building materials, like timber, for example.
But for aviation, which we all depend on for trade, connectivity, leisure, et cetera, the only way to reduce emissions in the long term is through sustainable aviation fuel. You have to look at things like the feedstock, the process, et cetera, so it is not a simple thing to do. The good thing about this is that SIA is very focused on this and airlines around the world must be, because they are subject to Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) requirements to drop their emissions.
The other metric we look at, besides total carbon emissions, is carbon intensity per dollar of revenue. That has been moving downwards even though emissions have moved upwards, so that is a positive sign for us.
CHIA SONG HWEE: I would like to add that regarding the elevation of sustainability in our T2030 strategy, there is no playbook to this. We really have to figure it out ourselves, develop capabilities, build knowledge, decipher what is important and what is not, to be able to engage our portfolio companies more actively and speak with some credibility. If this had been ten years ago, it would be quite a difficult conversation.
DILHAN PILLAY: We really set a high bar for ourselves. Nothing that we do is easy.
ROHIT SIPAHIMALANI: Dilhan mentioned the point about carbon intensity. Both for our portfolio as well as SIA, that actually has been declining. In fact, the 10% decline in emissions we have had in the last three years is actually in the context of a portfolio that is 25% larger. So, we are actually encouraged by the journey we are on, but as Dilhan said, these are ambitious targets and we will have to just try to achieve them.
