© 2024 Gobi Partners

Disclosures on Climate-Related Risk Management

Aligned with the recommendations from the Securities and Futures Commission (“SFC”), Monetary Authority of Singapore (“MAS”), and Task Force on Climate-Related Financial Disclosures (“TCFD”), Gobi Partners (“Gobi”) is pleased to share our developing commitment and approach to managing climate-related risks. This statement provides a high-level overview of the framework adopted by Gobi to govern its management of climate-related risks.

Gobi firmly believes that contributing to addressing climate change is crucial to creating long-term value for our clients. We also consider this as part of the concerted effort with the global platform of Gobi Partners in implementing our ESG initiatives.

A. Governance

The Board of Directors and Senior Management of Gobi fulfil their stewardship responsibilities, including those related to climate change risks and opportunities. They oversee the management of these risks through a dedicated team which:

  • raises internal awareness and understanding of climate-related risks and opportunities,
  • develops and implements an environmental risk management framework and policies,
  • collaborates with the investment team to embed sustainability considerations across investment processes and advance sustainable investment research,
  • utilised relevant tools and metrics to monitor exposures to environmental risk,
  • escalates significant climate-related risk issues to the Board as necessary and appropriate,
  • provides annual reports to the Board on reviews of the risk management framework and its implementation concerning climate-related risks.

Additionally, the Board of Directors, or a delegated committee, is accountable for approving and reviewing Gobi’s environmental risk management framework and policy to assess and manage environmental risks within managed assets. The framework should clearly define roles and responsibilities in the management of climate-related risks.

B. Investment Management/ Strategies

As a venture capitalist, Gobi considers both climate-related risks and opportunities in the assets we manage.

Climate-Related Risks

 With reference to the Task Force on Climate-related Financial Disclosures, we define climate-related risks as both transition and physical risks.

Transition risks are business-related risks that follow societal and economic shifts toward a low-carbon and more climate-friendly future, which includes policy risks such as increased emissions regulation and climate-related standards, and legal risks such as lawsuits claiming damages from entities.

Physical risks are the risks associated with extreme climate events such as floods, wildfires, hurricanes and typhoons, or risks related to long-term shifts in the climate such as rising sea levels, a rising heat index, prolonged droughts and flooding.

The following exhibit is a detailed breakdown of the climate-related risks and potential financial impacts over the short and long term:

Climate-Related Risks Potential Financial Impacts

Transition Risks

(a) Policy and Legal

  • Increased pricing of greenhouse gas emissions
  • Enhanced emissions-reporting obligations
  • Mandates on and regulation of existing products and services
  • Exposure to litigation
  • Increased operating costs (e.g., higher compliance costs, increased insurance premiums)
  • Write-offs, asset impairment, and early retirement of existing assets due to policy changes
  • Increased costs and/or reduced demand for products and services resulting from fines and judgements

(b) Technology

  • Substitution of existing products and services with lower emissions options
  • Unsuccessful investment in new technologies
  • Costs to transition to lower emissions technology
  • Write-offs and early retirement of existing assets
  • Reduced demand for products and services
  • Research and development (R&D) expenditures in new and alternative technologies
  • Capital investments in technology development
  • Costs to adopt/deploy new practices and processes

(c) Market

  • Changing customer behaviour
  • Uncertainty in market signals
  • Increased cost of raw materials
  • Reduced demand for goods and services due to shift in consumer preferences
  • Increased production costs due to changing input prices (e.g., energy, water) and output requirements (e.g., waste treatment)
  • Abrupt and unexpected shifts in energy costs
  • Change in revenue mix and sources, resulting in decreased revenues
  • Re-pricing of assets (e.g., fossil fuel reserves, land valuations, securities valuations)

(d) Reputation

  • Shifts in consumer preferences
  • Stigmatisation of sector
  • Increased stakeholder concern or negative stakeholder feedback
  • Reduced revenue from decreased demand for goods/services
  • Reduced revenue from decreased production capacity (e.g., delayed planning approvals, supply chain interruptions)
  • Reduced revenue from negative impacts on workforce management and planning (e.g., employee attraction and retention)
  • Reduction in capital availability

Physical Risks

(a) Acute

  • Increased severity of extreme weather events such as cyclones and floods

 

(b) Chronic

  • Changes in precipitation patterns and extreme variability in weather patterns
  • Rising mean temperatures
  • Rising sea levels
  • Reduced revenue from decreased production capacity (e.g., transport difficulties, supply chain interruptions)
  • Reduced revenue and higher costs from negative impacts on workforce (e.g., health, safety, absenteeism)
  • Write-offs and early retirement of existing assets (e.g., damage to property and assets in “high-risk” locations)
  • Increased operating costs (e.g., inadequate water supply for hydroelectric plants or to cool nuclear and fossil fuel plants)
  • Increased capital costs (e.g., damage to facilities)
  • Reduced revenues from lower sales/output
  • Increased insurance premiums and potential for reduced availability of insurance on assets in “high-risk” locations

Climate-Related Opportunities

We also consider climate-related opportunities in the assets we manage.

Climate-Related Opportunities Potential Financial Impacts

Resource Efficiency
  • Use of more efficient modes of transport
  • Use of more efficient production and distribution processes
  • Use of recycling
  • Move to more efficient buildings
  • Reduced water usage and consumption
  • Reduced operating costs (e.g., through efficiency gains and cost reductions)
  • Increased production capacity, resulting in increased revenues
  • Increased value of fixed assets (e.g., highly rated energy-efficient buildings)
  • Benefits to workforce management and planning (e.g., improved health and safety, employee satisfaction) resulting in lower costs

Energy Source
  • Use of lower-emission sources of energy
  • Use of supportive policy incentives
  • Use of new technologies
  • Participation in carbon market
  • Shift toward decentralised energy generation
  • Reduced operational costs (e.g., through use of lowest-cost abatement)
  • Reduced exposure to future fossil fuel price increases
  • Reduced exposure to greenhouse gas emissions and therefore less sensitivity to changes in cost of carbon
  • Returns on investment in low-emission technology
  • Increased capital availability (e.g., as more investors favour lower-emissions producers)Reputational benefits resulting in increased demand for goods/services

Products and Services
  • Development and/or expansion of low-emission goods and services
  • Development of climate adaptation and insurance risk solutions
  • Development of new products or services through R&D and innovation
  • Ability to diversify business activities
  • Shift in consumer preferences
  • Increased revenue through demand for lower emissions products and services
  • Increased revenue through new solutions to adaptation needs (e.g., insurance risk transfer products and services)
  • Better competitive position to reflect shifting consumer preferences, resulting in increased revenues

Markets
  • Access to new markets
  • Use of public-sector incentives
  • Access to new assets and locations needing insurance coverage
  • Increased revenues through access to new and emerging markets (e.g., partnerships with governments, development banks)
  • Increased diversification of financial assets (e.g., green bonds and infrastructure)

Resilience
  • Participation in renewable energy programmes and adoption of energy-efficiency measures
  • Resource substitutes/diversification
  • Increased market valuation through resilience planning (e.g., infrastructure, land, buildings)
  • Increased reliability of supply chain and ability to operate under various conditions
  • Increased revenue through new products and services related to ensuring resiliency

Factoring Material Climate-Related Risks Into the Investment Processes

Gobi integrates climate-related risks considerations into the investment processes from idea origination, due diligence, post-investment value-creation, to investment exit, these considerations include:

  • Identifying and implementing a Negative List of sectors and verticals which are more likely to be adversely affected by the transition to a low-carbon economy;
  • Considering second-level effects on companies within the value chain of those sectors in the Negative List and evaluate whether the investment portfolio is unintentionally skewed towards these sectors;
  • Reviewing investment portfolio’s climate-related risk exposures by analysing the positioning of the investee companies’ business models towards risks and opportunities arising from climate challenges;
  • Reviewing climate-related concerns and issues flagged by the Investment Committee in conjunction with investment decisions making.

C. Risk Management

Gobi's comprehensive risk management approach includes identifying climate risks associated with its operations and investment strategy, assessing their potential impact on investments and business activities, and implementing mitigation measures. These measures include incorporating climate considerations into investment analyses and decision-making processes. Gobi also ensures ongoing effectiveness through regular monitoring and review, and adjusts strategies as needed.

To maintain strong risk controls, Gobi regularly reviews its risk management system to respond in a timely manner to any potential deterioration in climate-related risks. In addition, as part of its value-added programmes and risk assurance efforts, Gobi actively promotes sustainable business practices among its portfolio companies, particularly with respect to climate change risks and opportunities. This may include engaging with portfolio company management through regular discussions to understand their policies and activities related to climate risk. Gobi may seek commitments from these companies and monitor their progress in addressing climate issues. Where necessary, Gobi may use its voting power to advocate for enhanced disclosure and practices on climate-related matters. This may include voting against the re-election of directors and executives of portfolio companies with inadequate ESG practices or unsatisfactory disclosure.

While portfolio companies may not always explicitly disclose their climate-related risk exposures, Gobi utilises proprietary research and subscribes to third-party information and datasets to assess these risks where feasible and cost-effective.

We actively engage with stakeholders, including investors, professional agents, industry peers and local communities, to ensure transparency, gather insights and address concerns related to climate-related risks in order to build trust and demonstrate our commitment to proactive environmental management.