Temasek sees decarbonisation shaping its investment approach | ESG

Decarbonization and digitalization are the fundamental trends that will reshape the business and investment landscape in the near future, according to Singapore state investor Temasek, which is taking steps to ensure it can capitalize on these trends.

“We are early-stage investors in new emerging technologies and provide venture capital where necessary to support these transitions,” Steve Howard, vice president of sustainability at Temasek, said Asian investor.

Howard spoke Asian investor on the sidelines of its annual sustainability event Ecosperirty, held in Singapore from April 15 to 17.

Howard said the shift to sustainability and decarbonization is not limited to the energy sector alone. It also includes sectors such as mobility (transport), food and agriculture, and the built environment (construction and infrastructure).

Each of these sectors is at a different stage of the transition to more sustainable practices, and their progress varies.

READ ALSO: Decarbonizing Southeast Asia will generate up to $150 billion in investment projects

FOCUSED ATTENTION

The state investor is building internal knowledge and capabilities, rearranging its investment priorities and setting up special teams and platforms to invest in these areas.

The teams also form important partnerships to bring in external capabilities, Howard said.

Temasek founded GenZero, its climate investment arm, and tTogether with DBS, SGX and Stanchart, it has also set up Climate Impact X, a marketplace for trading carbon credits.

The sovereign investor has also partnered with BlackRock for Decarbonization Partners to invest in proven decarbonization technologies through late-stage venture capital.

READ ALSO: How Temasek’s GenZero is investing in nature-based solutions

“In a rapidly changing world, driven by these megatrends, the future will increasingly differ from the past. This means that addressing new risks and embracing change is imperative,” said Howard.

NEED FOR CARBON MARKET

Achieving net zero in the long term is not possible without a functioning carbon market, according to Howard.

Voluntary carbon markets are platforms where individuals and organizations can purchase carbon credits to voluntarily offset their carbon footprint.

These markets aim to include sectors not covered by compliance markets, providing a broader scope for carbon pricing and financing.

“Carbon markets are incredibly helpful for us to achieve the lowest costs for tackling climate change. Carbon finance is a critical part of the capital stack. Even a modest carbon price can significantly impact the viability of projects or investments.”

Despite its logical basis, carbon finance remains a challenge to implement, he added.

This is due to a variety of factors, including the complexity of carbon markets, regulatory uncertainties and the need for standardized methods for measuring and verifying emissions reductions.

Furthermore, the carbon finance landscape is constantly evolving, requiring constant adaptation and expertise to navigate effectively.

BUILDING ECOSYSTEM

Temasek doesn’t just create carbon markets – it also targets the companies that support these markets.

This includes technologies that require a carbon price to promote decarbonization, such as sustainable jet fuel.

“We build ecosystems around project developers, verification technologies and trading approaches, especially within nature-based solutions. These ecosystems are essential to the success of carbon markets and the broader goal of reducing emissions,” said Howard.

“We are investing in carbon capture storage technology, green hydrogen, green steel and advanced batteries,” he added, elaborating on deploying capital in emerging technologies with explicit technology risks.