SIA’s decarbonisation tailwinds are Temasek’s burden

[SINGAPORE] 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 investment company’s sustainability report for fiscal 2025 showed total portfolio emissions flat at about 21 million tonnes of carbon dioxide equivalent (MtCO2e). But this year, Temasek broke 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 its total portfolio emissions. The 9 MtCO2e of emissions attributable to the SIA stake in FY2025 is more than the 8 MtCO2e attributed the year before.

Without SIA, Temasek’s portfolio emissions would have been reduced to 12 MtCO2e in FY2025 from 13 MtCO2e previously. Temasek said it is 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 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 said it is “on track” for those targets. A company spokesperson explained that the on-track determination is “based on the implementation of key initiatives within our decarbonisation and sustainability road map, as well as regular assessment of our progress”.

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

In the six years from FY2019 – SIA’s last full pre-Covid reporting period – to FY2025, 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 kilogramme 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 sustainable aviation fuel adoption, SIA bought 2,104 tonnes of neat sustainable aviation fuel in FY2025, 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 sustainable aviation fuel 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 fuellings

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

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, sustainable aviation fuel could remain two to three times more expensive than normal jet fuel all the way to 2030.

Insufficient credit

The slow development of the sustainable aviation fuel market could, in theory, be mitigated by an industry-wide market-based carbon credit framework to help airlines 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 Organization member states from 2027.

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, said a Norton Rose Fulbright analysis. Supply will have to “significantly increase”, the law firm added.

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 sustainable aviation fuel 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 this fuel, even though achieving economies of scale for it 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 argued that alignment of sustainable aviation fuel policies across regions and sustained subsidies is “crucial for encouraging investment and ensuring consistent sustainable aviation fuel 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 sustainable aviation fuel 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 such as SIA won’t help an important player in an important sector – air travel creates and enables substantial social and economic benefits – to decarbonise. It is 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 sustainable aviation fuel solutions, with an investment in US sustainable aviation fuel production specialist CleanJoule and with its founding of the Green Fuel Forward initiative with WEF to help scale up production of this fuel. 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 sustainable aviation fuel adoption outcomes makes it more difficult for investors to correctly understand the challenges faced by the company.

This article first appeared in BT’s ESG Insights newsletter on Jul 11