GIC, Temasek take bottom-up approach to sustainable investing

Singapore

SINGAPORE'S largest institutional investors Temasek and GIC make sustainable investing their mandate, but take a different approach to nudging companies in the transition towards a low-carbon economy - one that is not defined by yearly targets.

In their separate replies to BT, sovereign wealth fund GIC stated a preference for "considerable bottom-up engagement", while state investment giant Temasek called the goal of net zero a journey that "will require time and partnership" with its portfolio companies.

Elaborating, GIC said it prefers to drive the transition towards a low-carbon economy by actively engaging and supporting companies in their transition plans.

"We believe that this is a more constructive approach to long-term sustainability versus divestment, which just means passing the ownership of an asset to others," it said.

Divestment, GIC highlighted, could lead to unintended consequences, particularly in emerging markets which often grapple with trade-offs between the "social" and "environment" parts of the environmental, social and governance (ESG) equation.

For example, cancelling a fossil fuel project, which serves as a main source of livelihood for the local community, could benefit the environment, but might indirectly reduce access to jobs, healthcare, education or even compromise women's rights, it stated. This is when there is no alternative, or a more sustainable source of energy or employment, readily available.

The long-term approach "requires considerable bottom-up engagement, as we work with our portfolio companies to consider long-term issues such as sustainability rather than react only to short-term pressures", said GIC.

However, it pointed out that it had taken action in situations where blatant negligence towards sustainability risks have led to negative implications for the company or its stakeholders, or where companies are unable or unwilling to move towards more sustainable practices. When this is the case, GIC "will not invest, or will divest our positions", it stressed.

Asked if it has near-term targets surrounding its policy on diversity, equity and inclusion, GIC said that it believes that diversity is "a hallmark of good corporate governance" and a "key consideration" in its investment due diligence.

"Sustainability remains a rapidly evolving space, and we continue to adapt our strategies, improve our tools and processes, and provide continuous training to our employees," it added. "We believe that all organisations, including GIC, will benefit from sharing, learning and collaborating with each other as new ESG issues, policies and solutions emerge."

Temasek pointed to its most recent Temasek Review, released last July, which stated that for the coming years, it expects to increasingly shape its portfolio in line with the four structural trends: Digitisation, sustainable living, future of consumption, and longer lifespans.

This would involve "deeper engagements" with its portfolio companies to identify threats and relevant transformation opportunities, it had said.

When asked by a reporter at that time if it sets carbon reduction targets for portfolio companies, Temasek climate strategist Neo Gim Huay said the specific transition pathway is "a decision that each company's management and board will have to make".

"We've been engaging our portfolio companies on climate as well as sustainability issues. The good news is that it's no longer about a 'why', but about a 'how'," she added.

Asked if Temasek decides on divestments in line with its carbon targets, head of portfolio development Nagi Hamiyeh said there are no hard metrics, per se.

"We look at opportunity by opportunity, bottom-up, have we reached the type of returns that we have underwritten? What is the upside left from here onwards? What's the opportunity cost versus other opportunities? And how does everything fit together as part of portfolio construction that we are trying to develop going forward?" he said.

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