(Bloomberg) -- Singapore’s Temasek Holdings Pte has decided against investing in Saudi Aramco’s initial public offering, in part over environmental concerns, according to people familiar with the matter.
The world’s most-profitable company first flagged a public share sale in 2016 and is expected to list with a valuation of between $1.1 trillion to $2 trillion later this year. It’s been courting funds globally to act as cornerstone investors, including Temasek, which had a net portfolio value of S$313 billion ($227 billion) as of March 31.
But Temasek’s focus on sustainability and environmental, social and governance principles made it more difficult to support Aramco’s share sale, the people said, asking not to be identified because the discussions are private. Temasek has a 2030 goal to reduce the carbon emissions of its portfolio companies by 50%.
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A Temasek spokesman declined to comment on talks the firm may have had with individual companies, or the outcomes of any of those discussions. Temasek has highlighted ESG assessments are a key factor in its decision making, alongside commercial considerations, he said via email.
Representatives for Aramco didn’t immediately respond to a request for comment.
Temasek International Chief Executive Officer Dilhan Pillay was more direct last month when asked by Bloomberg Radio about which investment areas Temasek was avoiding as part of its focus on sustainability.
“I don’t think we’re going to be investing in fossil fuels,” he said, without referencing Aramco.
Aramco tops the list of 20 companies that have contributed to one-third of the world’s carbon emissions since 1965.
Analysis by the Climate Accountability Institute in the U.S. and published in The Guardian shows that 12 of the 20 are state-owned firms and together, their extractions are responsible for 20% of all emissions in the period. Aramco has produced 4.4% of the global total just on its own.
Its IPO is shaping up to be the biggest in history. People involved in the transaction say about 2% of the company may be sold, which could raise $40 billion for the oil producer. But some investors may find the price to be excessive, given the weak oil market and the push by many nations to cut their reliance on fossil fuels in favor of electric cars and renewable energy.
Temasek’s stance highlights a growing risk facing fossil-fuel producers. An increasing number of developed-market funds are under pressure to avoid investments that directly contribute to climate change. This could limit firms’ sources of capital, making funding more expensive.
Temasek is one of the world’s largest deal-makers, investing S$24 billion in the year ended March alone across a range of asset classes. About 3% of its portfolio is tied up in energy and resources and its ability to invest for the long term makes it an ideal shareholder for many companies.
The move not to back Aramco doesn’t preclude Temasek from making other potentially contentious investments in the future. It’s also a legacy investor in Keppel Corp., which constructs oil and gas rigs.
(Updates with data on world’s top polluters from 8th paragraph.)
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