In an example of how asset owners are looking at new nature-based solutions to offset the impact of carbon emissions while diversifying portfolios, Singapore’s Temasek participated earlier this year in an early-stage funding round for a company developing a plant “engineered for carbon removal”.
Living Carbon, which bagged $21 million in the funding round announced in January, tweaked the genetic code of poplar trees to develop a hybrid version that absorbs more carbon.
The company plans to have 4-5 million trees in production this year, and also anticipates accompanying demand for its carbon credits.
“Many classes of investors have assets and stakeholders or LPs (limited partners in private equity funds) that are impacted by climate change and have developed a climate fund or thesis,” Maddie Hall, CEO and co-founder; and Martin Srna, commercialisation lead, told AsianInvestor.
“There is a lot of interest from companies in the fossil fuel refining space, and companies who have large emissions footprints and are actively working on decarbonisation.”
In Asia, there is a lot of climate-focused biotech development in China, Japan, South Korea, and Singapore, Living Carbon said.
For Temasek, it's the latest bet in a growing list of nature-based investments. While these investments are small, they signify Temasek's willingness to consider new alternatives in combating climate change — with a little help from nature.
In the past 12 months, Temasek has also backed a Southeast Asian forestry fund from nature-based investment Manager New Forests, which aims to sustainably cultivate forest trees and develop timber products to generate investor returns.
It also launched GenZero, a wholly owned investment platform focused on decarbonisation, among other initiatives.
Temasek did not respond to an AsianInvestor request for more details on its forestry and climate-tech based investments.
The race to use agricultural biotechnology to address the causes and consequences of climate change is taking place all around the world.
Such technology is attracting the interest of asset owners, partly because of regulations being introduced to promote decarbonisation – and the resulting desire to garner carbon credits.
Singapore, for instance, was the first country in Southeast Asia to introduce a carbon tax of S$5 ($3.75) per tonne of greenhouse gas emissions in 2019. In 2024, that tax will soar to S$24 per tonne.
Climate risks are a big concern for institutional investors worldwide, according to a report released late last year on the investment trends of global public pension funds and sovereign wealth funds.
“Over the longer term, all surveyed Asia-Pacific funds highlighted climate change as one of their top three concerns, compared to 80% for all funds in our sample,” Nikhil Sanghani, managing director of research at independent think-tank Officials Monetary and Financial Institutions Forum (OMFIF), and one of the authors of the report, told AsianInvestor.
More institutional investors are pledging to help stop climate change by achieving net-zero emissions, which means removing as much greenhouse gases from the air as they put into it. It will be necessary to use carbon credits to offset emissions they can’t remove by other means.
“Both voluntary and compliant carbon credit markets will grow as more companies commit to net-zero and become more sophisticated in building their carbon portfolio,” said Living Carbon’s Hall.
Still, most carbon capture technologies are at a very early stage, according to industry experts.
The cost of capturing one tonne of carbon can range anywhere between $100 to $1,000, one expert noted.
They are, nevertheless, one piece of the broader mosaic of several nature-based solutions helping investors with decarbonisation and more broadly, sustainable investments.
BACK TO NATURE
Forestry investments are another route to acquiring carbon credits that is gaining some traction in Asia.
“Nature-based solutions tick several boxes for a lot of investors,” said Geoffrey Seeto, Singapore-based head of emerging markets for New Forests, a nature-based real assets manager with about $6.86 billion in AUM and more than 1.1 million hectares of investments.
“On one hand, you have your traditional forestry investors such as pension funds who are looking to allocate money in emerging markets. On the other, you have investors who are driven by sustainability. Right now, the focus is mostly about addressing climate change and risks.”
Temasek in 2022 invested in New Forests’ Tropical Asia Forest Fund 2, which aims to develop a portfolio of sustainable forest plantation assets in Malaysia, Indonesia, Vietnam, Thailand, Laos, and Cambodia for end markets such as timber, rubber, and carbon.
With a rapidly growing middle class, Asia has the world’s fastest growing demand for wood products.
The returns generated on such forestry investments typically come from timber products, and carbon offsets are now considered as part of the returns generated, Seeto said.
“We have been doing [nature-based investments] since 2008, but it’s only in the past three to four years these offsets have come into focus for investors,” he said.
The main investors in forestry have so far been European institutions, although interest is also growing among some Australian and US institutions, Seeto said.
Most institutions tend to allocate 1-5% of their investments to such nature-based bets, indicating there is plenty of room for growth.