Temasek sets aside S$100 million as concessional capital for climate finance
This marks the first time the Singapore state investor will be providing below market rate financing to support decarbonisation
TEMASEK will be setting aside S$100 million to be deployed as concessional capital for climate-related projects, announced Lim Boon Heng, chairman of the Singapore investment company, on Monday (Sep 23) at its 50th anniversary dinner.
This marks the first time Temasek will be providing below market rate financing to support decarbonisation.
The success of this concessional funding will be measured by its ability to scale positive outcomes in the area of climate action.
This includes the ability to avoid, mitigate and adapt to the impact of climate change; promote biodiversity and enable people to live in harmony with nature; and encourage sustainable living choices and behaviours that promote responsible resource use for better human and environmental health, said Temasek in a media release on Monday.
The capital will be managed in-house by a team in Temasek, though it will work with various partners in deploying the money to climate-related projects mainly in Asia, said a spokesperson. These projects include clean energy, circular economy and electrification.
This sum is a philanthropic gift from Temasek, which has been contributing a portion of its net-positive returns since 2003 into a pool of money, after taking into account the risk-adjusted cost of capital.
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These gifts are approved by Temasek’s board and then donated to partners to achieve its community objectives.
While Temasek Trust – the philanthropic arm of the state investor – has been the main beneficiary of these gifts, Temasek decided to try out a novel way of deploying its philanthropic capital by setting aside this sum specifically for decarbonisation purposes, instead of just traditional grant-making.
Temasek said it hopes that the S$100 million can serve as catalytic capital and eventually mobilise other forms of financing across the broader climate ecosystem to help fund marginally bankable projects.
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Concessional capital is typically used in blended finance mechanisms to fund structures such as guarantees, first loss and subordinated tranches. By taking on riskier parts of marginally bankable projects and lowering the overall risks, the intention is that private financiers focused on commercial returns will be more attracted to inject capital into such projects.
Emerging markets, including those in South-east Asia, typically face a larger climate financing gap than developed markets. That gap is expected to double by 2030, said Temasek.
Emerging market risks and higher costs of capital are some challenges that blended finance mechanisms can address. The S$100 million can provide more flexible, patient and favourable financing to address these market barriers, and optimise the economics necessary to accelerate the transition.
“This will help to accelerate the green transition and open pathways towards the 1.5 deg C goal, in the process crowding in other forms of capital, whether commercial or concessional, to support marginally bankable opportunities,” said Temasek.
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