Temasek Will Sit Out the Saudi Aramco IPO on Environmental Concerns

Singapore’s Temasek Holdings will not invest in Saudi Aramco’s mega-IPO, sources said, according to Bloomberg.

Temasek, which focuses on sustainability and environmental, social and governance (ESG) principles, will, therefore, be unable to participate in the Saudi Aramco IPO. Moreover, it has a 2030 target to reduce the carbon footprint of its portfolio companies by 50%.

That would be a setback for the IPO because Temasek is a powerful investor. It invested S$24 billion in the year ended March this year, across various asset classes. As of March 31, its portfolio was worth US$227 billion.

The Saudi Aramco IPO

The Saudis have been globally scouting for cornerstone investors, including Temasek. Saudi Aramco is said to be the world’s most profitable company. Therefore, the Saudi’s have targeted a valuation of between $1.1 trillion to $2 trillion.

Investment bankers are likely to deliver today (Friday) their recommended valuation of Aramco, according to the WSJ. People connected with the issue have said the valuation may turn out to be much below those expectations.

The company aims to complete its IPO by November this year. It may sell a 1% to 2% stake and list the shares on the Tadawul exchange.

Fossil fuels are a no-no for Temasek

Temasek CEO Dilhan Pillay said last month to Bloomberg: “I don’t think we’re going to be investing in fossil fuels.”

He did not refer to the Saudi Aramco IPO.

[Related Story: Credit Suisse To Include ESG Criteria in Fund Assets Worth CHF 100 Billion By 2020]

At the time Aramco made its first international bond issue this year, it warned that climate change could potentially have a “material adverse effect” on its business. Though the bond issue was a huge success, the ESG factor still hangs over the Saudi Aramco IPO of equity shares.

It’s not only Temasek. A large number of investors across the world are including ESG in their investing process.

A shareholder network known as Climate Action 100+, which is backed by more than 300 investors managing US$32 trillion (S$43 trillion), has been able to pressurize companies such as Glencore, BP, and Royal Dutch Shell on environmental issues.

[Related Story: Goldman CEO David Solomon: Time for ESG Investing to Go Mainstream ]

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