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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social and governance issues that are shaping the rapidly evolving sustainability landscape.

In this week's podcast, we're bringing you more coverage of the Summit that S&P Global Sustainable1 hosted in London on May 8.

Esther Whieldon: Corporates, investors, analysts and academics gathered at the event, and they discuss themes ranging from evolving sustainability standards, to the transformation to a low carbon economy, and the role of technology and innovation in the transition. 

Sue Lloyd, the Vice Chair of the International Sustainability Standards Board or ISSB, delivered a keynote address about the uptake of the ISSB's first 2 disclosure standards published in June of last year. Sue and conference participants from the finance sector spoke to the podcast on the sidelines of the event and we'll include links to the episodes in our show notes.

Lindsey Hall: So I was at the event as emcee. And one of the highlights of the summit was a fireside chat at the end of the day with Steve Howard, Vice Chair of Sustainability for Singapore-based global investment firm, Temasek. 

For listeners who are not familiar with the company, Temasek is a global investment company with a net portfolio value of $287 billion as of March 31, 2023. Now on stage, Steve gave a pretty upbeat message about the transition, saying green technologies such as solar power are now the cheapest form of energy.

But he also underscored the urgency of accelerating the transition to reach the goals of the Paris Agreement. Our colleague Jennifer Laidlaw is a regular contributor to this podcast and a senior member of the Thought Leadership team at S&P Global Sustainable1. She was on the ground interviewing many of the conference participants, including Steve, who she sat down with at the end of the event. 

Nice to have you back, Jennifer. Tell me what did you hear from Steve?

Jennifer Laidlaw: Nice to be here, Lindsey. So Steve touched upon what he described as the green discount when I spoke to him. He also explained how as a long-term purpose-driven investor, sustainability is at the core of Temasek's investment strategy. Here is our conversation. 

Steve, thanks very much for joining us for the podcast. I wonder if you could just give us maybe some of the takeaways that you shared with the audience up on stage.

Steve Howard: We were talking about the big picture of the transition, the energy transition. And you can say it's not just energy. It's obviously food and ag. It's built in environment transition. It's the entire global economy. So one takeaway was from one point of view, it's going really well. There's lots of investment opportunities, lots of business coming. The businesses developing entrepreneurs in the space.

We've hit the green discount where many green technologies are the cheapest way of delivering energy, mobility, food and ag, whether solar or battery storages or emergent alternative proteins. So that was the good news. 

The daunting aspect is really we're blowing the carbon budget and most of the science community, they come to the conclusion that we're going to overshoot 2 degrees, let alone 1.5 degrees.

Now the future is not written yet, but it's looking super urgent for us not to have climate chaos rather than just climate emergency. So those were some of the takeaways there. And then how do we mainstream this as business and investment leaders? I think it's a real decision.

It's just to decide what's the future we want, what are the long-term trends, what are we going to invest into and be clear around that. So we had, I think, a good conversation around its decision time now, and there's only one decision that puts you on the right side of history.

Jennifer Laidlaw: In terms of Temasek, you are a Singapore-based fund. And from what I understand, Singapore is very advanced in terms of sustainability. And I just wanted to know, how does that fit in with what Temasek is trying to do?

Steve Howard: Temasek is -- it was set up in it’s 50 years actually this year, the 50th year anniversary. And we were initially some companies that were part -- they were -- the government didn't want to be regulator and operator. So companies will put into a private company. And then over 50 years we've became a very active investor. So it's ultimately the people of Singapore's money, and we're arms-length from the government.

We are set up as a private sector company and some private investment firm, but we're long term because we're -- it's on behalf of the people of Singapore. The long-term perspective is super helpful because you can say climate change is a mega trend, and we're a trend-aligned investor. So we look at demographics, digitization and decarbonization as the trends that are shaping the future. And not just trends for 2 years, trends for the rest of our working and investing lives.

Singapore has to have self-security in things like water. So certain aspects of sustainability, a green built environment, and things like that, I think there's been real leadership on. The country was relatively, we're sort of in the middle of the pack in terms of setting net zero goals, but now it's really gone for it and put carbon taxes in place, it is actively involved in things like stimulating the sustainable aviation fuel. So I think that's a helpful context.

But there's something of a positive public policy rise around the world, whether it's carbon taxes in Canada or in Sweden or it's the Inflation Reduction Act in the U.S. So I would say, Singapore is one of many leaders in this. It's not like just a shining star. It's still a work in progress.

Jennifer Laidlaw: What is some of the goals that you set at Temasek to decarbonize your portfolio? And how are you aiming to achieve them?

Steve Howard: There's a sort of -- the necessary painful not fun bit of this is you set targets. We're a large asset owner. So we're exposed very broadly to hundreds and hundreds of companies and more if it's through some of the funds we’re invested into. So trying to understand our Scope 1 and Scope 2 emissions to start off with and begin to discover the full Scope 3 exposure there. So we set a target of halving emissions against 2010 levels by 2030, which is actually almost, by the time we’d set that, it was almost a 2/3 reduction target.

So it's a big target to do that. It's very real. It's very measurable. We know where all those emissions are. We own an airline. We own power companies. We're exposed to the real-world economy in this. 

And then we cascaded into the business, so we set carbon prices for the business, internal carbon price to price it. We gave to all our investment teams a carbon budget, then we aligned with incentives. We created a special set of long-term incentives. So people are rewarded if we hit our climate targets because incentives count in investment businesses and in all the financial sector as well as business sector that drives behavior. That's also necessary. 

The fun stuff happens when you've done that in a way because then you really look at what does the future look like and how do we reskill ourselves and deeply understand that? Especially when you got emerging technologies like apart from a few leaders, if you went back 2, 3 years, nobody was talking about hydrogen in a big way.

Now there's a massive focus on green hydrogen in particular. So we've done deep dives. And then we've looked at the investment teams we have, and they've -- in some cases, our industrials team has now merged with another team, it's rebranded itself, the energy transition team. Their total focus is on energy transition investing.

Our food and ag team was early into this. Their total focus is looking at what's the food and ag sec will look like in this world of climate change and sustainability constraints and opportunities. And then we've looked at where do we lack capabilities and where do we form new platforms and new partnerships?

Jennifer Laidlaw: How important are these partnerships in your decarbonization strategy?

Steve Howard: I think if we look at the portfolio companies, I mean we have some very long-term portfolio companies where we're sometimes more frequently, the majority investor or a very significant minority investor. And there, actually, is I think the biggest signal is that you stand with people as long as they're aiming for net zero and they're seeking to have an emissions trajectory similar to us, because we can't do it without them. But then it's also being prepared to share expertise, leaning more heavily.

So we've had 2 submarine engineering companies that have come together actually and be rebranded Seatrim and they'll go from being really providing for things like the offshore fossil fuel industry and more now for offshore renewables. So really, really pivoting an energy company, Sembcorp that's on a transition to go from being a brown energy company to a green energy company that exceeded its 10-gigawatt target for renewables recently. So really being very clear that you stand with the companies in those transitions.

The partnerships are somewhat different. So if you say where are these areas where we don't have deep expertise as a firm? We've got 1,000 people around the world. And we've got good capabilities, but they're not -- they're finite. So we partnered with Brookfield Global Transition Fund as one example because they have deep operating capabilities, really good infrastructure and renewables expertise.

So we've partnered with them to look at how do we actually work alongside them to deploy capital and scale into the energy transition. And that's been very successful. We're more into early-stage technology and into growth. That's something that we were a growth equity investor. But even though as we said we can be good ourselves we could hopefully be excellent if we have a series of partnerships. So we set up decarbonization partners just recently with BlackRock.

And they've just had their -- they've closed their first fund. It's a $1.4 billion fund, and that's looking late venture early growth into across everything, deep decarbonization. And they've invested in things like a battery recycling business to provide for the EVs and battery storage of the future, a whole range of decarbonization companies. And we built, together with a colleague from BlackRock. We've got 4 of our people in, they put some of their people, but then we hired a world-class team to put a multi-franchise fund together.

And we've looked to do other things like that. We've done one a specialist debt platform together with HSBC that's looking at sustainable debt to do — it sounds hard to do this — marginally bankable projects, it's like why would you get up in the morning think "We're going to do marginally bankable projects" And Marat, who's the CEO there, I've described as having the hardest job in any room he’s in because he's trying to do that.

There's funding ways to deploy capital, and there's a project they've already provided the debt for, which is a solar project in the Philippines, and they've got an exciting pipeline of projects doing things like that. 

It's just working harder to understand how you price the risk, how do you work with good partners, how do you reduce the risk and then how do you provide the debt that unlocks the projects there?

So we've, that wasn't a core capability for us. So working with one partner, Clifford Capital, with HSBC and ourselves, putting a specialist team who plays a small team, but a highly capable focused team, to do that specialist activity is really important. But I think that you can't do everything as an investor, so you've got to look where do you build those adjacent capabilities.

Jennifer Laidlaw: And how do you build these capabilities?

Steve Howard: They had, I mean, there's another one. There's a wholly owned one. We've been -- I feel like I've been constantly involved in building platforms for the last 3 years, actually. GenZero, we set up and GenZero, it’s wholly owned, but it's an independent company. So it got its, an independent Board with a sole shareholder. We seconded some of our own people into it and willing volunteers into it, and we hired in to create a team. We did global searches. I mean people are at the core of this.

And GenZero is a SGD 5 billion platform to invest into nature-based solutions, carbon markets, the carbon ecosystem, highly carbon price exposed carbon technology companies. So we built the capabilities there from scratch, build the enterprise from scratch, put the strategy in place from scratch. And those things are significant. And then when you seconded people into that, it’s actually like decarbonization partners. We seconded some of our -- well, actually, they transferred into it. Some of our very best people who had deep experience into that.

You can't -- and it's the same thing with GenZero. We had some very highly capable people move in there to build those teams out. We've also done the same thing where we've looked on impact investing. That wasn't a core discipline for us. We didn't know we'd not been measuring for impact, especially social impact in a big way. We sort of, we've done ESG screening, and we've done obviously climate investing. So we partnered, we looked out there and we had a platform we helped incubate called ABC World, but we also partnered with one of the leading companies, LeapFrog.

So we have 15 years' experience in the space. So we're invested in the company. I'm on the Leadership Council. I chair the Climate Advisory Board. We work really closely with the team to help them take their business to the next stage and as impact investing goes. And they’ve done things we haven't done at scale, which is deploying growth capital into emerging markets, particularly into Africa and South Asia. We've got some exposure in South Asia, very limited really in Africa, and they've got 15 years’ experience of that.

And so now it's working alongside them. Actually, we learn from them, and they learn from us. And it's easy to talk about partnerships. I think they’re like a relationship, it’s like a marriage. And you need good communication. You need to be aligned on stuff. You need to have -- really understanding, you need to understand about who does what, what the roles are and they're very long term in these partnerships. So we've approached that with everything we've set up.

Jennifer Laidlaw: When you're working with these companies lately, what are they doing to actually move that part of the transition along and ensuring that countries in emerging markets are actually going to get the renewables they need to move out of fossil fuel-based societies?

Steve Howard: I think that's a great question. And if we look at the emerging markets aspect of this, when -- I mean, LeapFrog had focus to start off with on financial services and healthcare, and they looked at the underserved. So the poorest couple of billion people who lack access to critical services that we take for granted in the West. Financial services and healthcare to start off with. Now we've extended that with climate, and we did a deep, deep scoping with them on that.

And we were surprised that there were some regionally specific funds and there were people doing infrastructure. But there was a real gap, people providing growth equity to growth businesses that we're delivering energy technologies and things like that, mobility technologies through emerging markets, poorer consumers. There was a massive gap in the market. So that actually gives you pause for thought. And that's because it's a bit harder to do. It's hard.

They are, the markets where risk can be hard at the price. But then we set out and we just said where are we? From I've been in there. It feels like practically the first solar panel have been doing this business for. And the people have thought about the green premium for a long time. I've been saying, no, actually, this is going to be -- this is just better. The electric vehicles are just better than crazy internal combustion engine vehicles. They were a bad idea. And so let's look at this and map it out. 

So we looked, did a deep dive and looked at -- if you're new, if you've not got mobility, motorized mobility at some point or if you've not got energy, and you're in across the emerging markets, actually, what's the best option today from a cost point of view? And hoorah, it's actually the clean technologies, either already something like solar, solar plus battery storage is now there. But also 2-wheeler EVs, battery-operated EVs have a full cost of ownership that's much, much lower. It's a business problem, financing solve problem. So we realized the green discount is there. So we've got huge need with 700 million people also lacking energy access, billions lacking access to cooling.

Lots of people with very limited mobility choices or high levels of risk on pollution or lack of conveniences associated with them. 2.3 billion people still cooking on dirty solid fuels, mostly wooden charcoal — just breathtaking in 2024. And so there's an imperative to help people get out of poverty, have really the resilience in their life of access to energy and cooling, the mobility and secure food supplies that's sustainable. But now the technology is there.

So we need to mobilize more capital. That's why we've been working with LeapFrog to set up a dedicated climate strategy and to get capital deployed into this space. And there's some movements in that direction. But it's my concern that we don't get enough movement fast enough because that's massively important.

Jennifer Laidlaw: What role does technology and innovation actually play in the investments that you're making in sustainability?

Steve Howard: Business models are interesting. So there's technology and business models that you look at in this. So I'll take a LeapFrog example, which is some king, which I really like, because it's proven technology. They're taking -- looking at -- maybe it's LED lighting combined with storage and solar panels so that people can have reliable access to lighting, charging and electricity, that combines it with a pay-as-you-go model that's tailored for emerging market consumers. They can look at the distribution models that work in African villages and rural communities.

So you're learning from microfinance and then you deploy capital. So that's a business model innovation. The technology innovation was driven elsewhere in the U.S., Chin, in Germany in place as we've scaled solar. 

As we look at some of the remaining problems, I think the direction is clear with some aspects of electricity generation, but others, like how do we solve for aviation? There's multiple options on sustainable aviation fuel on looking at short-range electric planes, on hydrogen as a precursor to fuels.

So really understanding those technologies. The same thing with shipping. I'm really heartened to see progress and really strong leadership from some firms like Maersk and others to look at how do you solve this problem and take leadership around it. And that's hard to do because when you've got multiple options, you can be paralyzed by choice. So you've got to deep dive, understand the technologies as they're emerging.

And then have conviction and lean in and back the ones that you believe are the winner -- that are going to be the winners. They’re more widely than that. I do think this thing of we don't want governments involved in picking winners are like an accepted mantra of the private sector. I don't quite agree with that really. I think on some of this stuff, we have to pick some winners, and we need public policy alongside business innovation and investment to do that and make it happen.

Jennifer Laidlaw: Is there anything else particularly that we haven't touched before that you think is important that really impacts the work you do?

Steve Howard: We're a purpose-driven firm. And you can say purpose statements. There was a rush of corporate activity to have a purpose statement, but we were very considered around ours, and it's -- so every generation prospers. As soon as you say that, as a firm, then -- so every generation, I mean this generation, next-generation, future generations, it really guides your investment activity. And I think we need everybody and leaders across financial markets to start to make an active choice now.

And we can't have the short term isn't the 21st century. We have to be leaning into the future. We have to be making the investments that create the future we want. And we will get regulation around this. We will get increased public pressure. Let's say it's just after dawn on the day of climate change. We're just about sitting down for coffee. And so we're going to be in an intense period of human history, and our license to operate in capital markets will be dependent on our ability to move to a pace that we haven't historically.

I do think the 21st century can be a marvelous century where we end global warming and reverse the decline in nature and lift people up out of poverty and end deep plagues on humanity like hunger. It can be that century, or it can be really dystopian. And we're in the first couple of chapters of that novel right now. The rest of the book is not written and it's our actions that count.

Jennifer Laidlaw: Well, that's a positive message to end on. That's excellent. Well, thanks very much for joining us.

Steve Howard: It's a pleasure. Thanks a lot.

Lindsey Hall: So today, we heard Steve make the point that financial markets can be real drivers of change, and it made the case for taking a long-term view of sustainability.

Jennifer Laidlaw: I think he really underscored how important it is to form partnerships to accelerate sustainability projects and how that has been the basis of a lot of Temasek’s work and sustainability.

Esther Whieldon: That's something that has been a recurring theme on this podcast, the role of collaboration and the need to break down silos. Thanks for joining us today, Jennifer.

Jennifer Laidlaw: You’re welcome.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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