Singapore’s sovereign wealth fund introduces $42 internal carbon price

The fund will support companies on their transition journey instead of divesting, said officials

Temasek Holdings, the $281bn sovereign wealth fund of Singapore, has set an internal carbon price of $42 per tonne as part of a push to incorporate climate and sustainability factors into investment decisions.

According to the fund, the new carbon price will be considered by its Investment Committee – together with company-level ESG data – to “guide decision-making in line with broader climate targets and model the likely future impact of carbon pricing on the investments we make”.

The newly-adopted carbon price is derived from a 1.65°C climate model issued by the International Energy Agency (IEA) in 2020, which requires the global economy to decarbonise by 2070. Recent models issued by the energy watchdog have been markedly more ambitious, targeting a temperature rise of only 1.5°C and a Net Zero deadline of 2050.

Temasek officials told RI that while they considered the carbon price to be a “bold starting point” for the fund, they acknowledged that “carbon prices may need to surpass $100 per tonne by 2030 to drive effective decarbonisation and deliver on the Paris Agreement”.

The fund has committed to reviewing the price for adjustment “in the coming decade”.

“Putting a price on carbon will help us recognise the social costs that emissions will impose on society over time. However, we see opportunities to invest in, and work with, companies in our portfolio as they develop solutions to decarbonise their own businesses,” officials added.

“We prefer this path over simple divestment.”

The move comes as Temasek announced its investment into a $7bn climate transition fund launched by Canadian asset manager Brookfield – co-led by recent hire and former Bank of England governor Mark Carney. But the state fund has also been criticised for continuing to invest in fossil fuel-related businesses despite pledging to halve its portfolio emissions over the next decade.

Carbon pricing has gained traction recently with a notable endorsement from the G20 and the creation of the world’s largest emissions trading system in China. Over the next decade, a forecast by the Principles for Responsible Investment suggests that there will be a fourfold rise in emission trading schemes, with carbon prices rising to $85 per tonne by 2030.

In view of this, some regulators and non-profit organisations, such as the Taskforce on Climate-related Financial Disclosures, European Commission, UN Global Compact and CDP, have recommended that companies begin using internal carbon prices as a way to manage the disruption resulting from the future introduction of carbon pricing.

An analysis by Schroder’s estimates that a carbon price of $100 per tonne could increase or decrease revenues by more than 20% for half of all listed firms globally.