GIC Annual Report 2020/21 Investing Sustainably




Investing Sustainably

Sustainability is integral to GIC’s mandate: to preserve and enhance the international purchasing power of the reserves under our management.


4.1 Our Beliefs

We believe that companies with strong sustainability practices offer prospects of better risk-adjusted returns over the long term. We believe that this relationship will strengthen over time as market externalities are priced in and incorporated into the decisions of regulators, businesses and consumers. Sustainability issues such as climate change have a material impact on companies, affecting their operations and financial performance, and shaping their long-term value.

We take a holistic and long-term approach towards sustainability across our investment and corporate processes. Investments may entail trade-offs between different sustainability objectives, especially in the shorter term. One example is the potential conflict between environmental and social considerations, especially in emerging markets. For example, forcing coal-fired power plants to be retired on an aggressive timeline may be positive for the environment, but without a holistic transition plan in place, could hurt affected communities through loss of livelihoods and increased costs of living. GIC integrates sustainability into our investment and corporate processes in a way that recognises the diversity of the industries and markets in which we operate, and the trade-offs and time needed for companies to make the transition.

We believe that it is more constructive to actively engage and support companies in their transition towards long-term sustainability, rather than to mechanically divest from certain industry sectors. By directly engaging with company management on how to operate more sustainably, we believe that we can create more value and more beneficial outcomes for our stakeholders over the long term.

GIC’s mandate is to preserve and enhance the international purchasing power of Singapore’s reserves. As this is a fund for the current and future generations of Singapore, by design sustainability is core to our mandate. Sustainability is an investment issue, and climate risk is an investment risk.

— Liew Tzu Mi, on GIC's approach to sustainability
Chief Investment Officer for Fixed Income & Chair, Sustainability Committee


4.2 Our Approach

Sustainability is a key investment consideration and top management priority at GIC. The GIC Board, along with its supporting committees – the Investment Strategies Committee, Investment Board, and Risk Committee – have oversight of GIC’s sustainability approach and management’s considerations on climate-related risks and opportunities.

GIC’s Sustainability Committee, comprising senior leaders from our investment, risk and corporate functions, is tasked to implement the sustainability framework, and monitor and respond to Environmental, Social, and Governance (ESG) issues. The Committee routinely engages the Group Executive Committee and Board Committees on broad trends and emerging issues that may affect our portfolio, as well as potential investment opportunities.

When we first started our sustainability journey, we mainly focused on defensive strategies. We have since broadened our approach, and today our sustainability efforts across investment and corporate processes are aligned with GIC’s Offence-Defence-Enterprise Excellence (ODE) Framework (refer to Figure 1).

Figure 1. O-D-E Framework.

Enterprise Excellence Offence Defence Sustainability


4.3 Defence: Protecting our Portfolio

Sustainability issues across the domains of the environment, social, and business governance pose investment risks. We protect our investments by:

  • Regularly screening our existing portfolios for a variety of sustainability issues;
  • Conducting additional due diligence for companies exposed to greater sustainability risks and adjusting our long-term valuation and risk models accordingly; and
  • Developing a set of climate scenarios to stress-test our portfolio.

Climate change

Climate change is one of the defining long-term issues of this era, and its impact to investment returns and company valuations is material. Climate change affects investment portfolios through three channels:

All industries must prepare for physical risks to their assets, and transition risks that could potentially impair or “strand” assets. New investment opportunities will emerge as industries are disrupted. However, how these climate-related risk factors will evolve are highly uncertain across different countries, industries, and in terms of magnitude and timing. Translating climate change-driven temperature pathways, policies and regulations, and technological outcomes into financial impact at the asset class and individual security levels is critical for investors to appreciate the impact of climate change on their portfolios.

Climate scenarios are used to identify portfolio-level risks.

In collaboration with the Monetary Authority of Singapore (MAS), GIC developed a set of climate scenarios, which we have applied to stress-test our portfolio. The scenarios cover the 1.5°C to 4°C range of global warming outcomes by 2100, and map broadly to the three reference scenarios recommended by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in June 2020. The risk drivers behind each scenario include:

  • Timing and magnitude of policy action on emissions and, therefore, potential temperature outcomes;
  • The impact of various energy technology pathways (where energy demand is primarily met either with renewable electricity, or with a combination of fossil fuels and carbon capture and sequestration technology); and
  • Timing and extent to which markets would price in future climate-related risks.

GIC identifies risks and opportunities in the portfolio by triangulating top-down scenario analysis, sector estimates that consider total portfolio, asset class and security-level impacts, and impact estimates from third party studies.

Outputs from scenario-based stress-testing are integrated into investment management.

The key macro outputs from our scenario analysis process include the impact of climate change drivers on macro-economic variables and broad asset classes, along with the evolution of the energy system (growth rates of coal consumption, electric vehicles, etc.) in the transition scenarios. Key outputs at the individual company level comprise metrics such as Weighted Average Carbon Intensity (WACI), the impact of carbon prices on a company’s earnings, and Value-at-Risk measures from climate change drivers.

Climate change has a negative impact on growth and inflation, driven largely by both chronic and acute physical risks (refer to Figure 2). In the Paris Orderly and Delayed Disorderly scenarios, transition risks are not expected to have a meaningful adverse impact on activity and can be stimulative. Policy actions in the form of the re-distribution of higher carbon tax receipts back to consumers, subsidies for clean energy, and investments and innovation in clean energy sectors can more than offset the decline in demand for traditional fossil fuel. In these two scenarios, transition effects have the potential to dampen the overall negative impact from physical risks.

Global inflation is negative as the model currently captures the deflationary impacts of physical risks on growth in the longer term. However, we note that transition risks exert upward pressure on inflation due to higher carbon prices and an increase in investment spending in clean technologies in the near term. Inflation pressures would be higher if the transition is delayed, as the costs of financing the energy transition would rise, and more of these costs may also be passed on to consumers.

Figure 2. Macro impact of climate change risks across scenarios over the next 40 years (annualised)

Impact on Global GDP

Paris Orderly Transition Delayed Disorderly Transition Failed Transition -0.12% -0.14% -0.45%

Impact on Global CPI

Paris Orderly Transition Delayed Disorderly Transition Failed Transition -0.06% -0.07% -0.21%

GIC uses the derived outputs, amongst other factors, for asset allocation, risk management and integration efforts, and also for identifying companies better positioned to weather the adverse impact of climate change over the long term within industries. Climate-related risks and opportunities are managed through a combination of offensive and defensive strategies, implemented via top-down monitoring and bottom-up integration.


4.4 Offence: Capturing Opportunities

GIC recognises that new investment opportunities will open up as regulators, consumers, and businesses increasingly act on sustainability issues. We aim to capture these opportunities by:

  • Integrating sustainability into our investment processes, for example, considering sustainability factors in due diligence, risk assessment, and monitoring;
  • Actively engaging our portfolio companies on corporate governance best practices and advocating for positive environmental and social outcomes;
  • Investing in thematic opportunities arising from climate change and other sustainability topics, for example, renewable energy assets, “green” buildings, and technologies that support the low-carbon transition;
  • Taking active steps to develop or retrofit our assets to be environmentally sustainable, and to strengthen the assets’ resilience to future climate change risk for long-term value enhancement; and
  • Incorporating sustainability signals into quantitative strategies, for example, using proprietary data and analyses.


Our investment groups across public and private markets integrate sustainability considerations into their due diligence and risk assessments. These are sustainability factors assessed to be most material to each company’s long-term economic prospects. For example, our investment groups examine the carbon intensity of companies in the Energy sector relative to their peer group and may consider the impact of different carbon prices.

Teams maintain regular dialogue with portfolio companies on sustainability risks and opportunities, and always vote responsibly. We also engage with new and existing external fund managers on their sustainability policies and practices and ensure our investments with them are managed in a manner consistent with GIC’s sustainability approach. In addition, cross-department workgroups are deepening research into themes such as renewable energy, urban transport, battery technology, sustainable food and agriculture, and environmentally friendly building technologies.

Active Ownership through Voting and Engagement

We are guided by GIC’s stewardship principles to promote sound corporate governance and sustainable business practices. GIC exercises active ownership of its investee companies with long-term value creation in mind, through voting, and more importantly, through focused and deliberate efforts to engage portfolio companies.

GIC votes with a long-term value perspective.

GIC votes responsibly and in the best interest of our clients and other shareholders. GIC’s votes are aligned with our beliefs on sustainability, and we do not outsource our voting decisions. Examples of issues that GIC voted on include management and board compensation, elections of directors, and environment-related disclosures.

We engage investee companies to convey GIC’s views on sustainability.

GIC’s portfolio managers routinely engage companies in our active portfolio on a range of topics, in their interactions with company boards and management. We prioritise our engagement on sustainability with investees we assessed would be most materially affected by sustainability and climate change risks and opportunities, and have started thematic, dedicated engagements with these companies.

We calibrate our investment decisions on the strength and clarity of the plans that these companies share with us, for instance, deploying capital to support companies with transition efforts that will put them on the pathway towards Paris-alignment. Conversely, we would not favour companies that resist taking action on sustainability issues that materially affect their long-term economic prospects in our investment decisions.

In FY2020/21, we met with companies affected by sustainability-related controversies to understand their intent and capacity to take remedial actions to address the source of those risks. We also specifically identify companies with higher carbon intensity businesses to engage on the topic of carbon transition risk and their longer-term strategy to mitigate it.

In addition to bilateral engagements, as an investor signatory to CDP, Climate Action 100+, and the Asia Investor Group on Climate Change (AIGCC), we have joined fellow asset owners and investors in collaborative efforts to encourage companies to disclose climate-related metrics in line with recommendations by the Financial Stability Board’s Task Force for Climate-related Financial Disclosures (TCFD), and take action on known climate-related risks. In FY2020/21, we supported CDP in its engagement of over 3,500 listed companies in our public equities portfolio.

Case Study 1: Shift to higher carbon savings

GIC is a long-term investor in a European specialty chemicals company, which is a supplier to the industrial and consumer sectors. The company develops innovative new products which help its customers reduce the amount of materials needed in their construction and industrial processes. Such savings also translate to reductions in carbon emissions. We encouraged the company to clearly communicate to both investors and customers the carbon-saving nature of its products, which it has done in presentations.

We also discussed a series of diagnostic questions with the company, to further develop its methods for measuring and managing the full product life-cycle carbon footprint of its products and operations. The company is now more widely recognised as a provider of effective solutions in the global effort to reduce carbon emissions.

Case Study 2: Disclosures on climate-related lobbying

One of the majors in the oil and gas industry had been at the centre of climate change issues due to its significant contribution to global greenhouse gas emissions. During its 2020 annual general meeting (AGM), a shareholder proponent requested the company to disclose its lobbying activity for Paris-alignment. Other shareholders also expressed concerns that lobbying activities inconsistent with the Paris goal could expose investors to regulatory, systemic economic, legal, and reputational risks. GIC believes that it is important for companies to be aware of the material climate-related risks facing their businesses, and to communicate their strategies to address those risks. Thus, GIC voted in support of the shareholder’s proposal.

Case Study 3: Data privacy governance

In 2019, a human resources subsidiary of an investee company was found to have collected personal data and used it commercially without the users’ consent. This data privacy breach raised concerns regarding the company’s sustainability practices. In response, the company proposed several mitigation measures during its 2020 AGM, including the establishment of an advisory committee on data usage and a revamped data privacy policy. These efforts by the company to enhance its corporate governance gave GIC the confidence to support the re-election of their CEO at the company’s 2020 AGM. Following the AGM, GIC further engaged with the company to share best practices on governance standards and disclosures, and to encourage the company to continue to improve its overall governance practices.

Sustainable Investment Fund

The Sustainable Investment Fund (SIF) was launched in July 2020 as a dedicated investment portfolio to accelerate sustainability integration across all asset classes. The SIF is an internal effort coordinated across both public and private markets to identify and invest in sustainability-related opportunities that generate good financial risk-returns over time. With the investable green universe sized at US$4.5 trillion in market capitalisation across emerging and developed markets, there are abundant climate alpha opportunities for the SIF to consider.

Figure 3. Market capitalisation and distribution of investable green listed equities

Investable green listed equities universe (market cap)

70% USD 3.13 Tn 30% USD 1.32 Tn

Investable green listed equities universe (companies)

39% 61%



Through a bottom-up process of carefully evaluating individual companies, the SIF will invest in those that are leaders in sustainability, as well as those that have a strong potential to successfully transition towards more sustainable business practices.

Investors are rapidly incorporating sustainability into decision-making processes. GIC’s asset departments have always embedded Governance considerations into how they invest and are now expanding their focus to other aspects of sustainability that are material to companies’ long-term risk-reward prospects. The SIF is about capturing the expanding set of opportunities where sustainability and investment returns go hand in hand.

— Ken Lim, on the role of the SIF
Deputy Head, Asia Pacific Equities & Portfolio Lead, SIF

As with the other investment groups, the SIF adds value through active engagement with companies, to encourage and guide them in their respective sustainability transitions. The SIF also develops analytical tools and data required by its investment approach. This will catalyse the journey of sustainability integration and deepen GIC’s capabilities in this space across all asset departments.

Examples of SIF Investments

Reducing food waste through technology

A US-based company has developed a plant-based edible coating that slows down the decay of fresh fruits and vegetables. By spraying it on produce after harvest, the tasteless, colourless and odourless coating effectively doubles the shelf life of fresh produce. This helps reduce food waste and enables other supply chain efficiencies that conserve natural resources and avoid carbon emissions.

To support this company’s efforts, GIC led a financing round in early 2020, bringing the company’s valuation to over US$1 billion. The company has since progressed well, expanding their product offerings through partnerships with major retail chains and suppliers in North America, Europe, Africa, Latin America, and Asia.

Supporting the transition to Electric Vehicles

The adoption of Smart Electric Vehicles (EVs) has been one of the most notable trends in recent years. This is due to a mix of advances in battery technology, shifting consumer preferences and regulatory moves to incentivise greener transportation amid global efforts to reduce carbon emission and focus on smart mobility solutions. The result is a global automotive industry that faces significant disruption. We are now entering a new Smart EV era, where many tech giants and start-ups are entering the industry as new opportunities unfold.

In 2020, GIC started increasing its position in a global automotive manufacturer, who is an industry leader in the commercialisation of hydrogen fuel cell technology and invested early into the transition to EVs. The company’s favourable positioning in the EV space is demonstrated as they were one of the first to launch EVs on dedicated platforms among global automakers and achieved higher market share in New Energy vehicles.


4.5 Enterprise Excellence

How we operate sustainably as an organization is as important as the way we invest. We do this by:

  • Communicating clear expectations for sustainable behaviour by our business partners;
  • Managing our resource use through environment-conscious office design and smart technology to monitor and improve our energy efficiency;
  • Achieving carbon-neutrality in our operations by FY2020/21 across our 10 global offices; and
  • Fostering a culture that embraces diversity of skills and views, and promotes respect and active contribution, for greater collective impact.

GIC's corporate carbon footprint

We seek to manage the environmental impact of our global operations and have achieved our target to become carbon neutral in our global operations by FY2020/21. We started measuring our global corporate carbon footprint in 2019 and have developed a dashboard to help us track and manage our carbon footprint. We now have a view of the emissions profile of our operations, pre-pandemic, and for the past year for Scope 1 and 2 and business travel emissions.

GICians kicking off Gift A Tree at Windsor Nature Park, Singapore

GIC has put in place measures to actively reduce the emissions profile of our operations, and will offset the remaining emissions using Gold Standard-certified projects in the near term. We obtained third-party verification for our emissions calculations.

While we saw an increase in staff strength over FY2020/21, our corporate carbon emissions fell significantly year-on-year over the same period. This decrease was driven mainly by COVID-19 travel restrictions as GIC’s air travel emissions decreased significantly. While air travel will continue to be integral to our business, GIC remains committed to monitoring and managing our footprint by avoiding and reducing unnecessary carbon emissions even as COVID-19 restrictions ease in the future.


4.6 Partnerships

As a long-term investor, we welcome progress in global sustainability initiatives that help investors and companies make better business decisions that improve long-term value. Sustainability is a field that continues to evolve, and all organizations, including GIC, can benefit from learning from one another as new standards are developed. By collaborating with fellow asset owners through organizations and initiatives such as the AIGCC, CDP, Climate Action 100+, and TCFD, we help to accelerate the overall pace of transition.

For example, GIC, together with 12 other members of the AIGCC, is participating in the Asian Utilities Engagement Program, a new investor-led initiative to engage with major utility companies in Asia that are not within the Climate Action 100+ focus list. Through collaborative effort with like-minded investors, we will support these companies in their transition towards greater sustainability, by helping them reduce emissions while strengthening disclosure and governance standards.

Explore sections

  1. 1

    Details on the scenarios can be found on GIC ThinkSpace: The Role of Climate Change Scenarios in Investment Portfolios

  2. 2

    However, physical risks may also result in scarcity of resources, which would exert upward pressures on inflation.

  3. 3

    Paris Orderly Transition is characterised by an orderly, early and ambitious transition to a below 2˚C trajectory by the end of the century. It includes physical risks associated with 2˚C and the market’s pricing in of transition and physical related risks are smoothed out. Delayed Disorderly Transition assumes the world is slow to implement ambitious climate policy, but when a series of extreme weather events occur the world shifts gear and acts. Over time, economies and markets recover. Strong policy actions will eventually stabilised the climate at around 2˚C. Failed Transition is a high-warming scenario that assumes only current policies measures are implemented. It is characterised by severe climate-related physical impacts – both slow-onset and extreme weather conditions – as global temperatures increase to nearly 4⁰C by 2100 above pre-industrial levels. The pathway sees markets pricing-in physical risks so that financial impacts are felt before the physical impacts actually manifest.

  4. 4

    Source: Research by Ortec Finance and GIC.

  5. 5

    Source: Green revenues estimates sourced from FTSE Russell's Green Revenues Database; free-float adjusted market cap and distribution based on MSCI ACWI as of 28 Feb 2021; GIC calculations.

  6. 6

    Scope 1 covers direct emissions from owned or controlled sources, while Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling.