Sharpened focus on sustainability brings opportunities for future growth

KEPPEL Corporation's focus on sustainability is nothing new, as the group had been in the business of green buildings, water treatment and waste-to-energy plants several years before the topic of climate change began garnering global attention.

Over the years, however, the conglomerate has sharpened its focus on sustainability. And today, chief executive Loh Chin Hua believes the group is "in the right place, at the right time" to tap opportunities from increasing international concern about climate change and sustainability.

Loh recalled that back in 2019, a group of young business leaders at the company was tasked to reimagine a "future Keppel" and chart the group's Vision 2030 - taking into account key macro trends that would define its operating environment.

Sustainability was earmarked as not just a key macro trend, but one that resonated with the group and would provide it with business opportunities.

Keppel's business segments today cover quite the range: the company's operations include asset management, offshore and marine, renewables and infrastructure. A rising focus on sustainability, said Loh, is likely to have an impact on all of these areas.

"With increasing international concern about climate change, and many countries and companies making net zero commitments, we believe there would be growing demand for renewables, clean energy, decarbonisation, environmental and green building solutions, all of which the Keppel Group provides," he said.

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Part of the company DNA

Sustainability is "an important part of Keppel's DNA" today because the group began this journey many years ago, Loh said.

There are 2 parts to the company's approach to sustainability. First, Keppel believes in running its business sustainably. This is evident in the company's moves to set and announce targets to reduce carbon emissions, as well as water and waste intensity.The group is aiming to halve its Scope 1 and 2 emissions by 2030, compared with 2020 levels, and achieve net zero emissions by 2050. The group is also committed to different social and governance aspects of sustainability.

Second, Keppel is striving to make sustainability its business by providing solutions that contribute to a cleaner and better world. For instance, the company has set a target to grow its renewables portfolio to 7 gigawatts by 2030; although it hopes to achieve this target by 2025.

Employees are also on board, and it has not been difficult to get everyone on the same page.

Loh said the group's employee engagement survey for 2021 showed 83 per cent of Keppel staff were inspired by the company's mission to provide solutions for sustainable urbanisation.

"Climate action is now in our collective consciousness, and our employees, especially the younger millennials, feel strongly about playing a part. That makes our mission and journey to contribute, and help our customers contribute, to a greener world much easier," said Loh.

"To further sharpen our focus on sustainability, we have included sustainability-related targets in the scorecards of employees across the group, especially for senior management."

At the same time, the group has a "differentiated approach" in place. "We also encourage business units within the group that can run faster to do so, in line with their respective sectoral contexts and unique capabilities," said Loh

For instance, Keppel Land, which is widely recognised as a leading green developer, will work towards achieving 100 per cent reduction for Scope 1 and 2 emissions by 2030.

Meanwhile, Keppel Data Centres, which is exploring how to reduce the carbon footprint of data centres, aims to achieve net zero Scope 1 and 2 emissions for all its new data centre assets in Singapore by 2030.

Refocusing the portfolio

Announcing its Vision 2030 roadmap, Keppel had said it would refocus its portfolio to be an integrated business. This meant providing end-to-end solutions for sustainable urbanisation, with an asset management arm to fund the group's growth and provide a platform for capital recycling.

Efforts to rejig the portfolio have been evident across the entire group, with each business segment playing its part.

Keppel's recent announcements have included initiatives such as exploring the import of renewable energy from Laos to Singapore, as well as the production of green ammonia in Australia for export globally.

Keppel Infrastructure is looking at electric vehicle charging infrastructure in Singapore and markets in the Asia-Pacific.

Keppel DHCS, a subsidiary of Keppel Infrastructure, in October announced a thermal energy storage solution using a new phase-change material that can further improve the energy efficiency of district cooling systems.

Keppel Land is exploring various urban solutions such as climate resilient nearshore developments or floating cities, which can mitigate the risks of rising sea levels.

Keppel's asset management arm Keppel Capital is attracting third party funds to invest in the group's sustainable urbanisation projects, so the company does not have to rely solely on its balance sheet for growth.

"As the projects are completed and de-risked, the real estate investment trusts (Reits) and business trusts managed by Keppel Capital can also serve as platforms for capital recycling, while we continue to earn recurring income from operating and managing the assets," said Loh.

"With the increasing global focus on green investments, Keppel Capital will also be looking at establishing funds and acquiring assets involved in combating climate change and building a net zero future."

Keppel is also avoiding or exiting certain businesses that do not fit the clean and green theme. "We have said categorically that we will avoid the coal value chain, including coal power generation," said Loh.

In January 2021, Keppel Offshore and Marine (KOM) announced it would exit the offshore rig building business after completing its rigs, and has since said it is in discussions about a combination of KOM and peer Sembcorp Marine.

Changes due to the pandemic

The Covid-19 pandemic dealt companies a huge blow with declining revenues and supply chain issues. But Loh said the pandemic has also caused companies and governments to focus on being prepared for "catastrophic events" such as pandemics, natural disasters and climate change.

"Some events hit us suddenly with immense impact. Covid-19 is one such example. Others, such as climate change, build up over a longer period, but its full impact can be even more lasting and catastrophic," he said.

Unlike the pandemic, there is no vaccine or "quick fix" for climate change, noted Loh. Dealing with climate change requires concerted and sustained international action.

There are already signs of greater awareness. Loh noted the number of countries that have made net zero commitments has increased manifold, which reflects "growing international concern" about climate change. Looking ahead, he is also expecting more focus from countries on greener and more sustainable practices especially as the physical impact of climate change becomes more obvious.

Loh is quick to stress that sustainability is a responsibility for companies, and is likely to have a direct impact on the financial performance of companies or their abilities to attract investments.

For Keppel, the group's focus on sustainability will allow it to attract top talents, tap a new and growing profit pool, get "re-rated" by the market and secure cheaper funding from banks and bond holders.

UOB is among the banks supporting Keppel on its journey. Said Lim Lay Wah, UOB's head of the financial institutions group: "UOB remains committed to working with like-minded partners such as Keppel Capital for positive and sustainable outcomes. Together, we will forge a sustainable future for the benefit of generations to come."

As for investors, Loh said they "want to invest not just in sustainable companies, but those that provide the solutions that contribute to sustainability".

Added Loh: "Apart from the businesses over which we have operational control, we will also work with our supply chain and portfolio of investments to improve their energy efficiency and reduce emissions where possible."

• This is the 15th in a 20-part Green Business series, in collaboration with UOB, exploring sustainability trends across businesses and industries.