Issue 154: Temasek’s SIA burden; MAS evolves climate investing approach

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This week in ESG: Temasek releases latest sustainability report; so does the Monetary Authority of Singapore.

Net zero

SIA’s decarbonisation tailwinds

A small tweak in Temasek’s latest sustainability report reveals just how much a single airline can weigh on a portfolio’s emissions.

The Singapore government investment firm’s sustainability report for fiscal 2025 shows total portfolio emissions flat at about 21 million tonnes of carbon dioxide equivalent (MtCO2e). But this year, Temasek breaks down that total to show how much is attributable to a single company: Singapore Airlines (SIA), in which Temasek holds a 53 per cent stake.

Singapore Airlines makes up only about 2.5 per cent of Temasek’s S$434 billion net portfolio value, yet accounts for about 43 per cent of the Singapore government investment firm’s total portfolio emissions. The 9 MtCO2e of emissions attributable to the SIA stake in FY25 is more than the 8 MtCO2e attributed a year ago.

Without SIA, Temasek’s portfolio emissions would have been reduced to 12 MtCO2e in FY25 from 13 MtCO2e a year ago. Temasek says it’s providing the with-and-without-SIA breakdown to recognise that the airline “follows a different decarbonisation trajectory from the rest of the portfolio”.

The aviation sector is especially burdensome on investors’ portfolio emissions, since systemic problems mean that individual airlines have only so much control over their pace of decarbonisation. While SIA’s decarbonisation ambitions get a formidable lift from the Temasek ecosystem, the airline needs to keep up its ambitions and improve transparency to reduce its exposure to climate risk.

Green headwinds

Two targets are key to SIA’s greenhouse gas emissions ambitions. The first is to achieve net zero carbon emissions from operations by 2050, and the second is to use sustainable aviation fuel (SAF) for 5 per cent of total fuel requirements by 2030.

A quick glance at SIA’s reporting of those decarbonisation targets might leave an investor with the impression that the airline’s progress is just fine. SIA says that it is “on track” for those targets. A company spokesperson explains that the on-track determination is “based on the implementation of key initiatives within our decarbonisation and sustainability roadmap, as well as regular assessment of our progress”.

But being “on track” on initiatives hasn’t translated to significant progress on actual emissions and SAF adoption outcomes.

In the six years from FY19 – SIA’s last full pre-Covid reporting period – to FY25, SIA’s total Scope 1 and 2 emissions have risen 4 per cent, which is not in the same direction as net zero. SIA did reduce emissions intensity as measured by kilogrammes of carbon dioxide equivalent per tonne-kilometre of carried load (kgCO2e/LTK) by just over 1 per cent during that period, but that’s still short of what’s required to get to net zero by 2050.

In terms of SAF adoption, SIA bought 2,104 tonnes of neat SAF in FY25, which represented about 0.04 per cent of total fuel used for flight operations that year. That is also far short of the pace required to hit SIA’s target on SAF adoption.

If the current pace of decarbonisation is in fact aligned with SIA’s planned emissions reduction strategy, the airline will have to significantly accelerate its pace of decarbonisation in the coming years to meet its targets.

There are a few reasons that decarbonisation is so challenging for SIA.

Hard fuelings

One of the biggest hurdles to decarbonisation for airlines is SAF, on which the bulk of the industry’s emissions ambitions lie. At the moment, SAF is significantly undersupplied and expensive.

A June report by the International Air Transport Association (Iata) expects global SAF production to double in 2025 to two million tonnes, which is still only 0.7 per cent of airline fuel use for the year. To make things worse, Iata estimates that SAF in 2025 will cost 4.2 times that of normal jet fuel, which is more than the 3.1 times multiple in 2024. The disproportionate cost increase stems from European fuel suppliers levying a “compliance fee” to hedge their potential costs from a European mandate to incorporate 2 per cent of SAF into jet fuel supply, Iata says.

The airlines understandably do not like those compliance fees. Iata director general Willie Walsh has described the compliance fees as “profiteering”, and urged suppliers to increase production.

The European SAF episode is complicating expectations of how much impact usage mandates can have on improving the market dynamics for SAF. Those expectations will soon be put to the test as mandates in a number of jurisdictions begin to take effect.

Outside of Europe, the Civil Aviation Authority of Singapore (CAAS) has announced a national target for SAF to be used for 1 per cent of fuel used for flights departing from Singapore from 2026, with the usage target to rise to between 3 and 5 per cent by 2030. Japan has a 2030 usage goal set at 10 per cent.

Ramping up production is complicated by the need for biowaste feedstock – it’s the use of biowaste to produce the fuel that reduces the fuel’s life-cycle carbon footprint. The potentially overwhelming demand for that feedstock raises questions about unintended negative impact on land use, as farmers might clear more land or switch away from certain food crops.

By some estimates, SAF could remain two to three times more expensive than normal jet fuel all the way to 2030.

Insufficient credit

The slow development of the SAF market could, in theory, be mitigated by an industry-wide market-based carbon credit framework to help airlines to offset new emissions above a 2019 baseline. The Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) is currently implemented only for flights between voluntarily participating countries – which includes Singapore – but will become mandatory for all International Civil Aviation Organisation member states from 2027 onwards.

That mandatory phase is expected to drive a surge in demand for Corsia-certified carbon credits. Various estimations suggest that demand could grow from between 100 million and 182 million credits in the voluntary phase to between 502 million and 1.6 billion units in the mandatory phase, says a Norton Rose Fulbright analysis. Supply will have to “significantly increase”, the law firm says.

All systems slow

Another major problem for airlines is that the pace of decarbonisation is not entirely within the control of each individual carrier.

For example, the high cost of SAF places any early-bird airlines at peril if they can’t keep prices competitive. That makes it difficult for individual airlines to commit to long-term offtake agreements for SAF, even though achieving economies of scale for SAF requires critical mass.

Systemic change at the industry and – perhaps more importantly – policy levels is essential to bring about change. A World Economic Forum report on aviation sustainability argues that alignment of SAF policies across regions and sustained subsidies is “crucial for encouraging investment and ensuring consistent SAF adoption across regions”.

Bottom line

All of these challenges exist because SIA operates in a hard-to-abate sector.

In the short term, falling short on decarbonisation isn’t going to have a material impact on the airline’s bottom line, especially if the rest of the industry’s in the same boat. The value of SIA’s stock isn’t going to fall because the airline isn’t adopting SAF as quickly as intended; in fact, it might even increase if slow adoption means that costs and prices remain competitive.

But investors with longer horizons will have concerns about the airline’s exposure to climate risks. Disruptive transition risks could manifest if desperate policymakers raise carbon prices or clamp down on aviation emissions faster than the aviation industry and its customers manage. Climate change could increase the risk of flight disruptions. The negative impact of climate change on economic growth could be a drag on air transport.

But for long-term capital, divesting from airlines like SIA won’t help an important player in an important sector – air travel creates and enables substantial social and economic benefits – to decarbonise. Much better to continue engaging and assisting the airlines.

Of course, Temasek’s stake in SIA also represents a strategic national interest in the iconic national airline, which means that Temasek isn’t going to drop SIA just to hit a portfolio emissions target.

A long-term investor with deep pockets like Temasek can be extremely helpful for SIA’s decarbonisation ambitions, because of the possibility of an ecosystem approach to decarbonisation.

For instance, Temasek’s fully owned GenZero, an investment platform dedicated to accelerating decarbonisation, has been working to develop SAF solutions, with an investment in US SAF production specialist CleanJoule and with its founding of the Green Fuel Forward initiative with WEF to help scale up SAF production. GenZero has also invested in carbon market solutions such as BeZero Carbon, a carbon ratings agency.

SIA is fortunate to enjoy that support from its major shareholder. Of course, long-term shareholders have a role to play in using their votes to ensure that the company remains committed to ambitious decarbonisation goals.

It’s also important for the company to continue improving transparency about its progress. Measuring performance against targets based on the “implementation of key initiatives” without considering actual emissions and SAF adoption outcomes makes it more difficult for investors to correctly understand the challenges faced by the company.

Sustainable investing

MAS ups climate investing game

The Monetary Authority of Singapore’s (MAS) latest sustainability report signals the financial sector regulator’s commitment to developing a sustainable-finance ecosystem.

Sustainable finance remains a key growth sector for MAS. Total sustainability-related debt issuance in Singapore grew to S$61.4 billion in 2024, about 1.5 times the year-earlier volume. That included a rebound in sustainability-related bond issuance, which returned to growth after two down years.

An often-overlooked aspect of how MAS helps to develop the sustainable finance sector is its role as an investor through the portion of the foreign reserves that the central bank manages.

MAS’ roughly S$8 billion allocation to its Climate Transition Programme – an equity investment initiative – is evolving in two key ways. The first is a shift from passive investing into climate transition-related indices towards an active investment approach. The second is an extension of the programme to corporate bonds.

MAS says the move towards active investing will allow it to be more nimble in responding to short-term factors such as energy or weather events and policy changes, and to better understand the trade-offs between investment performance and carbon reduction.

MAS is also shifting its corporate bond portfolio towards less carbon-intensive exposures to improve the climate resilience of its portfolio.

At the global scale, MAS’ moves might not move the needle in terms of investment amounts. But they help to improve understanding of sustainable investing within the central bank and send an important signal that MAS is walking the walk as it seeks to build Singapore into a sustainable finance hub.

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