Is Temasek World's Most Sustainable Sovereign Wealth Fund?

Formed exactly 50 years ago in Singapore, Temasek is possibly the world’s most sustainable sovereign wealth fund.

Established with US$354 million primarily consisting of companies directly owned by the Singapore Government, Temasek has transformed from a holding company for the island nation to now being a global investor with a diverse portfolio valued at US$382 billion.

From the outset, Temasek built its investment strategy on the founding principles of modern Singapore, including being financially disciplined and taking the long view.

When it comes to sustainability, in recent years that means deploying capital to companies and industries that enable growth and a more sustainable future.

Temasek has identified four megatrends that inform its long-term portfolio strategy:

• Digitisation
• Future of Consumption
• Longer Lifespans
• Sustainable Living

Temasek tackles that Sustainable Living megatrend by investing in innovative, early-stage companies and technologies that can help deliver decarbonisation. The investor also works closely with portfolio companies to drive their own decarbonisation efforts and to identify ways they can be more sustainable.

This drive to net zero especially focuses on solutions for energy, mobility, the built environment, and manufacturing.

Lim Boon Heng, Chairman of Temasek Holdings, said recent years had been a challenge due to disruption and geopolitical tensions, but the company’s purpose had remained resolute.

“Climate change remains an existential threat and time is running out to address it,” he said. 

“Companies and governments can no longer sit on the sidelines. All of us must play an active role in solving shared global challenges as businesses cannot succeed unless societies thrive.

“Temasek’s Purpose – So Every Generation Prospers – is our North Star. Our Purpose is embedded in everything we do and ensures we do our part to build a better, more inclusive, and sustainable world.”

What is Temasek’s sustainable investment strategy?

Going back to those four megatrends, Temasek says Digitisation and Sustainable Living impact all sectors and business models of both incumbent and emerging businesses. 

The Future of Consumption and Longer Lifespans reflect shifts in society and consumer demand driven by population growth and longer expected lifespans. 

The four trends are interconnected, and global, and this guides Temasek to invest in companies that “enable, drive, and benefit from these trends”.

While Temasek is not ‘gambling’ its substantial assets on silver-bullet solutions to the climate crisis, it does invest a small portion in innovative start-ups – that are naturally higher risk but also provide the potential for greater rewards.

It’s a sensible approach that has clearly served Temasek well over the past half century.

Temasek’s ESG assessment framework

When deciding to invest in any venture, Temasek applies a bespoke Environmental, Social, and Governance assessment framework.

This helps Temasek achieve its climate targets, develop diverse, equitable, and inclusive workplaces, and building good governance.

Like any investment giant, Temasek carefully considers risk and return. However, one factor that makes Temasek stand out is the internal carbon price factored into decision making. This currently stands at US$50 per tonne of carbon dioxide equivalent (tCO2e) and is expected to rise to US$100 per tCO2e by 2030

The Temasek portfolio is constantly evolving, and there has been a shift to increase exposure outside of Asia especially in the last decade to help take full advantage of innovations in the sustainability space.

As of March 2023, the portfolio still counts Singapore (28%) as its single biggest area of investment, but there is also an interesting balance between China (22%) and the Americas (21%). Back in 2019, the gap between China and the Americas stood at 10%, but that has been reduced to just a single percentage point.

Across that same four-year window, growth sectors for Temasek investments included Transportation & Industrials – which includes Energy & Resources and rose from 19% to 23% – and Life Sciences & Agri-Food (up from 7% to 9%).

Conversely, investment in Financial Services fell from 25% to 21% and Telecommunications, Media & Technology from 20% to 17%.

Temasek’s 2030 strategy 

Looking ahead, Temasek’s 2030 strategy is built on its stated Purpose. The four pillars of that T2030 strategy are:

• Resilient & Forward Looking Portfolio Constructing a portfolio that can withstand shocks and volatility while focusing on sustainable growth over the long term
  
  
• Sustainability at the Core Embedding sustainability in all that the company does
  
  
• Temasek Operating System (T-OS) Building specialised capabilities in artificial intelligence (AI), blockchain, cybersecurity, data & digital, and sustainable solutions
  
  
• Organisation, Talent & Capabilities Focusing on organisational and talent development to grow its people, capabilities, and teams for the future

Of course, having a focus in sustainability is to be applauded, but Temasek’s reason for being is investment. On this front, Singapore’s sovereign wealth fund proves that doing good can also be good for business. In the past decade, Temasek’s portfolio has increased by US$167 billion, and that upward trends shows no signs of slowing.

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