One of Singapore’s best-performing stocks this year — an energy company backed by state investor Temasek Holdings — is under fire for trying to avoid higher interest payments to bondholders that kick in if the company fails to meet emissions targets.
In order to reduce its official carbon footprint, Sembcorp Industries sold two coal-fired power plants to an Omani group for US$1.5 billion. The company told shareholders that the sale would lower its greenhouse gas emissions intensity by 38%, more than enough to dodge the penalties attached to the company’s sustainability-linked bonds.
But the firm financed the sale of the assets with a 15-year loan and retains “substantial” liabilities and “operational influence,” over the business, according to a report by Anthropocene Fixed Income Institute, a London-based think tank. That effectively makes Sembcorp a shadow bank for the coal industry, Anthropocene argues, and the carbon footprint of the coal plants shouldn’t be removed until the loan is fully repaid.