GIC’s governance of climate-related risks and opportunities

The GIC Board oversees GIC’s sustainability approach, including management’s consideration of climate-related risks and opportunities.

At the management level, GIC’s Sustainability Committee oversees climate issues and updates the Board, relevant Board committees, the Group Executive Committee, the Investment Management Committee, and other relevant management bodies. The Committee comprises senior leaders from the investment and risk functions, and is chaired by a member of the Group Executive Committee. Its terms of reference, set by the Group Executive Committee, include developing GIC’s sustainability strategy and policy, integrating sustainability across investment and corporate processes, monitoring portfolio sustainability characteristics, and managing external communications and partnerships.

At the working level, GIC’s Sustainability Office deepens research into sustainability issues and drives integration across the enterprise. It works closely with investment departments to develop sustainability priorities and monitor exposure to climate-related risks and opportunities, in support of the long-term objectives set by the Sustainability Committee.

In each asset department, the Chief Investment Officer and investment committee assess and manage climate-related risks and opportunities and integrate GIC’s sustainability policy into the investment process.

Climate-related risks and opportunities that may affect investment prospects 

Climate change is one of the defining long-term issues of our era.

Physical risks, such as severe warming and sea-level rise, will worsen over decades, while extreme weather events are already increasing in frequency and severity and can affect business operations in the near term. Transition policies and physical risks will also affect companies’ long-term investment value.

The transition is already underway, signalled by carbon taxes and trading schemes, the phasing out of coal, falling renewable energy costs, electric vehicle adoption, and shifts in the global energy mix. These developments will continue, through cycles of optimism and pessimism, as the global economy decarbonises.

As with any disruptive trend, climate change also creates opportunities. As regulators and consumers act on sustainability issues, and businesses rethink their operating models, new investment opportunities will emerge.

Climate scenario analysis to understand anticipated effects on asset returns and portfolio climate resilience 

Climate change affects investment risks and returns through three channels: physical risks, transition risks, and market risks. Given the uncertainty around each, scenario analysis helps GIC assess how they may unfold over time.

GIC has developed four in-house climate scenarios, which illustrate different combinations of risks. While not exhaustive, they serve as useful heuristics to inform GIC’s strategy:

• Net Zero: Early and orderly transition occurs to a +1.5ºC warming trajectory by 2100, with financial markets smoothly pricing in transition and physical risks.
• Delayed Disorderly Transition: Climate policies are slow until a surge in extreme weather prompts urgent action. Due to the delay, policies are more substantial than in the Net Zero scenario, and markets face sharp shocks from both extreme weather and policy measures.
• Too Little Too Late: Policymakers act only after public pressure rises in response to extreme weather, but measures remain insufficient to keep warming below +2ºC. Global temperatures reach +2–3ºC by 2100.
• Failed Transition: Only current policies remain in place. Physical risks become severe as temperatures reach +4ºC by 2100, and markets price in future physical risks, including long-term risks beyond 2050.

GIC has also developed climate signposts to assess the likelihood of each scenario. These signposts track climate transition progress across countries, businesses, technology, and physical environment indicators. The signposts indicate that the likelihood of a Too Little Too Late scenario has risen meaningfully, with elevated transition and physical risks. As physical risks intensify, investors will need to better understand and manage them; at the same time, demand for adaptation and resilience solutions is likely to grow.

Strategy to address the range of climate-related risks and opportunities  

GIC is committed to enabling the global transition to a net-zero economy through our investments and operations.

Our approach considers the investment universe across a spectrum of carbon intensity:

• On one end of the spectrum, companies derive a high share of revenue from renewable energy and other decarbonisation solutions. As more companies participate in the green economy, sizeable investment opportunities will emerge.
• On the other end of the spectrum, carbon-intensive companies, such as those in power utilities and transport, risk becoming stranded if they are unable to shift to more sustainable operating models. Their transition is critical to economic decarbonisation.
• Companies along the spectrum will have varying levels of emissions intensity but will still need to transition their operations and supply chains over time.

These categories of companies have different capital needs and require different approaches to decarbonisation.

GIC has adopted three main strategies:

1. Direct capital towards green solutions and enablers of the low-carbon transition;
2. Support transition efforts through active engagement, capital allocation to credible transition strategies, and stronger sustainability disclosure; and
3. Manage risks from assets with high-stranding risk due to limited transition ability.

In addition to decarbonisation, we invest in adaptation solutions that help assets, businesses, and communities build resilience to a warming world.

How GIC identifies, assesses, prioritises, and monitors climate-related risks  

GIC manages climate-related portfolio risks through top-down and bottom-up measures. Our ability to assess these risks depends on access to high-quality, consistent carbon emissions and climate risk data. To improve corporate climate risk disclosures and information access, we support efforts by the International Sustainability Standards Board (ISSB) and CDP.

Transition risks

At the portfolio level, GIC uses a forward-looking transition alignment metric to evaluate transition risks. This involves evaluating portfolio companies’ emissions disclosures, reduction targets, capital expenditure plans for decarbonisation strategies, and emissions performance against relevant decarbonisation pathways. This approach enables GIC to assess the portfolio’s decarbonisation profile based on the maturity of companies’ decarbonisation trajectories.

At the individual company level, companies can mitigate transition risk by adopting measures and initiatives to shift their business model towards more sustainable models. We assess the credibility of transition plans where transition risk is material, including how business strategy and implementation support them. Where appropriate, we engage and support companies in their transition to more sustainable business models.

Physical risks

Asset departments that invest in physical assets assess climate-related physical risks during due diligence. For example, Real Estate considers hazards such as cyclones, storm surges, inland floods, and bush fires, and may implement pre-emptive measures to mitigate individual assets’ exposure to physical risk and strengthen resilience to climate change.

How GIC monitors and manages sustainability metrics and targets across investments and operations

Investments

We seek to expand investments in climate solutions and other low-carbon assets, while managing climate-related risks. To track progress, we estimate companies’ green revenues to identify opportunities and monitor exposure to the low-carbon economy. We also use reported carbon emissions data to estimate the portfolio’s weighted average carbon intensity (WACI).

Investing in the transition may include companies that are carbon-intensive today but committed to decarbonising, which could raise portfolio WACI in the short term even as it is expected to decline over time.

Operations

GIC monitors and manages its operational footprint by reducing unnecessary carbon emissions. This includes improving resource use and emissions through environmentally conscious office design and smart technologies, aligned with leading green building certifications; using renewable energy where available; setting clear sustainability expectations for business partners; and encouraging employees to adopt sustainable practices at work and beyond.