Temasek has launched a S$5 billion ($3.6 billion) investment platform GenZero focusing on carbon reduction and working with its Decarbonization Partners initiative with BlackRock, marking a major new development of the Singaporean state-owned investor's strategy of backing solutions to climate change.
While other state-owned investors have concentrated their attention on investing in renewables infrastructure, Temasek has taken great strides in investing in cutting edge technology and solutions through a venture capital strategy. GenZero’s focus on technology-based solutions, nature-based solutions, and carbon ecosystem enablers consolidates the Singaporean state-owned investor’s approach to using venture capital to halve its portfolio's net emissions by 2030 and working towards a net-zero portfolio by 2050.
GenZero has already invested in about half a dozen companies over the past year, according to Temasek. These include Newlight, a US-based manufacturer of biomaterial produced from methane to displace plastics, and US start-up Perennial, which uses artificial intelligence and remote sensing to detect the presence of carbon on agricultural land.
Temasek has placed itself under an ambitious transition program with rigorous targets and discipline. Its 2021 annual report notes that its carbon emissions have risen by more than a third to 30 million tonnes over the past decade – a figure it aims to bring down to 11 million in net terms by 2030 and net zero by 2050. It has adopted a “a three-pronged approach”: investing in climate-aligned opportunities; enabling carbon negative solutions; and encouraging decarbonization efforts in businesses. This strategy is accompanied by the bold step of carbon pricing, to internalize the economic and social costs of carbon emissions and guide investment decisions, with an initial internal carbon price of US$42 per tCO2 – a price that is set to increase over the coming decade.
Forming Global Green Partnerships
Temasek’s green aspirations have made it dominant in efforts to back solutions as well as adaptions to climate change, working in partnership with other institutional investors, pursuing its own venture capital strategies, and decarbonizing the chunky national strategic assets that it was seeded with.
Ambitious targets have prompted it to reach out to form partnerships in the institutional investor universe. Last April, BlackRock and Temasek agreed to team up to invest in private companies that use technology to reduce carbon emissions. Decarbonization Partners aims to launch a series of late-stage venture capital and early growth private equity investment funds and agreed to commit a combined US$600 million in initial capital to invest across the funds, which would also raise money from third-party investors and be managed by staff from both partners. The first fund has a target of US$1 billion.
Meghan Sharp appointed managing director and global head of Decarbonization Partners in February, based in San Francisco. She was previously global head of BP Ventures, BP's venture capital arm which invested in opportunities in the decarbonization sector. London-based Teresa O'Flynn, a BlackRock managing director, was named a senior investor for Decarbonization Partners, said the BlackRock spokesman.
In April, Decarbonization Partners made its first investment, participating in the US$125 million Series C financing round of biomaterials company MycoWorks. The company's patented Fine Mycelium process harnesses fungal mycelium to produce a natural material with the performance of the finest animal leathers.
Temasek CEO Dilhan Pillay said at the time of the partnership's launch, “Through collective efforts with like-minded partners, we will be able to create sustainable value for all of our stakeholders over the long term, and investors will have the opportunity to help deliver innovative solutions at scale to address climate challenges.”
Last July, Temasek was also one of four leading state-owned investors that threw their weight behind the Brookfield Global Transition Fund to invest in clean energy and bolster the Paris climate commitment of net zero by 2050. Temasek and Canadian public pension fund OTPP came on board as founding partners, committing “significant capital” in the fund as well as planning to invest alongside it. Two other Canadian PPFs – PSP Investments and IMCO – have also committed as “meaningful” investors in the fund, which has an initial close of US$7 billion, with a hard cap of US$12.5 billion. The huge financial commitments indicate the weight Temasek is giving to energy transition in the drive towards net zero. The fund will invest in scaling up renewables and transforming carbon-intensive businesses.
Venture Capital: At the Cutting Edge of Climate Solutions
In terms of originating its own deals in early-stage start-ups, Temasek has focused on supporting the deep-tech innovation sector in Singapore, to help the country become a global hub for life sciences, foodtech and advanced manufacturing - a role that GenZero is likely to adopt.
Agtech is a notable focus of Temasek’s sustainability agenda, particularly in pursuit of the island nation’s strategic interest in improving food self-sufficiency. The Singaporean fund’s investments in agtech have ranged from startups to public companies and included alternative proteins, vertical farming and biotech. The US$283 billion investor is always on the lookout for the next big thing emerging from Singapore’s entrepreneurial milieu, including: seed funding in Singaporean plant-based food startup NextGen; backing Big Ideas Ventures’ New Protein Fund 1 as it strives to develop alternatives to meat; and a joint venture deal with Nanofilm Technologies to create Sydrogen Energy, which will market parts used in the production of fuel cells and electrolyser systems in hydrogen production.
Singapore itself has a vibrant agtech start-up ecosystem as the island nation’s government seeks to strengthen its food resilience and achieving its “30 by 30” goal – which is to produce 30% of its nutritional needs locally by 2030, up from less than 10% in 2020. Temasek’s investments in agritech has ranged from startups to public companies and included alternative proteins, vertical farming and biotech.
Temasek has extended its portfolio into urban farming by forging a JV with Leaps by Bayer and by spending US$ 365 million in acquiring an 85% stake in Israel’s Rivulis Irrigation in 2020, which applies smart technology to agricultural systems. Other allocations included US-based Impossible Foods and Australian startup V2Food, both of which stand for ethical consumer choices.
Cleaning Up Carbon-Intensive Assets
The Singaporean state-owned investor has not set hard carbon targets for its portfolio companies, preferring instead to support them in their decarbonization. In a move that seems incongruous with climate change objectives, Temasek threw financial lifelines to its carbon emitting enterprises to keep them afloat. It injected a total of nearly US$13 billion in new equity and convertible bonds for Singapore Airlines. Such transportation assets have done nothing to help the state investor’s carbon ambitions. But the Singaporean investor is not simply propping up carbon-intensive assets – it is seeking to transform them to align with its sustainability agenda.
Nagi Hamiyeh, Temasek International’s joint head of investments, said in an interview with Bloomberg last year, “We never said we will not invest in an emitter of carbon - as long as this emitter is on a journey, a path and we can be helpful in terms of how we can shift them.”
The story of Sembcorp demonstrates the journey Temasek’s carbon-intensive assets are taking. In June 2021, Startree Investments, a wholly owned subsidiary of Temasek, committed to subscribing up to 67% of a S$1.5 billion (US$1.1 billion) rights issue for the energy and urban development company Sembcorp as it battled market challenges wrought by the coronavirus pandemic. Sembcorp was also directed down a “brown to green” transformation strategy that aims to reach 10GW of installed renewables by 2025. Last week, Sembcorp finalised the acquisition of a majority stake in a portfolio of 658MW of wind and solar farms in China for US$494 million, bringing its total gross renewables capacity in operation and under development to 6.8GW of which 3.6GW is in China.
The maritime sector, which is strategically important for an island state that punches above its weight, is also seeing significant transition. In April 2021, Singapore’s Maritime Ports Authority signed a memorandum of understanding with Singapore’s Temasek to explore decarbonization opportunities with the state investor and companies in its portfolio. Sembcorp also pledged S$10 million to establish a Singapore maritime decarbonization centre that will fund maritime decarbonization research and technology development projects, including reducing emissions in port operations and shipping and exploring low carbon ship fuels.
The Singaporean investor’s multi-pronged approach, encompassing all asset classes and sectors, is one that sovereign wealth funds and public pension funds are paying close attention to – and will inform Global SWF’s annual Governance, Sustainability and Resilience ranking, which will be published at the beginning of July.