The leader of this year’s GSR assessment is Temasek Holdings. For the past three years, the Singaporean State-Owned Investor has consistently ranked among those with best practices globally, and this year it scored 100% of the GSR elements with its website providing more clarity around its organizational structure.
Temasek sets very high governance, transparency, and accountability standards: it discloses information it is not required to, such as total assets and financial returns; it pays taxes overseas; and it is held accountable for its financial performance.
Temasek is also a trailblazer when it comes to sustainability and responsible investing: it has been carbon neutral for the past three years and is committed to reach net zero emissions by 2050; it has expanded its ESG integration to include climate risk; and it has adopted an aggressive internal carbon price (US$ 50 per tCO2e).
Lastly, Temasek is clearly focused on resilience and long-term survival: its 2030 strategy revolves around the concept of building a resilient, forward looking portfolio; it aims at not only surviving but thriving in uncertain times; and it relies on three major engines of long-term growth: investments, partnerships, and development.
We had the pleasure of sitting down with Eu Jin Chua, Managing Director of Institutional Relations, to discuss the GSR scoreboard’s elements, the keys for Temasek’s success, and the future ambitions of the institution.
[GSWF] In the past decade, Temasek’s 10-year total shareholder return was 7%, beating some other major institutions that are pure financial investors. What would you say Temasek’s main success factors are?
[T] Temasek’s journey began in 1974 when it was incorporated with a S$ 354 million (US$ 0.3 billion) portfolio, which included companies that the Singapore Government used to hold directly. There was to be a clear division of governance between the Government as a policymaker and regulator, and Temasek as a commercial investor and owner.
In the 1980s and 1990s, Temasek started being an active investor. We grew with Singapore in our early years, as some of our portfolio companies ventured beyond Singapore and scaled to be globally competitive. In 2002, Temasek stepped out to build a second wing of growth with a transforming Asia as it evolved to be a global investor. We opened our first overseas offices in Mumbai in 2004, then in Beijing, before venturing further to open offices in the Americas and Europe.
We have also increased our exposure outside Asia to capture global opportunities for innovation, shifting our portfolio exposure by adding more exposure to developed markets in the process. Our exposure to developed markets is 65%, and our growth markets exposure is 35% as at 31 March 2022, compared to 55% and 45% respectively in 2011. As the global landscape becomes more complex and uncertain, Temasek seeks to build a resilient and forward looking portfolio.
[GSWF] Temasek is a unique investor: an active seller, with US$ 173 billion divested in the past decade, and focused on industries and trends, rather than asset classes. Can you walk us through your portfolio mix?
[T] We seek opportunities to deploy catalytic capital to address global challenges, especially in areas aligned with long term structural trends. And so, there’s no top-down allocation to sectors. The four structural trends that shape our long term portfolio construction are – Digitization, Future of Consumption, Sustainable Living, and Longer Lifespans.
Digitization and Sustainable Living are megatrends with a pervasive impact across many sectors as well as on the business models of emerging and established businesses. Future of Consumption and Longer Lifespans reflect structural shifts in consumption patterns and growing needs of longevity arising from our population growth and longer expected lifespans. These trends have grown from 13% of our portfolio in 2016 to 30% of our portfolio as at 31 March 2022.
By portfolio exposure, Financial Services (23%), Transportation & Industrials (22%), and Telecommunications, Media & Technology (18%) are our three largest sectors. Guided by our view that opportunities in sectors are converging, we will continue to focus on Consumer, Media & Technology, Life Sciences & Agri-Food and Non-bank Financial Services. Together, these sectors constituted 33% of our overall portfolio in 2022, a significant increase from a 5% share in 2011.
Temasek backs innovations and technologies at pre-commercialized stages to be at the leading edge in relevant areas of Artificial Intelligence, Blockchain, Cybersecurity, and Deep Tech, and engages closely with portfolio companies on their efforts in assessing potential disruption risks and identifying transformation opportunities arising from these trends.
[GSWF] Your international portfolio is very balanced, with 22% in China and 21% in the US. How do you see the current tensions and developments, and how does Temasek look at geopolitical risk?
[T] We are in a world of persistent inflation, restrictive macro policy and lower growth. Intensifying geopolitical tensions have impinged on the globalization of trade, investment, and technology. We have seen a renewed and urgent focus on national security, including energy and commodity sufficiency, data ownership, and techno-nationalism. The supply disruptions during COVID have added further impetus to the rethink of supply chains, especially for critical products.
Both the China and US markets are important investment destinations for Temasek. We do not have top-down target allocations for geographies. Geographical risks are factored in when we conduct bottom-up intrinsic value tests for each new investment, with expected returns evaluated against a risk-adjusted cost of capital that is derived using the capital asset pricing model. Investments in riskier sectors or markets will have higher costs of capital.
Against this macroeconomic backdrop, Temasek’s 2030 strategy has become even more relevant – comprising:
1.Building a resilient, forward looking portfolio,
2.Putting sustainability at the core of all that we do,
3.Developing new competencies in the horizontal enablers of Artificial Intelligence, Blockchain, Cybersecurity, Data & Digital and Sustainable Solutions, and
4.Continuing to evolve our organization.
[GSWF] Since you joined Temasek, you have seen the number of staff grow from 254 in 2007 to 900 today. Do you think personnel will or should keep growing at the same pace as the portfolio?
[T] Our staff strength has been growing in tandem with our portfolio as we expand globally and build a future-ready organization. We have about 900 people of 33 nationalities across 12 offices in 8 countries. Over the years, we have branched out to establish a presence in key centers around the world — first, in China and India, then Vietnam. As we identified the trends that guide portfolio construction, we expanded beyond Asia, to the Americas and Europe.
The core of this global footprint is our people. We believe that everybody must be driven by purpose, because that will determine our steps for this decade and beyond. Our purpose, So Every Generation Prospers, serves to guide us in this complex and ambiguous world. Temasek is always a work in progress, but our people have courage, conviction, tenacity, and purpose as generational stewards to work towards the prosperity of our current and future generations.
Our international offices are part of our 2030 strategy to grow our organization, talent, and capabilities. In today’s complex world, this is critical to help address the numerous issues that we face – from geopolitical tensions to the macro environment. Our offices overseas work closely together to expand Temasek’s presence and access to opportunities, in addition to tapping on the expertise of sector teams and Temasek’s network of portfolio companies and platforms.
Our newest office will be in Paris, which together with London and Brussels, will help us enhance access to deal flow, partnerships, and talent pool across both the European Union and the broader Europe, Middle East and Africa region.
[GSWF] Over the years, governments around the world have tried to replicate the “Temasek model”. What would be your advice to other Sovereigns reading this report and trying to follow Temasek’s footsteps?
[T] What has worked for Temasek may not necessarily work for all sovereign owned investors. We can, however, explain why and how we were set up to give you an insight into what were in the minds of our founding fathers.
Temasek was established as a commercial investment company in 1974, because the Government felt that it was necessary to separate governance from business management. The objective of such an investment company, owning and managing these assets, was to allow the government to focus on its core role of policymaking and regulations.
Neither President of Singapore nor the Government are involved in our investment, divestment, or business decisions, and they do not guarantee our obligations. Instead, the Government holds the Board accountable for our performance by assessing Temasek’s long term returns.
Similarly, we hold the boards and management of our portfolio companies accountable for their activities but do not interfere in their day-to-day management and business decisions. As an engaged shareholder, we keep abreast of industry developments that impact on our portfolio companies and track their performance. We regularly engage their leadership to understand their strategies and responses to changing operating environments, and longer term trends.
Over the years, our portfolio has shaped alongside the existing risks and opportunities and the longer term trends. Additionally, our T2030 strategy sets our course as we navigate an increasingly complex world towards our goals of being a Purpose-Driven Organization, providing Catalytic Capital, and growing as a Networked Organization.
Temasek was established to contribute towards a better world through its investments, uphold good governance, and grow our initial portfolio for future generations. These principles remain as relevant today as they did in the early 1970s and are defined in three roles: an active investor and shareholder; a forward looking institution; and a trusted steward.
[GSWF] Let’s now look at the three different aspects of the GSR Scoreboard for Temasek:
[GSWF] Temasek's contribution under the NIR framework forms part of the overall NIRC, which is estimated to be US$ 17.3 billion (S$ 23.5 billion) in FY23. Does the success of “Singapore Inc.” reside in the separation of powers between MAS, GIC, Temasek and CPFB?
[T] “Singapore Inc.” is a popular way to describe Singapore’s success and often in a complimentary manner. But I can only comment on Temasek (and turn you to the other organizations, each of whom have their distinct missions).
The Government’s relationship with Temasek is that of a shareholder and investee company, just like any other shareholder of a company. The Singapore Government is not involved in Temasek’s investment, divestment, or any other business or operational decisions. Temasek declares dividends annually in accordance with our dividend policy. Our Board sets our dividend policy, balancing the sustainable distribution of profits as dividends to our shareholder with the retention of profits for reinvestment to generate future returns. As a commercial company, Temasek also pays taxes.
Temasek also contributes to the annual Government budget through the Net Investment Return (NIR) Contribution. The NIR framework allows the Government to spend up to 50% of the expected long-term real returns on the net assets invested by MAS, GIC and Temasek. To be clear, NIR is not an outflow for Temasek and the NIR framework does not determine the amount of dividends we declare to our shareholder.
[GSWF] Can you please explain the differences between Temasek Holdings and Temasek International, and what it means to have a common CEO since 2021?
[T] Dilhan holds the roles of Executive Director & CEO of Temasek Holdings (appointed in 2021), and CEO of Temasek International (appointed in 2019).
Incorporated in 1974, Temasek Holdings (TH) is wholly owned by the Singapore Government through the Minister for Finance. The principal activity of TH is that of an investment holding company.
Temasek International (TI), a wholly-owned subsidiary of TH, was created a decade ago as the commercial arm of Temasek to drive the investor role of Temasek as a long term owner and active investor.
As Executive Director & CEO of TH, Dilhan is responsible for the Stewardship role of Temasek, particularly in respect of Temasek’s Constitutional responsibilities to safeguard its own past reserves, as a Fifth Schedule entity. This is complementary to his role as CEO of TI, as an active investor, and overseeing the operations of the firm as well as the organization of its talent and resources to deliver sustainable value over the long term for Temasek.
[GSWF] Temasek is clearly one of the most active Sovereign Investors when it comes to Sustainability and Net Zero commitments – and yet, it has shied away from membership organizations. Is this by design?
[T] Our commitment to sustainability is deeply rooted in our purpose. We value the roles various global organizations and industry alliances play in defining and advancing best practices. We remain in regular dialogue with them and their members, regardless of our memberships, so that we can play a constructive role as a private sector participant. Our approaches to embedding climate and sustainability in our investments take reference from various global frameworks and are designed to ensure relevance in the context of our characteristics as a long term asset owner of our portfolio.
We have introduced an expanded approach to include climate analysis in our ESG integration framework. The analysis is mandatory for all new investments that are evaluated and examine climate impact from several perspectives:
Potential investee company’s contribution to climate change through its carbon footprint;
Impact of climate change from physical and transition risk perspectives; and
Any potential new opportunities arising from technology innovations as well as evolving customer needs.
We also apply an internal carbon price, currently US$ 50 per tCO2e in our investment evaluations to account for the potential exposure to transition risk. The intention is to increase this progressively to US$ 100 by the end of this decade.
[GSWF] Your journey to Net Zero is very ambitious and the reduction in carbon emissions in FY20-FY22 was likely helped by Covid-19. Do you think it will stay that way now that global travels are back?
[T] As a company we have maintained carbon neutrality for the third year running in 2022. Our 2030 target is to reduce the net carbon emissions attributable to our portfolio to half the 2010 levels, with the ambition to achieve net zero emissions by 2050. To progress towards our climate targets, we have identified three pathways: (i) we invest in climate-aligned opportunities; (ii) we enable carbon-negative solutions, such as technologies for Carbon Capture, Utilization, and Storage and nature-based solutions; and (iii) we encourage and support ongoing decarbonization efforts in businesses.
With the resumption of economic activity post the COVID-19 period, we expect higher emissions levels for the firm and for some portfolio companies. Emissions trajectories will not be linear, but similar to our financial returns, we prioritize the long-term over the short-term. The biggest lever we can have with our capital is to deploy it purposefully, in order to accelerate climate solutions and thereby catalyze positive real-world impact.
[GSWF] We are often questioned how we define Resilience in the context of Sovereign Investors. Can you please share how Temasek looks at resilience and at new, potential “black swan” events?
[T] Resilience is what will allow us to not only survive but thrive in uncertain times. As such, we need to focus on resilient growth as a key strategy and have holistic conversations around it.
The first key is financial strength. To have a resilient company and a resilient business model, a company must have a strong balance sheet, a strong core business, and an intense focus on positioning for growth – organically and inorganically. And for this, every company needs 3 things: the right strategy, the right capital structure with strong capital management, and the right organization and people focusing on talent and capabilities and continuous improvement. Companies need to be in the business of continuous transformation. We will need to constantly look ahead and anticipate not just what is down the road, but what lies around the corner. One clear manifestation of this is the impact of generative AI on our businesses. Digitization and automation are therefore key business imperatives.
Another key to resilience lies in developing our workers, who are the heartbeat of our companies. We must proactively engage them if we want our companies to be future-ready. How effectively we can accelerate our climate journeys is also another factor to achieving resilience. Some ways we have done so have been indicated in our response above.
The last key to resilience is partnerships. In an increasingly uncertain world, we cannot weather challenges alone. Instead, we value an ecosystem approach where we scale capital, expertise, and access to opportunities through strategic partnerships. At Temasek, everything we do is underpinned by how we operate as a networked organization.
[GSWF] Can you please provide some examples of how your investment, partnership and development engines make you a more resilient and forward-looking organization?
[T] As we navigate an increasingly complex world, we have been looking beyond direct investments to build a resilient and forward looking portfolio through our three engines: investment, partnership, and development.
Our Investment Engine will continue to deploy catalytic capital in structural trends and partnering our portfolio companies as they reposition for the future. We have reshaped our portfolio in many ways to become more resilient and better weather shocks over the last decade. For example, we invested significantly in Tech, Life Sciences, Non-bank Financial Services, Consumer and Agri-Food; grew our global footprint and increased our exposure to US and Europe; and embraced innovation and captured emerging opportunities by looking into unlisted and early-stage opportunities.
Our Partnership Engine comprises our Solutions Platforms and Asset Management Business. We look to strategic partnerships to catalyze growth and build scalability. Some examples of our partnerships include our joint venture with BlackRock called Decarbonization Partners, which will focus on late-stage venture capital and early growth private equity investing, targeting proven, next-generation renewable and mobility technology and solutions. We are also a founding partner of the Brookfield Global Transition Fund that is helping to accelerate the global transition to a net zero economy by investing in the transformation of carbon-intensive industries and development of clean energy sources.
Our Development Engine will build future growth sectors and leading enterprises through upstream innovation and R&D to identify disruptive technologies and new sources of differentiation to create the next generation of leading companies:
We set up ClavystBio via CLA to invest in life sciences companies and develop an innovation district in Singapore;
We have cultivated strategic partnerships with deep tech investor to help us gain insights on deep tech and scientific research which could disrupt existing businesses or offer exponential growth potential in the future, e.g., Breakthrough Energy Ventures (BEV), which has made several co-investments with Temasek to expedite the commercialization of promising technologies capable of addressing climate change challenges on a global scale; and
Lastly, we also have Sydrogen Energy, a JV launched with Nanofilm that aims to tap on opportunities in the hydrogen economy; accelerate the proliferation of hydrogen energy, a sustainable fuel source; and develop innovative solutions to enable commercial adoption.