Temasek pivots to ‘plain vanilla' renewable energy amid global climate pullback
While investing in such projects may seem 'plain vanilla' and also increasingly competitive –given the falling prices of solar electricity – these technologies are deemed to be 'geopolitically resilient' as they are 'scaled opportunities' with a 'narrower range of outcomes', said Temasek's senior executives.
Solar energy projects combined with energy storage can be deployed faster than conventional forms of energy. It is also becoming one of the cheapest forms of energy around the world, while being inflation-protected and cashflow-generating, said Park Kyung-Ah, chief sustainability officer of Temasek.
'The opportunity sets are very compelling. People probably over-index to a lot of the headlines that keep coming out, whether it's tariffs on certain clean energy supply chain or whether it's in the context of pulling out of certain (climate) commitments and so forth. But we have to remember, at the end of the day for the market, the economics are what really matters,' said Park, who was speaking to The Business Times at the recent launch of its 2025 sustainability report.
Even though solar prices are falling across the board, thereby affecting the returns of such investments, Park said that there are ways to make returns by entering some markets earlier, and leveraging some of the development opportunity sets.
'It is becoming more sustainable infrastructure, which is again, more resilient, bigger growth opportunity set and cashflow visibility. And so it's actually a compelling part of our portfolio construction,' she added.
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The dislocation of some renewable energy companies in the public market – due to uncertainty around energy transition globally as the US dialled back on its climate commitments – has also provided the state investor with more attractive opportunities, said chief investment officer Rohit Sipahimalani.
For example, Temasek, along with its partner Brookfield, acquired listed French renewable energy company Neoen for US$6.6 billion and took it private in December last year.
The pivot towards renewable energy is part of Temasek's risk management strategy amid heightened volatility in sustainability investing. Spurred by United States President Donald Trump pulling the country out of the Paris Agreement and rolling back some policies incentivising clean energy development, there has been a broader reassessment among governments and corporates on their climate ambition and strategies.
In addition to leaning more towards renewable energy, Park said the state investor would be 'more selective and intentional' when investing in early stage companies.
'So we are doing early stage deals, but where there's true differentiation and innovation, as well as where we see companies really cementing their competitive differentiation, scaling and go-to market,' she added.
Climate commitments
Despite the scaling back of climate ambition globally, Temasek said that it will stay on course for its net-zero targets.
In 2020, the investor made a commitment to halve its portfolio emissions from its 2010 levels by 2030 – to 11 million tonnes of carbon dioxide equivalent, and is also targeting to be net zero by 2050.
For one, while the US might be retreating, Franziska Zimmermann, managing director for sustainability at Temasek, said that the European Union as a collective is still advancing on sustainability, and would likely not be impacted by developments in the US.
Secondly, Park said that delayed climate action will actually result in higher costs further down the road.
In addition, she noted that while policy stability provides investors with confidence in the return profile, Temasek does not make investment decisions with policy dependencies in mind.
'When we do our investment thesis, we want the companies to stand on their legs... There will be bumpiness along the way. And it's the case with any industry in any market. It's never a glide path, but the opportunity sets are very compelling,' she added.
The shifting landscape on climate has also meant that Temasek is currently in the process of revising some of its underlying assumptions behind its climate scenarios.
The investor's current baseline scenario, which projects temperatures to rise by 1.8 degree Celsius by 2100, assumes significant acceleration in climate policy by 2025 with higher upfront transition costs.
The recent policy actions from the US, as well as the latest results from climate science, would now be factored in as part of this review, said Zimmermann.
The portfolio value of Temasek's sustainability-aligned investments stood at S$46 billion for FY2025, an increase of S$2 billion from S$44 billion in the previous financial year.
However, the investor's share of sustainability investments – out of its entire portfolio – dipped slightly, accounting for 11 per cent of its net portfolio value of S$434 billion after including institutional assets and liabilities, compared to 12 per cent in the previous year.
The sustainability report also reviewed Temasek's total portfolio emissions for FY2025, which remained unchanged at 21 million tonnes of carbon dioxide equivalent.
A majority of emissions (42.9 per cent) were attributable to Singapore Airlines, which generated higher emissions due to a strong demand for air travel and cargo uplift.
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