This is the repurposed version of the interview titled “In Conversation with Liew Tzu Mi, Chief Investment Officer, Fixed Income, and Chair of the Sustainability Committee” which was published as part of the “Investing Sustainably” chapter of the GIC Report 2021/2022.

Access the audio recording of the interview here. 

What are your views on the recent rise in net-zero commitments by companies?

Decarbonising the economy is an existential issue, which is increasingly recognised by companies around the world. For example, a report by Natural Capital Partners in 2021 estimated that 38% of the Fortune 500 companies have set a major climate-related milestone by 2030, up from 30% a year before. This is encouraging.

But these aspirations must be translated into actions to have an impact in the real economy. From GIC’s interactions with our portfolio companies, we learnt that companies are more likely to make meaningful progress in their transition to net zero when decarbonisation makes business sense. For example, technologies are available today to reduce the carbon content of cement, a basic material in construction, but producers will only adopt them if customers demand it.

Regulators could also shape market conditions, for example, by raising the costs of emitting carbon or encouraging the adoption of lower-carbon technologies. Once such conditions are in place, companies will still need significant investment to upgrade their production processes or transform their business models. These transition efforts are what long-term investors such as GIC can play a role in enabling.

How is GIC playing its role in the global transition to net zero?

GIC is committed to enabling the global transition to a net-zero economy, through our investments and operations. The transition in the real economy is what matters to the future of our planet. Investment portfolios are one step removed from the real economy. For example, an investor could potentially sell its carbon-intensive assets to make its portfolio look greener, but that action in itself would not necessarily reduce the amount of carbon emissions in the real world. Even if divestments lead to a rise in the cost of financing for such assets, other investors could be ready to buy them and might even operate them less sustainably thereafter.

GIC therefore focuses on influencing its partner companies and the real economy in two ways. First, we invest in companies which develop solutions that help to decarbonise the economy, including batteries, hydrogen, carbon capture and storage, and even nuclear fusion. Some of these technologies are nascent and developed by start-ups that will need capital to scale. GIC’s experience in technology investments has enabled us to support such innovation, and we are excited to see this space grow in the coming years.

Second, we actively engage our portfolio companies. We conduct dialogues with company management to ensure they recognise and address climate risks and opportunities. When opportunities arise, we will fund the investments needed to support their transition towards more climate-resilient business models. This helps to provide capital to sectors such as energy, industrials, and materials, which form a substantial part of the real economy and need significant investments to decarbonise.

We consider how assets are situated in the spectrum of climate transition. At one end are assets that are highly pollutive and where companies have no transition plans despite repeated engagements by investors. A continued lack of progress would prompt GIC to divest from such companies. At the other end of the spectrum are climate innovations, such as renewable energy and other newer solutions.

We believe most companies are in the middle of the spectrum and at varying stages of their transition depending on factors such as their history, the nature of their markets, and the technologies available to them. GIC’s role as a long-term investor is to encourage their transition efforts.