Temasek’s share of sustainability-aligned investments falls to 9.5% in FY2026

[SINGAPORE] The share of Temasek’s sustainability-aligned investments out of its net portfolio value fell slightly to 9.5 per cent in FY2026, from 11 per cent the previous year.

This is the second straight year of declining share since Temasek first disclosed the value of its sustainability-aligned investments in 2024.

The portfolio value of these investments, however, increased by S$3 billion to S$49 billion, from S$46 billion in the previous financial year. The investment firm disclosed these figures in its 2026 sustainability report, which was released on Wednesday (Jul 8) alongside its annual performance for the financial year ended Mar 31.

The dip in the proportion of sustainability-aligned investments is a result of the Singapore investment company’s net portfolio value growing at a faster rate, increasing to S$518 billion from S$434 billion over the same period.

Temasek’s portfolio emissions for FY2026 remained unchanged at 21 million tonnes of carbon dioxide equivalent (tCO2e).

As with previous years, the majority of these emissions were attributable to Singapore Airlines (SIA), as well as Sembcorp Industries.

Temasek CEO Dilhan Pillay highlighted in May that SIA and Sembcorp faced several structural constraints in their respective sectors that impeded their decarbonisation, and were the main reasons Temasek was unlikely to meet its 2030 net-zero targets.

However, their contributions to Temasek’s portfolio emissions were lower this financial year. This was due to the company’s reduced stake in SIA, which lowered its share of the airline’s emissions despite higher underlying emissions driven by resilient air travel demand, as well as Sembcorp’s divestment of a coal-fired power plant in Chongqing, China, in December 2024.

These reductions were counterbalanced by increases arising from changes in portfolio composition, as well as refinements and expansions to the emissions-reporting boundaries of several portfolio companies.

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Temasek also changed its baseline reference scenario, where it assumes that global temperatures will rise by 2.4 deg Celsius by 2100, instead of 1.8 deg C previously.

Financial institutions typically use such baseline scenarios, as well as other alternative scenarios, to assess climate-related physical and transition risks facing their portfolios, as well as the potential financial impact under different climate outcomes.

Sustainability-aligned investments

Of the S$49 billion of sustainability-aligned investments, S$42 billion are businesses that Temasek deems to have the potential to address the climate crisis, are nature-positive and contribute to inclusive growth. 

The other S$7 billion is in another bucket known as climate transition investments, which refer to high-emitting sectors that are finding ways to transition their business models to be more low carbon. 

Temasek also made sustainability investments of S$5 billion through FY2026, higher than the S$4 billion deployed into similar opportunities in the last financial year. Some of these investments went into companies that developed or operated distributed clean energy assets, as well as a biotech company manufacturing circular materials.

When asked about the pie of sustainability-aligned investments remaining stagnant during a media briefing, outgoing chief financial officer, as well as president of Temasek Singapore, Png Chin Yee, said: “We also look at it from an absolute basis rather than a relative basis, because obviously we don’t want to constrain portfolio growth to meet any percentage.”

Chief sustainability officer Park Kyung-Ah said that Temasek’s investments have to tick sustainability requirements while also generating good returns.

“It’s not about compromising purely to get a sustainability deployment,” she added.

In addition, some of Temasek’s portfolio companies are not in the business of providing sustainable products and services.

Only companies that generate a core part of their revenue from sustainable products and services are able to meet the threshold to be classified as sustainability-aligned investments under Temasek’s framework.

As to why the pool of climate transition investments has remained at S$7 billion like the previous year, Park said neither new investments nor its portfolio companies were found to have met its transition requirements.

However, that does not mean that its portfolio companies are not making progress in their transition efforts. It is more a function of the products and services provided that determines whether a company qualifies.

“The way we invest and the way we engage, it’s not specifically saying we’ve got to allocate x amount and we have to meet this exact requirement...

“We don’t pigeonhole our companies and say, ‘You have to meet this target, and therefore, you have to divest certain assets... and you have to take sub-commercial measures like buying a lot of sustainable aviation fuel, which is more expensive, just to help us meet targets’. Because that wouldn’t make sense,” she added.

While there are significant geopolitical headwinds for decarbonisation, Park said that these are not factors for why investments are not flowing into new climate transition projects or companies.

“There’s a lot of deals in the green space around renewable energy and storage. Brown-to-green requires us to have a level of discipline and confidence that the companies can continue moving,” she added.

Climate scenarios

Temasek changed its baseline scenario to a higher warming outcome due to uneven policy ambitions and weaker global policy coordination than previously anticipated.

The new baseline scenario means that both physical and transition risks are elevated, strengthening the case for adaptation and asset-level resilience planning. It also means that there will be greater adjustment pressures and more uneven impact across sectors and geographies.

Temasek assessed the impact on its portfolio value based on this updated scenario and found that the expected overall valuation impact from climate change on its aggregated portfolio is slightly negative.

Franziska Zimmermann, managing director for sustainability and climate change at Temasek, said these revised scenarios will be integrated into the investor’s analysis before it deploys capital.

Park said the company is “sharpening its toolkit” on adaptation and resiliency by engaging with its portfolio companies that will see the most material risks.

She added that these climate scenarios are being looked at in conjunction with other macroeconomic and geopolitical challenges. For example, projections of a super El Nino this year is coming at a time when the world is still dealing with the fallout of the Iran war, higher costs of capital, as well as a capex supercycle.

“A macro-strategy team thinks through the ‘so what’. For example, can it actually add to inflationary pressures, which then have a bearing in terms of macro aspects, whether it’s interest rates, and then obviously it filters through multiple different dimensions,” she added.

Portfolio emissions

Temasek said it expects its portfolio emissions to rise going forward with Sembcorp’s acquisition of Australian company Alinta Energy, which still has coal and gas assets in its portfolio.

However, Zimmermann said Temasek’s emissions pathway is not going to be linear due to portfolio composition changes and investments being made into high-emitting sectors, but which are critical to the energy transition.

“At the end of the day, we are looking at real-world impact. So it’s not just about managing for that number in our emissions curve, but actually what is it that our investment is helping to achieve,” she added.

While Temasek’s total portfolio emissions remained at 21 million tCO2e, its emission intensities fell.

The amount of carbon emissions out of every S$1 million in portfolio value declined to 50 tCO2e from 57 tCO2e in the previous financial year. For every S$1 million in revenue, carbon emissions fell to 83 tCO2e from 89 tCO2e over the same period.

Temasek’s Singapore-based portfolio companies contributed 89 per cent of its total portfolio emissions, even though they accounted for only 43 per cent of its net portfolio value.

Its global direct investments, which make up 38 per cent of its portfolio value, contributed only 11 per cent of its portfolio emissions.