In conversation with Kyung-Ah Park, Managing Director of ESG Investment Management at Temasek
Q. Where does the responsibility for ESG sit within your organization?
Kyung-Ah Park: I'm responsible for ESG in our investment management activities, and it's a remit that is deepening as we expand ESG integration across the investment process.
This is an ongoing journey, but we made a significant transition at the beginning of last year. The ESG function, in the early stages of its evolution, was within a sustainability and stewardship group, but we deliberately chose to move ESG to the CIO's office. We wanted ESG at the heart of our investment decision-making process.
Q. What motivated that shift?
Kyung-Ah Park: The challenge is to look at ESG not only in terms of risk but also as a driver of value creation. Because when you integrate ESG strategically across an investment and a company, it gives you the ability to make many gains—on operational efficiency and resiliency, but also on competitive advantage.
For example, if you conserve energy and manage waste efficiently, the benefits will impact the bottom line and improve resilience at a time when energy prices are soaring. If you can think about the sustainability pain points of your customers, and the products and solutions that you can grow and innovate to help, that becomes a structural tailwind.
In an environment where the talent pool, including management, is becoming ever more competitive, your performance on ESG can be crucial in how you attract, retain, and develop the best people.
Financing is another benefit. Stronger ESG performance can reduce the cost of your capital.
Q. How do you pursue those opportunities in practice?
Kyung-Ah Park: There is no one-size-fits-all solution because the investments we make vary hugely in size and by maturity of business. But we do require all investments to undergo an ESG diligence exercise. That exercise looks at risk, but it also gives us an opportunity to think about the next steps in engagement. We are having those conversations much more systematically.
We also have a value creation playbook that incorporates ESG. There isn't a template you can apply rigidly everywhere, but there are some issues and opportunities that apply widely.
For example, regardless of what type of industry or market you're in, you've got to be thinking about climate risk issues. Similarly, talent management and data issues cut across every sector.
But you also have to be nuanced. On diversity, for example, gender diversity can mean different things in different countries, let alone ethnic or racial diversity. And how do you start interpreting diversity of skills?
Q. Is your focus on driving value creation by delivering tangible results?
Kyung-Ah Park: We're still at an early stage and the proof points are not quite there yet, but it's not rocket science when you look at the direction of travel. We're not the only ones thinking this way; you see more and more asset owners talking about 100% ESG integration, and it does have a material financial implication over time.
We can also use our capital to resolve environmental pain points or confront social issues. That's the right thing to do, and it also matters to customers.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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