The next phase of Temasek’s sustainability journey: Measuring and disclosing Scope 3 emissions

IN ITS inaugural sustainability report released on Tuesday (Jul 9), Temasek disclosed that the portfolio value of its sustainability-aligned investments stood at S$44 billion at the end of its 2024 financial year ending in March. This is the first time the Singapore state investor has revealed the size of these investments, reflecting greater transparency in its sustainability disclosures.

This S$44 billion value was obtained based on a sustainability classification framework developed by Temasek and applied across its investment portfolio. The framework is used to split the investments into two buckets. The first covers businesses that have products and services that could contribute positively to climate, nature and inclusive growth – this is valued at S$38 billion – and the second refers to high-emitting sectors transitioning to a low-carbon business model, which stands at S$6 billion.

With such disclosures, Temasek’s stakeholders have gained another metric to compare and track the investor’s efforts in decarbonising its portfolio, beyond that of its total portfolio emissions.

That being said, more details on this framework would be useful. One way of improving its disclosure next year could be by providing more information on the criteria and definitions used in its classification framework, to give stakeholders an even clearer idea of the thresholds it is using.

Another area where more information could be forthcoming is the amount of indirect emissions arising from a company’s supply chain, known as Scope 3 emissions. But this is a complex and challenging area.

Currently, Temasek discloses the absolute greenhouse-gas emissions arising from its portfolio companies, which is one of the main metrics the investor uses to track its progress against its climate targets.

The investor’s total portfolio emissions for its latest financial year came in at 21 million tonnes of carbon dioxide equivalent, a 22 per cent drop from the previous year, and a 5 per cent drop from its 2010 baseline. Temasek had previously committed to halving its emissions from its 2010 levels by 2030, and to be net zero by 2050.

However, its total portfolio emissions currently only include the Scope 1 and 2 emissions of its portfolio companies. Scope 1 emissions refer to direct greenhouse-gas emissions which are released through activity at a facility level, while Scope 2 emissions refer to those released at the power station for the generation of electricity that a company consumes.

But given that Scope 3 emissions often represent the majority of a company’s total greenhouse-gas emissions, incorporating these would provide a fuller picture of the emissions profile of Temasek and its portfolio companies.

Indeed, disclosure of Scope 3 emissions is already on Temasek’s radar. Park Kyung-ah, managing director of Temasek, said in a media briefing that the investor intends to eventually monitor Scope 3 emissions in a more systematic manner.

However, it is extremely complex as it involves portfolio companies getting emissions data from its suppliers, many of whom are small- and medium-sized enterprises that may not even have started collecting such relevant data.

Given the complexity of collecting data on Scope 3 emissions, Temasek could, for a start, adopt a more targeted approach to focus on portfolio companies where Scope 3 constitutes the most material source of their emissions, rather than Scope 1 or 2.

One possible company would be DBS. Based on the carbon emissions of Temasek’s listed portfolio companies in their latest financial year, the bank has the lowest level of emissions across all three scopes. However, its Scope 3 emissions only include those arising from its operations, and not from its financing activities, which, if included, would make it much larger.

Currently, the bank does not disclose the total level of its financed emissions across its lending and capital market activities. With the exception of the oil and gas sector, where the level of absolute financed emissions is disclosed, its financed emissions from other sectors are measured through carbon intensity metrics.

Temasek could consider paying closer attention to the Scope 3 emissions of companies like DBS, whose Scope 3 emissions are much larger than the other two scopes, and hence more material to the bank’s and, therefore, Temasek’s decarbonisation.

But in the case of a company like Singapore Airlines, given that the majority of its emissions would derive from its Scope 1 emissions – essentially the burning of jet fuel through its direct business activities – the airline’s Scope 3 emissions are not as material to its overall level of emissions.

After measuring and tracking the Scope 3 emissions of these selected portfolio companies, Temasek could then look at disclosing them, before eventually setting a reduction target.

It is definitely a long and tough road ahead. But Temasek has the resources and clout to push its portfolio companies to make a significant and meaningful impact on decarbonisation.