Aside from Temasek’s mandate to deliver “sustainable, long-term returns”, the investor has set another challenge for itself: to halve its portfolio emissions from an FY2011 baseline to 11 million tonnes of carbon dioxide equivalent (tCO2e) by FY2031.
This figure reflects the absolute emissions (Scope 1 and Scope 2) associated with Temasek’s investments in public and private equities.
However, citing limited data, Temasek excludes its investment positions in “private equity funds, credit and other assets,” which make up 23% of its portfolio.
According to Temasek’s first standalone sustainability report, released July 9, full-year total portfolio emissions fell 6 million tCO2e y-o-y to 21 million tCO2e, sinking below the baseline for the first time.
Five companies — Singapore Airlines C6L (SIA), Sembcorp Industries U96 , Olam Group VC2 , PSA International and ST Telemedia — accounted for some 80% of this figure.
Temasek attributes the fall in emissions to Sembcorp’s sale of Sembcorp Energy India Limited (SEIL). One of the largest power producers in India, SEIL operates two coal-fired power plants. Since the sale was completed in January 2023, the proportional emissions of SEIL are accounted for under Sembcorp’s Scope 3 emissions as “investments” and are not included in Temasek’s total portfolio emissions.
The sale has faced greenwashing allegations, as Sembcorp provided as part of the deal a “deferred payment note” to the purchasers, an Oman-led consortium. This eliminated the emissions associated with the coal plant from Sembcorp’s books while it continues receiving income. By doing so, Sembcorp avoids higher “step-up” interest payments on its sustainability-linked loans. However, the emissions arising from the coal plants were not abated — merely passed to another owner.
According to Sembcorp’s latest sustainability report, released in April, its Scope 1 and 2 emissions more than halved in FY2023 ended Dec 31, 2023, owing to the divestment. However, Sembcorp’s Scope 3 emissions rose 83% y-o-y to 16.7 million tCO2e “mainly due to the inclusion of proportional emissions of SEIL”. As of March 31, Temasek holds a 49% stake in the mainboard-listed energy company.
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Franziska Zimmermann, Temasek International’s director of sustainability and climate change strategy, says Temasek does not control the operational decisions of its portfolio companies. But she also believes Sembcorp’s financing model will not be replicated “across the board”. “It’s the nature of transactions that every transaction will have its own conditionalities, reflections and considerations. We should also be open-minded about how companies are executing their strategy and the tools that they use in order to get the job done.”
Park Kyung-Ah, Temasek International’s head of ESG investment management and managing director of sustainability, points to certain conditions set by Sembcorp, such as technical advisory services and a variable interest reduction should SEIL lower the emissions intensity of its operations.
“It’s not quite as plain vanilla [as] to say that we’re just going to pull the plug on a coal facility and shut it down,” adds Park, “given that there are significant energy, affordability, accessibility and reliability requirements, particularly when it comes to fast-growing economies and emerging markets like India.”
Temasek International’s chief investment officer Rohit Sipahimalani says there are “other implications”, such as the livelihoods of the communities around the coal plants.
SIA emissions up as travel resumes
Temasek says its other portfolio companies are decarbonising, but these were moderated by SIA’s increase in emissions as global air travel resumed.
According to its sustainability report, SIA’s Scope 1 and 2 emissions grew 18.1% y-o-y to some 15 million tCO2e in FY2024 ended March 31. The carrier’s emissions have nearly quadrupled since the outbreak of Covid-19 — it reported Scope 1 and 2 emissions of just under 4 million tCO2e for FY2021.
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That said, the emissions logged in its latest financial year are still below the pre-pandemic level of 16.3 million tCO2e seen in FY2020 ended March 31, 2020.
As at June 5, Temasek holds a 22.1% direct stake in SIA, based on the latter’s annual report. However, with the stakes of Temasek’s subsidiaries, it owns some 53.4% of SIA as of June 5.
SIA announced in 2021 its 2050 net-zero commitment. Besides investing in newer aircraft, which are said to be 25% more fuel-efficient, SIA is also exploring the use of sustainable aviation fuel (SAF). Temasek says SAF can potentially reduce 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), SIA, Temasek and its subsidiary GenZero 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 CO2 reductions.
The sale of credits is not entirely new; SIA introduced voluntary carbon offsets to passengers in June 2021. However, at the release of SIA’s FY2023 results in May 2023, CEO Goh Choon Phong said “the take-up is not strong”. “We will continue to try to encourage [this], but at the end of the day, it will be up to individual passengers to decide.”
Passengers may need some prodding. The Singapore Sustainable Air Hub Blueprint, unveiled by CAAS in February, outlined plans to introduce a SAF levy for outbound flights in 2026, estimated at between $3 and $16 for an economy-class ticket.
From 2026, flights departing Singapore will also be required to use a minimum blend of 1% SAF. SIA and its low-cost carrier, Scoot, have set a target to replace 5% of their total fuel consumption with SAF by 2030.
