State‑Owned Enterprises and Sustainability

1. An overview of sustainability in the SOE sector

Abstract

This chapter provides context for the report. It offers an overview of the evolving sustainability landscape for SOEs, including the size of the SOE sector and its strategic importance in advancing sustainability and responsible business conduct. It also outlines how sustainability is framed in the OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines). These elements establish a framework for understanding the chapters that follow, which examine how sustainability-related recommendations of the SOE Guidelines are being implemented.

Sustainability is a broad and evolving concept, for which there is currently no universally agreed definition. For the purpose of this report, sustainability can be viewed through a dual lens: one applicable at the state (macro) level and one applicable at the SOE (corporate) level. These two levels are closely interlinked: effective state stewardship creates the enabling conditions for corporate sustainability in SOEs, while the latter – due to their scale and strategic importance – can play a crucial role in achieving broader sustainability outcomes (Box 1.1).

Box 1.1. Sustainability: scope and approach

At the macro-level, current thinking on sustainability remains anchored in the Brundtland Report’s definition of “sustainable development” according to which sustainability is about “meeting the needs of the present without compromising the ability of future generations to meet their own needs” (WCED, 1987[1]).* In this framework, sustainability is seen as a holistic concept encompassing environmental, economic and social goals aimed at ensuring long-term value creation for the economy and society in general. It is in this context that many countries have made commitments to transition to a sustainable, net-zero/low-carbon economy in line with the Paris Agreement and other international commitments.

In recent years, the term “just transition” has emerged to emphasise the need for governments to “transition towards greener, more resilient and climate-neutral economies in ways that are as fair and inclusive as possible, in particular towards those who stand to lose economically, be they countries, regions, industries, communities, workers or consumers” (ILO, n.d.[2]; EBRD, n.d.[3]). Companies, including SOEs, can play a critical role in driving this transition. Their actions can directly or indirectly impact employment, community resilience, and access to affordable services, making them key actors in enabling the just transition.

At the corporate level, “sustainability” entails integrating environmental, social and governance (ESG) considerations into a company's business strategy and operations. While the term often may overlap with corporate social responsibility (CSR) or responsible business conduct (RBC), it is a different concept. Sustainability is broader than CSR which typically refers to voluntary initiatives that are external to a company’s core business strategy. RBC, on the other hand, refers to the expectation that enterprises avoid and address adverse impacts of their operations on people, the planet, and society, and contribute positively to sustainable development. It provides the operational and behavioural framework through which sustainability outcomes are pursued (OECD, 2023[4]). Throughout this document, sustainability should be understood to also encompass RBC considerations.

Note: *In 1987, the World Commission on Environment and Development published a report entitled «Our Common Future» which included guiding principles for sustainable development. The document came to be known as the «Brundtland Report» after the Commission's chairwoman, Gro Harlem Brundtland (WCED, 1987[1]).

Recognising the importance of sustainability for SOEs, a growing number of countries around the world already consider that SOEs can, and should, lead by example. This expectation aligns with the general assumption that the state exercises ownership of SOEs in the interest of citizens who constitute their ultimate shareholders. The state as owner is therefore expected to encourage and promote sustainable and responsible business practices of SOEs in a way that contributes to their sustainability, resilience and long-term value creation.

Before exploring how sustainability is translated into concrete expectations for SOEs, this chapter sets the context for the rest of the report by examining the size and strategic importance of the SOE sector in relation to sustainability (Section 1.1). It also outlines how sustainability is framed in the SOE Guidelines as revised in 2024 (Section 1.2).

1.1. Sustainability in the SOE sector

State-owned enterprises account for a sizeable share of gross domestic product (GDP) and employment in some countries, including many emerging economies. They are also increasingly major players in capital markets. As of 2023, the public sector accounted for nearly 12% of global market capitalisation of listed companies, amounting to USD 11.7 trillion (OECD, 2024[5]). SOEs also made up over a quarter of the world’s 500 largest companies – a share that has steadily increased over the past two decades (Figure 1.1). Collectively, these SOEs employed 21 million people, held USD 53.5 trillion in assets, and generated over USD 12 trillion in revenue and USD 730 billion in profits (OECD, 2024[5]). This underscores the state’s leverage in shaping corporate sustainability outcomes.

Figure 1.1. Share of SOEs among Fortune Global 500 companies

The share of SOEs among the top 500 largest companies globally has nearly quadrupled over the past two decades.

Note: Fortune lists the largest 500 companies globally by revenue.

Source: Fortune Global 500.

SOEs often operate in carbon-heavy and greenhouse gas (GHGs) intensive sectors such as petroleum refining, mining, crude-oil production, utilities, energy and construction, and distribution (Figure 1.2), especially in emerging markets (OECD, 2022[6]).1 The public sector is also an important shareholder in the 100 highest GHG-emitting listed companies, with 18% ownership globally (OECD, 2024[7]).

Figure 1.2. Distribution of SOEs in Fortune 500 by industry

Nearly two-thirds of SOEs by revenue are in capital and GHG intensive sectors

Source: Fortune Global 500, 2023.

The prevalence of SOEs in these carbon-intensive sectors makes them important to the low carbon transition. Besides the risks associated with locking into a carbon-intensive development path, the predominance of SOEs in such sectors and related infrastructure investments also increases the risk of stranded assets.2

While many governments and SOEs continue to own and invest heavily in fossil fuels, SOEs also play an active role in the low-carbon transition. They are not only important direct investors in renewables and low-emission technologies, but also tend to adopt such technologies faster than their private-sector counterparts (Steffen, Karplus and Schmidt, 2022[8]; Benoit et al., 2022[9]). SOEs are also estimated to control about 75% of hydro and nuclear power capacity and are progressively becoming more prominent players in other clean energy sources. These technologies emit far less GHGs relative to fossil fuel-fired alternatives, helping to reduce emissions (Clark and Benoit, 2022[10]; Prag, Rottgers and Scherrer, 2018[11]).3

Beyond environmental considerations, SOEs are often key providers of public goods and services (e.g. energy, water, infrastructure). This means that their activities, governance and performance are generally of critical importance to broad segments of the population as well as to the operations of other parts of the business sector. In many countries, SOEs are also among the largest employers, placing them in a position of significant responsibility for ensuring sound working conditions, and promoting the health and well-being of their employees, in line with relevant international standards.4 These responsibilities are especially pertinent in sectors with elevated risks of occupational hazards (e.g. health and safety)5 and human rights violations (e.g. land rights violations), such as extractives (including mining, oil and gas) and infrastructure where SOEs are often predominant (United Nations, 2016[12]; Schönsteiner and Krajewski, 2024[13]).

Finally, OECD research has shown that SOEs may be particularly exposed to corruption and less likely to take mitigating actions in the face of known corruption risks than their private counterparts (OECD, 2018[14]). While SOEs in oil and gas, mining, postal, energy, transportation and logistics sectors were found to be at higher risk, corruption can undermine efforts of SOEs in all sectors and can weaken their ability to address other sustainability-related risks, including those related to human rights and environmental protection.

Given the important role of SOEs in shaping national sustainability-related outcomes, it is important to establish sound corporate governance frameworks that can incentivise state owners and their SOEs to make decisions and manage risks and opportunities in a way that contributes to SOEs’ sustainability and resilience and ensures long-term value creation.

1.2. The SOE Guidelines’ approach to sustainability

The concept of sustainability, as applied to the SOE sector, broadly encompasses efforts to identify and mitigate risks, strengthen resilience to shocks, reduce negative externalities and contribute to long-term value creation. As noted earlier, SOEs have a key role to play in this area. Integrating sustainability-related considerations into their governance and operations has therefore become an increasing priority for policymakers.

Achieving this, however, requires a multi-layered approach. As policymakers and regulators, governments have a unique responsibility to shape the environment in which companies operate to steer a transition to a more sustainable and resilient economy. As owners, governments also have a unique role to play by setting concrete and ambitious sustainability-related expectations for SOEs, ensuring coherence with national and international goals, and providing SOEs with the tools and incentives needed to effectively manage evolving risks and opportunities. In parallel, SOEs themselves are expected to adopt and implement these expectations through sound governance, strategy and day-to-day operations.

To support these efforts, the SOE Guidelines were revised in 2024 and now include a dedicated Chapter VII on sustainability, ensuring coherence with the 2023 revision of the G20/OECD Principles of Corporate Governance, which also introduced a new chapter on sustainability. The SOE Guidelines’ Chapter VII offers recommendations for both state ownership entities and SOE boards across four pillars (see Table 1.1):

• the role of the state as an owner

• the role and responsibilities of boards

• sustainability reporting and disclosure

• responsible business conduct and stakeholder engagement.

Drawing on a collection of international experiences and the revised SOE Guidelines, this report highlights concrete steps to translate these recommendations into practice. In doing so, it identifies emerging trends, provides illustrative examples – identified as case studies throughout the report – and offers practical insights to support the effective implementation of sustainability recommendations by both state owners and their SOEs.

Table 1.1. Summary of the four key pillars of the SOE Guidelines Chapter VII on sustainability

The corporate governance framework should provide incentives for state ownership entities and SOEs to make decisions and manage risks in a way that contributes to SOEs’ sustainability and resilience, and ensures long-term value creation. Where the state has sustainability goals, the state as owner should set concrete and ambitious sustainability-related expectations for SOEs, including on the role of the board, disclosure and transparency and responsible business conduct. The ownership policy should fully recognise SOEs’ responsibilities toward stakeholders.
Role of the state as owner	Where the state has set sustainability goals, they should be integral to the state’s ownership policy and practices. This includes: • Setting concrete and ambitious sustainability-related expectations for SOEs that align with the ownership policy and respect shareholder rights. • Communicating and clarifying these expectations through regular dialogue with SOE boards. • Regularly assessing, monitoring and reporting on SOEs’ alignment with sustainability-related expectations and performance.
Role and responsibilities of boards	The state should expect SOE boards to adequately consider sustainability risks and opportunities in fulfilling their core functions. Key prerequisites include: • Boards should guide the development, implementation and disclosure of material sustainability-related objectives and targets within the corporate strategy. • SOEs should integrate sustainability into risk management and internal controls, including via risk-based due diligence. • Boards should consider sustainability matters when assessing and monitoring management performance.
Sustainability reporting and disclosure	The state should expect SOEs to meet appropriate sustainability reporting and disclosure requirements, ensuring consistent, comparable and reliable information. • Reporting should align with high-quality, internationally recognised standards to promote comparability across markets and jurisdictions. • A phased implementation of annual assurance attestations should be considered. These should be performed by independent, qualified service providers, following internationally recognised assurance standards.
Responsible business conduct and stakeholder engagement	The state, as an owner, should set high expectations for SOEs’ observance of responsible business conduct (RBC) standards and ensure effective mechanisms for their implementation. It should fully recognise SOEs’ responsibilities towards stakeholders and request regular reporting on SOEs’ stakeholder relationships. These expectations should be publicly disclosed in a clear and transparent manner. • Governments, state ownership entities and SOEs should recognise and respect stakeholder rights established by law or mutual agreements. Where stakeholder rights are protected by law, employees and other stakeholders should have access to effective redress mechanisms that are affordable and timely. • SOEs should develop and promote meaningful stakeholder engagement, especially with individuals or groups affected by the enterprise’s activities, to advance sustainability and ensure a just transition. • Mechanisms for employee participation should be allowed to develop. Where stakeholders participate in corporate governance, they should have timely access to relevant, sufficient and reliable information. • State ownership entities and SOEs should take measures to uphold high standards of integrity, and prevent the use of SOEs for political finance, patronage, or personal or related-party enrichment.

Source: OECD (2024[15]), OECD Guidelines on Corporate Governance of State-Owned Enterprises, https://www.oecd.org/en/publications/oecd-guidelines-on-corporate-governance-of-state-owned-enterprises-2024_18a24f43-en.html

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References

[19] Alkaissy, M. (2022), “Worksite Accident Impacts on Construction and Infrastructure: Nondeterministic Analysis of Subsectors and Organization Sizes”, Journal of Construction Engineering and Management.

[9] Benoit, P. et al. (2022), “Decarbonization in state-owned power companies: Lessons from a comparative analysis”, Journal of Cleaner Production, Vol. 355, p. 131796, https://doi.org/10.1016/J.JCLEPRO.2022.131796.

[16] CGEP (2022), Greenhouse Gas Emissions from State-Owned Enterprises: A Preliminary Inventory, Center on Global Energy Policy, https://www.energypolicy.columbia.edu/publications/greenhouse-gas-emissions-state-owned-enterprises-preliminary-inventory/ (accessed on 1 March 2023).

[10] Clark, A. and P. Benoit (2022), Greenhouse Gas Emissions from State-Owned Enterprises: A Preliminary Inventory, Center on Global Energy Policy, https://www.energypolicy.columbia.edu/publications/greenhouse-gas-emissions-state-owned-enterprises-preliminary-inventory.

[3] EBRD (n.d.), What is a just transition?, European Bank for Reconstruction and Development, https://www.ebrd.com/what-we-do/just-transition (accessed on 1 March 2023).

[2] ILO (n.d.), Just Transition, International Labour Organization, https://www.ilo.org/global/topics/green-jobs/WCMS_824102/lang--en/index.htm (accessed on 1 March 2023).

[7] OECD (2024), Global Corporate Sustainability Report 2024, OECD Publishing, Paris, https://doi.org/10.1787/8416b635-en.

[15] OECD (2024), OECD Guidelines on Corporate Governance of State-Owned Enterprises 2024, OECD Publishing, Paris, https://doi.org/10.1787/18a24f43-en.

[5] OECD (2024), Ownership and Governance of State-Owned Enterprises: 2024, https://doi.org/10.1787/395c9956-en.

[4] OECD (2023), OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, OECD Publishing, Paris, https://doi.org/10.1787/81f92357-en.

[18] OECD (2022), Climate Change and Corporate Governance, Corporate Governance, OECD Publishing, Paris, https://doi.org/10.1787/272d85c3-en.

[14] OECD (2018), State-Owned Enterprises and Corruption: What Are the Risks and What Can Be Done?, https://www.oecd.org/corruption-integrity/reports/state-owned-enterprises-and-corruption-9789264303058-en.html.

[17] OECD (2015), Divestment and Stranded Assets in the Low-carbon Transition, OECD Publishing, Paris.

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[13] Schönsteiner, J. and M. Krajewski (2024), “Preliminary conclusions and prospects for further research”, in Human Rights and Environmental Sustainability in State-Owned Enterprises, Routledge.

[8] Steffen, B., V. Karplus and T. Schmidt (2022), “State ownership and technology adoption: The case of electric utilities and renewable energy”, Research Policy, Vol. 51/6, p. 104534, https://doi.org/10.1016/j.respol.2022.104534.

[12] United Nations (2016), Report of the Working Group on the issue of human rights and transnational corporations and other business enterprises.

[1] WCED (1987), Our Common Future: Report of the World Commission on Environment and Development, United Nations General Assembly, Geneva.

Notes

← 1.  In 2019, SOEs emitted an estimated 6.2 gigatons of carbon dioxide equivalent (GtCO2e) in direct (scope 1) emissions – that is, more than the entire European Union, United States or any single country except the People’s Republic of China. However, the true scale of SOE-related emissions is likely to be substantially higher, particularly when accounting for national oil companies and iron and steel manufacturers that do not currently report their emissions (CGEP, 2022[16]).

← 2.  Stranded assets are generally defined as “assets that are unable to recover their investment cost as intended, with a loss of value for investors” (OECD, 2015[17]).

← 3.  The state itself is said to own an estimated 60% of generation capacities in renewables, hydropower and nuclear power (OECD, 2022[18]).

← 4.  Relevant standards are set in leading instruments such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, the ILO Declaration on Fundamental Principles and Rights at Work, as well as the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.

← 5.  These sectors frequently rely on contractor and sub-contractor labour arrangements, which can discourage employee participation in safety training and adherence to worksite safety systems. This may ultimately limit the workforce's performance and health outcomes (Alkaissy, 2022[19]).