As private equity and venture capital firms show less appetite for risky climate tech bets compared to a few years ago, Singapore sovereign wealth fund GIC is bucking the market trend.
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In its latest annual report released on Wednesday, the state-owned investor revealed a new investment scheme for green assets, targeted at scaling early-stage climate technologies, such as in green steel and battery storage, that neither meet the returns that venture capital expects nor has the track record to attract more risk-averse infrastructure financiers.
“Investors are now seeing that financing the transition may involve short-term opportunity costs that they are not ready to bear,” said GIC chief executive Lim Chow Kiat in his letter to stakeholders.
“Patient capital like ours is well-suited to navigate climate tech’s potential J-curve,” Lim added, referring to the typical trajectory observed in private equity investments, where significant gains are only realised after an initial dip in returns.
The investment initiative was launched by GIC’s sustainability solutions group – which was formed by its private equity department last year – following its “early success” in investing in climate technologies, said Lim.
GIC has two other investment platforms to capture climate and sustainability-related opportunities: its climate change opportunities portfolio, which allocates public equity capital to climate mitigation and adaptation, as well as its transition and sustainable finance group, which invests in sustainability-related opportunities across bonds, equities and other asset classes.
The fund, which manages about US$770 billion assets by some estimates, has invested in a number of climate tech firms in recent years. In 2023, GIC co-invested in Swedish startup H2 Green Steel, which secured close to €6.5 billion (US$7 billion) in January 2024 to build the world’s first large-scale green steel plant in northern Sweden.
In 2022, it participated in the US$450 million funding round for Form Energy, a United States-based firm aiming to push down the cost of multi-day energy storage systems to under US$20 per kilowatt-hour in the next decade, as well as the CHG 600 million (US$650 million) equity round for Swiss direct air capture startup Climeworks – one of the several carbon dioxide removal solutions that GIC has invested in.
Still no net zero target
Of the three entities tasked with managing the Singapore government’s reserves, GIC remains the only one without an emissions reduction target.
In 2020, state investor Temasek, which released its inaugural sustainability report earlier this month, pledged to halve its portfolio emissions by 2030 and to achieve net zero emissions by 2050. In 2022, the city-state’s central bank, the Monetary Authority of Singapore, also committed to cut the emissions intensity of its equities portfolio by up to half by 2030.
However, GIC stated in its report that it regularly screens its existing portfolios for financially material sustainability risks, conducts additional due diligence for assets exposed to greater transition and physical climate risks, and stress-tests its portfolio against a range of climate scenarios and carbon price projections.
Though GIC did not specify the carbon price projections it uses, its Singapore counterpart Temasek recently raised its internal carbon price to US$65 per tonne, with plans to reach US$100 per tonne by 2030.
Last month, GIC appointed a new sustainability head, nearly after a year the role was vacated, to lead the fund’s sustainability office, which was set up in 2022.
Though cyclical inflation has fallen from its 2021-22 peaks, GIC stated in its report that it expects inflation to stay structurally higher compared to the pre-Covid period, driven by the net-zero energy transition, alongside the legacy of Covid-19 and an ageing population.
An era of stubborn inflation means an increasing shift towards “inflation-resilient assets”, GIC said in its report, though it did not specify how green assets would factor into this new direction, in response to Eco-Business queries.
After accounting for global inflation, the sovereign wealth fund posted its weakest investment returns in four years, at 3.9 per cent in annualised real return, compared to 4.6 per cent last year.
