The corporate governance framework should provide incentives for state ownership entities and SOEs to make decisions and manage their 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 towards stakeholders.
There is a marked increase in governments’ and businesses’ commitment to sustainability and responsible business conduct. Recent crises have highlighted the importance of identifying emerging risks and seizing opportunities to improve resilience to unexpected shocks through the adoption of more sustainable and resilient policies, strategies, and overall practices. Consequently, a growing number of jurisdictions worldwide have placed sustainability high on their agendas and have made high-level commitments to transition to a sustainable and resilient, net-zero/low-carbon economy in line with the Paris Agreement and the Sustainable Development Goals. This requires companies, including SOEs, to respond to a rapidly changing regulatory and business environment, manage potential risks and grasp opportunities associated with such transition pathways. The state as owner has a responsibility and interest to ensure that SOEs are equipped to adjust to developments and face new shocks, and should provide appropriate incentives for SOEs to make decisions and manage their risks and opportunities in a way that contributes to their sustainability and resilience and ensures long-term value creation. In addition to state owners’ expectations, SOEs may also set voluntary goals or otherwise adopt good practices in response to the growing demands from non-state shareholders, market participants and stakeholders.
While SOEs often play a central role in their economies, they appear also particularly vulnerable to sustainability-related risks. Notably, due to the nature and sectorial distribution of their activities and governance structures, including their high concentration in hard-to-abate sectors, SOEs’ operations generally account for a substantial share of global greenhouse gas emissions and face heightened environmental, human rights and corruption risks. Furthermore, SOEs appear strongly exposed to climate physical and transition risks, including risks of carbon-intensive lock-in, often being large-scale infrastructure providers or carbon-intensive companies. Such risks can be transferred to the state by virtue of state ownership, for example via lower or more volatile dividends, debt that cannot be serviced if implicitly or explicitly guaranteed, or through transition risks that can lead to high-carbon stranded assets. The exposure to such risks may therefore be an obstacle for meeting ambitious national and international sustainability-related commitments, particularly those relating to climate change. Importantly, such risks may also impact SOE’s long-term performance and value creation as well as the achievement of public policy objectives, with direct consequences on the state’s budget and on individuals and businesses that rely on SOEs’ goods and services.
Under the right circumstances and incentives, SOEs including state-owned banks and other public financial institutions can also play a crucial role in fostering sustainable development and facilitating a just transition, including by providing or financing low-carbon alternatives.
In fact, a growing number of countries around the world already recognise that SOEs can, and should, lead by example. This also stems from the general assumption that the state exercises the ownership of SOEs in the interest of the general public who constitute their ultimate shareholders. Consistent with the OECD Recommendation on the Role of Government in Promoting Responsible Business Conduct [OECD/LEGAL/0486], governments should lead by example and take measures to promote and exemplify responsible business conduct in their role as economic actors and in their commercial activities. By extension, SOEs should be held to standards of responsible business conduct to address, avoid or mitigate any potential harmful impact on the environment and the society. In certain circumstances, the state may also decide to set specific environmental and social goals for SOEs that would support the government’s sustainability agenda, especially in areas relative to energy, employment or transport. Such goals, if they amount to public service obligations, should be clearly mandated by law or regulation and subject to proper transparency and disclosure regarding their costs and funding mechanisms to ensure a level playing field.
The state as owner should encourage and promote sustainable and responsible business practices of SOEs and long-term value creation, notably through the development of adequate sustainability-related policies and the integration of sustainable and responsible business practices within the corporate governance framework of SOEs – including in its own ownership policies and practices. Practically, the state should expect stakeholder engagement to be a core responsibility of SOEs at the corporate level, and also facilitate stakeholder dialogue regarding its own ownership policy, to exchange views on relevant economic, social, or environmental aspects.
VII.A. Where the state has set sustainability goals, they should be integral to the state’s ownership policy and practices.
To ensure policy coherence, the state’s ownership policy and practices should be aligned with broader national objectives on sustainable development, including international commitments. State ownership entities may also, on a voluntary basis, decide to integrate sustainability objectives and goals into owners’ expectations for their SOE portfolio as part of their role as active owner.
This includes developing an overall strategy – including a detailed action plan and a clear timeline – aimed at ensuring SOEs adopt appropriate investment, infrastructure and technologies to support the transition to a sustainable and resilient economy. The strategy should include ensuring appropriate investment, capital structure and budget allocation plans aimed at optimising the use of resources available for the advancement of sustainability goals in view of maximising long-term value for shareholders, and ultimately society. As part of its sustainability strategy, the state owner may inter alia encourage public-private partnerships and invite SOEs to promote sustainable innovations, circular economy, renewable energy and energy efficiency, amongst others. To the extent that the state has adopted relevant sustainability goals or commitments for its wholly owned SOEs, the state should, as appropriate, encourage SOEs to develop credible climate transition plans, including adaptation plans, and expect them to take an active role in decarbonisation efforts, as well as more generally on climate action such as nature restoration and water conservation amongst other aspects. Importantly, the state as an owner should also factor sustainability-related goals into its long-term shareholder and investment strategy, while paying particular attention to its portfolio-level exposure to sustainability risks, such as through lost dividends, future debt burdens, or where transition risks can lead to high-carbon stranded assets, for example. Such sustainability risk assessments should be made available to SOEs and their boards for their consideration.
The state may recognise SOEs’ potential in driving the sustainability agenda, including with regards to providing low-carbon alternatives and leading sustainability-related research and development, amongst other aspects. In addition, state-owned banks and other public financial institutions may also play a role by mainstreaming sustainability-related considerations in their lending and financing practices. Care should be paid, however, to maintaining a level playing field when providing incentives for SOEs or other market players to avoid competition distortions. Sustainability justifications should not be used, to justify distortive impacts on the competitive landscape.
It follows that, due to their multidimensional aspects, sustainability-related policies and strategies should be developed on a whole-of-government basis – in co-ordination with relevant government entities and in consultation with relevant stakeholders. Efficient co-ordination at a broader state level should help reduce potential risks of conflicts of interest or political intervention within SOEs, and thus safeguard the separation of the state’s ownership role from its other government functions particularly its role as economic regulator or policy maker.
This includes:
VII.A.1. Setting concrete and ambitious sustainability-related expectations for SOEs that are consistent with the ownership policy and practices. In doing so, the state should respect the rights and fair treatment of all shareholders.
The state as an active owner should define and communicate ambitious expectations for SOEs aimed at supporting their sustainability and resilience as well as long-term value creation. Such high-level expectations should be reflected in the state ownership policy and/or other relevant policy documents, and align with the state’s broader sustainability goals and commitments, including international commitments, where applicable. These include, but are not limited to, expectations related to disclosure and transparency, the role and responsibilities of the board, as well as any expectations that the state has with respect to the observance of responsible business conduct standards by SOEs and stakeholder engagement. The state may also set expectations with regards to board governance arrangements (i.e. establishment of sustainability committee) and composition (i.e. board-level qualifications to include sustainability) for enterprises of a certain size and/or risk profile for example.
However, while the state is responsible for setting expectations and ensuring a legal and regulatory framework conducive for SOEs to attain the government’s sustainability-related expectations, it should remain the responsibility of the boards of directors to develop the SOEs’ objectives and implementation frameworks towards sustainability. State expectations should not be understood as a ceiling for the sustainability efforts of SOE portfolios and should leave room for them to lead by example.
Where the state is not the sole owner, the state should share its expectations in a transparent manner through its state ownership policy, through general shareholders meetings and effectively exercising shareholder rights. In doing so, the state should respect the rights and fair treatment of other shareholders. Although expectations may differ between companies where the state is a full, majority, or minority shareholder, clarity and transparency of owner’s expectations is an important step for supporting the integration of sustainability-related goals in the operations and decision making of individual SOEs. Without a clear framework, SOEs may have an incentive to avoid compliance.
High-level expectations should cover the entire SOE portfolio and contain both cross-cutting and more sectorial-specific considerations, where relevant. Depending on the ownership framework and practices in place, the state may also set more specific sustainability-related expectations through sectorial regulations, letters of expectations, dialogue and/or SOEs’ individual mandates. In this process, the state should refrain from excessive or passive intervention in the management of the SOEs and should allow SOEs’ full operational autonomy to achieve their defined objectives.
If new sustainability requirements lead to a fundamental change of an SOE’s overall mission or when the enterprise is charged with new responsibilities that amount to public service obligations, such obligations should be clearly defined and disclosed to the general public. Their net costs should be covered in a transparent manner.
VII.A.2. Communicating and clarifying the state’s expectations on sustainability through regular dialogue with the boards.
State ownership entities should follow-up on high-level expectations by actively engaging with individual SOE boards and other shareholders where applicable, in view of ensuring mutual understanding and managing potential trade-offs. Such dialogue, which may warrant several rounds of discussions and clarifications with shareholders, can also support implementation by making sure that SOE boards effectively translate sustainability-related expectations into meaningful strategies and targets for company management.
To this effect, state ownership entities should facilitate regular dialogue with boards of directors of individual SOEs to communicate expectations where applicable, and exchange views on sustainability expectations and/or risks and opportunities. In partly state-owned enterprises, the state should communicate and/or clarify expectations by exercising shareholder rights, in the general shareholders meeting or board meetings, with due respect to other shareholders.
VII.A.3. Assessing, monitoring and reporting on SOEs’ alignment with sustainability-related expectations and performance on a regular basis.
The state should monitor the implementation of general expectations for SOEs related to sustainability issues. To this effect, the state should adequately integrate sustainability-related expectations within the existing reporting system, to be able to regularly assess and monitor SOE performance and oversee their compliance with high-level expectations and applicable legal and regulatory requirements. The state should communicate reporting expectations to all SOEs in a clear manner and disclose sustainability-related expectations and their attainment to the general public, including in annual aggregate report.
Regular performance reviews can support ownership entities with developing a clear understanding of the sustainability issues related to their portfolios and individual companies, as well as setting or adjusting new performance targets on an informed basis. In addition, the state should also consider evaluating the performance of its portfolio as a whole and consider how it can contribute to long-term value creation. To support its analysis, the state may measure its portfolio-level exposure to sustainability-related risks and/or benchmark sustainability performance of SOEs across the portfolio or among peer companies, amongst other aspects. This should help the state evaluate and prioritise sustainability risks and opportunities and devise expectations on an informed basis.
VII.B. The state should expect SOE boards to adequately consider sustainability risks and opportunities when fulfilling their key functions.
While the state as owner has an important role to play in setting up the tone from the top, the state should expect SOEs themselves have the responsibility to ensure that the state’s high-level expectations are effectively incorporated into the company’s strategy and operational activities. Even if there is no formal high-level expectation with regards to sustainability, SOEs should strive to be at the forefront of global trends and take initiatives that would benefit the company’s long-term performance and resilience. SOEs should keep abreast of international developments and best practices, notably by regularly engaging in continuous education and regular exchanges and dialogues with the workforce and other relevant stakeholders.
The state should ensure that SOE boards have full operational autonomy to achieve their strategic objectives, including those related to sustainability. They should be assigned a clear mandate and ultimate responsibility for the enterprise’s performance and be subject to appropriate reporting and monitoring mechanisms. In particular, SOE boards should formulate their own sustainability policies and objectives in line with their overall corporate strategy; and, where relevant, identify and report on a set of strategic indicators and targets on sustainability to measure performance.
SOE boards should also ensure that effective governance and internal controls are in place,, that are aligned with the risk management framework, which can include due diligence processes. These should aim at identifying and managing financial and operational risks but also with respect to human rights, labour, environmental and tax-related issues. For an effective corporate (sustainability) strategy, SOEs should also concentrate their efforts in risks relating to their own activities, and as relevant, those linked to their operations, products or services or business relationships, including in their subsidiaries and along their supply chain.
The following prerequisites are essential for ensuring effective sustainability management at the enterprise level:
VII.B.1. SOE boards should review and guide the development, implementation and disclosure of material sustainability-related objectives and targets as part of the corporate strategy.
Boards of directors should effectively integrate shareholders’ expectations and objectives with regards to sustainability into their business strategies and develop specific targets and indicators to this effect. Sustainability strategies and/or plans should be integral to and aligned with the overall business strategy of the enterprise. They should also align with applicable legal and regulatory requirements, including reporting requirements, and consider stakeholder interests, including those of the workforce, in their development, together with the interests of the company and its shareholders. Effective sustainability plans and strategies can help translate sustainability expectations into meaningful improvements in business practices and therefore help avoid the pervasive acts of “greenwashing” or “social washing”.
Objectives and targets linked to sustainability should be based on consistent, comparable and reliable metrics, and in line with shareholders’ expectations, as well as applicable legal, contractual and regulatory requirements. This helps to ensure credibility of the information for users, including investors and relevant stakeholders such as the workforce. They should be regularly disclosed to allow shareholders, investors and stakeholders to assess the credibility of the announced goal and management’s progress towards meeting it. The disclosure may include, for instance, the definition of interim targets when a long-term goal is announced, annual consistent disclosure of relevant sustainability metrics and possible corrective actions the company intends to take to address the underperformance against a target.
VII.B.2. SOEs should integrate sustainability considerations into their risk management and internal control systems, including by conducting risk-based due diligence.
Overseeing the management and mitigation of risks, including sustainability-related risks, is a key responsibility of the board of directors and is critical for the long-term success of a business.
An SOE’s risk management system should deal with significant external company-relevant risks (e.g. health crises). It should also entail risk-based due diligence to identify, prevent and mitigate actual and potential adverse impacts of the business and account for how these impacts are addressed in accordance with the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct which are applicable to SOEs. Effective risk-based due diligence should be supported by additional efforts to embed responsible business conduct into policies and management systems.
Undertaking risk-based due diligence ensures that the SOE goes beyond simply identifying and managing material risks to the enterprise itself, to include the risks of adverse impacts. This includes actual and potential adverse impacts on human rights, labour rights (ex. child labour, forced or compulsory labour) and on the environment (ex. climate change, pollution, biodiversity loss). Effectively preventing and mitigating adverse impacts may in turn help SOEs maximise long-term value for society, improve stakeholder relationships and protect their reputation. SOEs can also carry out due diligence in view of meeting legal requirements pertaining to specific areas such as inter alia labour, environmental, corporate governance, criminal or anti-bribery laws.
The growing participation of SOEs on global markets and in cross-border activities also raise increasing concerns over social and environmental risks in their global supply chains. Consequently, SOEs should take into consideration the numerous legal and regulatory developments that are currently under discussion in various jurisdictions, particularly with regard to human rights and environmental due diligence in supply chains.
VII.B.3. SOE boards should consider sustainability matters when assessing and monitoring management performance.
In the exercise of its functions, the board should effectively assess and monitor management performance and ensure that it appropriately pursues the strategic objectives of the company, including objectives related to sustainability. SOE boards should ensure that the management of the enterprise has the appropriate skillset to understand and manage sustainability-related risks and opportunities, and to guide the company towards value-enhancing strategies, particularly if such risks or opportunities could be of material importance to the company.
Some SOE boards may provide further incentives to key executives to act in the long-term interest of the enterprise and its shareholders by introducing sustainability-related criteria in executive compensation plans. In such cases, boards should follow the remuneration and incentive practices outlined in VI.B.
Balancing shareholder interests with long-term sustainability goals is often complex for company boards and management because long-term sustainability objectives are difficult to measure and data is often unclear and uncertain. The introduction of a business judgment rule or a similar disposition may encourage boards to take into account sustainability factors by protecting board members and management against litigation, if they made a business decision diligently, with procedural due care, on a duly informed basis and without any conflicts of interest.
VII.C. The state should expect SOEs to be subject to appropriate sustainability reporting and disclosure requirements, based on consistent, comparable and reliable information:
Sound reporting and disclosure standards for SOEs on sustainability-related governance, strategy, risk management and non-financial performance, including sustainability-related information and metrics (ex. greenhouse gas emissions, collective bargaining coverage) are of increasing relevance and importance for shareholders, investors, the workforce and other relevant stakeholders including the general public. They are also important for strengthening the accountability of SOE boards and management in the sustainability area and enable the state to act as an informed owner by providing a clearer picture of SOEs’ performance.
The state should expect SOEs to engage in non-financial reporting and disclosure to demonstrate how they address sustainability expectations, and in so doing, how they deliver value for the state, shareholders and citizens. They should be explicitly required to adequately report and disclose clear, accurate and complete material information on sustainability-related policies, activities, risks, objectives and performance metrics in a timely and accessible manner, in line with high-quality internationally recognised standards. Further to the description of materiality provided in the annotations to Guideline V.A, material information may, for example, cover environmental, social and governance matters, and compliance with the respective legal obligations or specific policies with regard to human rights, health, safety, diversity, consumer security, employment, anti-corruption and sustainable business practices. Consistency and interoperability between regional or national sustainability-related disclosure frameworks and internationally recognised standards can still allow for flexibility of complementary local requirements, including on matters where specific geographical characteristics or jurisdictional requirements may influence materiality.
In addition and as appropriate, SOEs should provide information on key issues relevant to employees and other stakeholders that may materially affect the performance of the enterprise, or have significant impacts on stakeholders. Disclosure may include management/employee relations, including remuneration, collective bargaining coverage, and mechanisms for employee representation, as well as relations with other stakeholders such as creditors, suppliers, consumers and communities affected by the SOEs’ activities, with particular attention paid to marginalised and vulnerable groups.
Some countries require extensive disclosure of information on human resources. Relevant policies, such as programmes for human resource development and training, retention rates of employees and employee share ownership plans, can communicate important information on the competitive strengths of companies to market participants and other stakeholders.
VII.C.1. Sustainability reporting and disclosure should be aligned with high-quality internationally recognised standards that facilitate the consistency and comparability of sustainability-related disclosure across markets, jurisdictions and companies.
While acknowledging that a “one-size-fits-all” approach has its limitations, state ownership entities may decide to harmonise or standardise reporting standards and performance indicators to ensure greater consistency, reliability and comparability of sustainability disclosures across companies and markets. To this effect, reporting and disclosure regulations may provide a minimum set of pre-defined indicators linked to existing frameworks or request the use of (specific) internationally-accepted reporting standards to ensure the quality of reporting and limit the discrepancy in reporting practices. For this, state ownership entities should keep abreast of evolving internationally recognised standards, including the G20/OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, the UN Guiding Principles on Business and Human Rights, and the Global Compact and the 2030 Agenda. The use of science-based target metrics should be encouraged, especially when disclosing data related to transition plans (e.g. greenhouse gas emissions reductions, biodiversity loss). For the state, greater harmonisation can support its role as an active and informed owner by allowing comparisons of sustainability information between SOEs and other enterprises.
Many jurisdictions recommend or require that materiality based on the perspective of a reasonable investor should be the standard for SOEs, while others recommend or require that double materiality should be the standard for SOEs. The information should be disclosed in a timely manner and include retrospective and forward-looking material information in alignment with internationally recognised reporting standards.
SOEs should ensure consistency between sustainability reporting, financial reporting and other corporate information. Relatedly, the state should also provide SOEs with guidance on where sustainability-related disclosures should be presented, such as in the primary annual report (i.e. integrated report) or separately. This should include clear expectations regarding publication and accessibility of reports. To the extent possible, an integrated reporting approach should be favoured as it can be useful in demonstrating the link between a firm’s strategy and its commitment to sustainable development.
VII.C.2. Phasing in of requirements for annual assurance attestations by an independent, competent and qualified attestation service provider, in accordance with high-quality internationally recognised assurance standards should be considered.
Independent assurance of sustainability reporting increases trust around the accuracy and quality of the reported data and helps therefore enhance the accountability of both SOEs and the state to the public. For companies, assurance services can help reduce costs and legal risks associated with sustainability reporting. It can also help satisfy shareholders and relevant stakeholders, including the workforce, and protect the company from litigation risks. For the state, assurance can support its role as an active and informed owner by enhancing the degree of confidence around and credibility of sustainability reporting and by providing a more accurate assessment of sustainability risks and opportunities within its portfolio.
With due regard to their size and operational conditions, the state should expect SOEs to obtain limited or reasonable assurance over their sustainability disclosures, performed by an independent and qualified assurance provider based on robust methodologies aimed at ensuring the accuracy and quality of SOEs’ sustainability reporting. The review should preferably focus on the company’s sustainability performance rather than purely on the report itself, although it remains important to ensure its reliability and compliance with relevant legal requirements. When assurance for all disclosed sustainability information might not be possible or too costly, mandatory assessment for the most relevant sustainability-related metrics or disclosures, such as GHG emissions, should be considered. To elevate the board’s confidence in the integrity of the SOE’s reporting, the board may seek internal auditor assurances on sustainability-related information.
However, greater convergence of the level of assurance between financial statements and sustainability-related disclosures should be the long-term goal. This would include aligning the reporting period for financial statements and sustainability-related disclosures.
VII.D. The state as an owner should set high expectations for SOEs’ observance of responsible business conduct standards together with effective mechanisms for their implementation, should fully recognise SOEs’ responsibilities towards stakeholders and should request that SOEs report on their relations with stakeholders. Such owner’s expectations should be publicly disclosed in a clear and transparent manner.
SOEs are subject to an evolving legal and regulatory landscape around responsible business conduct. Many enterprises have demonstrated that respect for standards of business conduct is an important element of doing business. Like private companies, they also have a commercial interest in minimising reputational risks and being perceived as “good corporate citizens”. Beyond this, RBC is also increasingly perceived as a central element to a sustainable and resilient economy, as it promotes harmonious relations between business and other segments of society and serves the goal of long-term value creation.
Consequently, SOEs should observe standards of responsible business conduct across business operations and along the entire supply chain, including with regards to human rights, employment and industrial relations, the environment, anti-corruption, consumer interests, science, technology and innovation, competition and taxation. Their actions should be guided by relevant international instruments, including the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, which should be implemented to the greatest extent possible, the ILO Declaration on Fundamental Principles and Rights at Work, the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the UN Guiding Principles on Business and Human Rights.
Of central importance to corporate governance is stakeholder engagement, which is also a key feature of responsible business conduct and a component of the due diligence process. State ownership entities and SOEs should acknowledge the importance of stakeholder relations, including those with the workforce, creditors, customers, suppliers and affected communities for building sustainable, financially sound and responsible enterprises. Stakeholder relations are particularly important for SOEs assigned with public policy objectives. Due to the nature of their activities, SOEs may have a vital impact on the country’s macroeconomic development and on the communities in which they are active. Moreover, many investors increasingly consider stakeholder-related issues in their investment decisions and appreciate potential litigation risks linked to stakeholder issues. It is therefore important that the ownership entity and SOEs recognise the impact that an active stakeholder policy may have on the enterprise’s sustainability and resilience as well as in the attainment of its long-term strategic goals and reputation.
To this effect, SOEs should report on stakeholder issues, demonstrating their willingness to operate transparently, and their commitment to co-operation with stakeholders. This will foster trust and improve their reputation. Such reporting may include progress reports for project-affected stakeholders, reports on stakeholder engagement activities and outcomes to stakeholder participants, amongst other aspects. Such information may be included in the corporate reports or produced as standalone documents.
In particular:
VII.D.1. Governments, state ownership entities and SOEs should recognise and respect stakeholders’ rights established by law or through mutual agreements. Where stakeholder interests are protected by law, the workforce and other stakeholders should have the opportunity to obtain effective redress for violation of their rights at a reasonable cost and without excessive delay.
As a dominant shareholder, the state may control corporate decision making and be in a position to take decisions to the detriment of stakeholders. It is therefore important to establish mechanisms and procedures to protect the workforce, affected communities and other relevant stakeholder rights. The ownership entity and SOEs should recognise stakeholder rights as established by law or mutual agreements and have a clear policy in this regard.
Stakeholders differ depending on the enterprise and its activities, but will generally include the workforce, creditors, customers, suppliers and affected communities. The rights of stakeholders are to a large extent established by law (e.g. labour, business, commercial, environmental and insolvency) or by contractual relations that companies must respect. For an effective decision-making process, firms should, as applicable under local law also consider stakeholders that they do not have contractual relations with, as they may run the risk of leaving out key issues when elaborating the content of their sustainability policies, objectives and reports.
The legal framework should be transparent and enable stakeholders to communicate and obtain redress for the violation of their rights at a reasonable cost and without excessive delay. In addition, whistleblowers, individuals or organisations that report legal misconduct (e.g. regarding social or environmental regulations, corruption, human rights) of either the state or SOEs should be protected by law.
Certain jurisdictions may grant certain stakeholders specific rights in SOEs through legal status, regulations, mutual agreements/contracts or distinct governance structures, such as employee representation on SOE boards for instance. Any specific rights granted to stakeholders or influence on the decision-making process should be explicit. Whatever rights granted to stakeholders by the law or other means that have to be fulfilled by the SOE in this regard, the company organs, principally the general shareholders meeting and the board, should retain their decision-making powers. To encourage active and long-term value-creating co-operation with stakeholders, state ownership entities and SOEs should ensure that stakeholders, including the workforce and affected communities, have access to relevant, sufficient and reliable information on a timely and regular basis to be able to exercise their rights, such as to effective redress in the event their rights are violated. Employees should also be able to freely communicate their bona fide concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this.
VII.D.2. SOEs should develop and encourage meaningful stakeholder engagement in advancing sustainability and ensuring a just transition, particularly from persons or groups that may have an interest in or could be impacted by an enterprise’s activities.
Regular and continuous stakeholder dialogue should inform management’s decision-making and be reflected in the SOEs’ business strategy. A meaningful stakeholder engagement can support a just transition (i.e. a transition to a greener economy in a way that is as fair and inclusive as possible), by securing inter alia workers' rights and livelihoods. While such dialogue may be useful for a range of issues, this is notably important for decisions to improve a company’s sustainability and resilience, which may represent short-term cash outflows while generating long-term benefits. Such dialogue may also prove helpful for the company to assess which sustainability matters are of such relevance that they should be addressed and disclosed.
Relevant platforms for stakeholder dialogue and engagement should be provided based on laws or regulations. Meaningful stakeholder engagement generally refers to ongoing engagement with stakeholders that consists of an interactive process involving two-way communications; depends on good faith of participants on both sides and is responsive to stakeholders’ views (i.e. there is a follow-through on outcomes).
To ensure stakeholder engagement is meaningful and effective, it is important to ensure that it is timely, accessible, appropriate and safe for stakeholders, and to identify and remove potential barriers to engaging with stakeholders in positions of vulnerability or marginalisation. To this end, mechanisms should be introduced to promote anonymous reporting of legal misconduct. Unethical and illegal practices by corporate officers may not only violate the rights of stakeholders but also be detrimental to the company in terms of reputational effects. It is therefore important for companies to establish a confidential whistleblowing policy with procedures and safe-harbours for complaints by workers, either personally or through their representative bodies, and others outside the company, concerning illegal and unethical behaviour. The board should be encouraged to protect these individuals and representative bodies and to give them confidential direct access to someone independent on the board, often a member of an audit or an ethics committee. Some companies have established an ombudsman to deal with complaints. Relevant authorities have also established confidential phone and e-mail facilities to receive complaints. While in certain jurisdictions representative bodies undertake the tasks of conveying concerns to the company, individual workers should not be precluded from, or be less protected, when acting alone.
In the absence of timely remedial action or in the face of reasonable risk of negative action to a complaint regarding contravention of the law, workers and other stakeholders are encouraged to report their bona fide complaint to the competent authorities. Many jurisdictions also provide for the possibility to bring cases regarding issues that arise in relation to the implementation of the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct to the relevant National Contact Point for Responsible Business Conduct. The company should refrain from discriminatory or disciplinary actions against such stakeholders.
VII.D.3. Mechanisms for employee participation should be permitted to develop. Where employees and other stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.
The degree to which employees participate in corporate governance depends on national laws and practices, and may vary from SOE to SOE as well. In the context of corporate governance, mechanisms for participation may benefit SOEs directly as well as indirectly through the readiness by employees to invest in firm-specific skills. Examples of such mechanisms include employee representatives on boards and governance processes such as trade union representation, collective or local bargaining and works councils that consider employee viewpoints in certain key decisions. International conventions and norms also recognise the rights of employees to information, consultation and negotiation. Notably, where laws and practice of corporate governance frameworks provide for participation by employee and other stakeholders, it is important that stakeholders have access to information necessary to fulfil their responsibilities.
With respect to performance enhancing mechanisms, employee stock ownership plans or other profit sharing mechanisms can be found in many jurisdictions. Pension commitments are also often an element of the relationship between the enterprise and its past and present employees.
VII.D.4. State ownership entities and SOEs should take action to ensure high standards of integrity in the state-owned sector and to avoid the use of SOEs as conduits for political finance, patronage or personal or related-party enrichment.
State ownership is concentrated in high-risk sectors, such as the extractive industries and infrastructure, where public and private sectors intersect via valuable concessions and large public procurement projects. SOEs in many economies also continue to provide essential public services and some SOEs still operate as public institutions despite having economic objectives and competing in the market. This confluence of factors may make SOEs particularly vulnerable to corruption and exploitation for political finance, patronage and personal or related party enrichment. The cost to the public purse and the perverse effects of misallocated resources related to corruption in the SOE sector can undermine citizens’ trust in public institutions.
State owners should take the measures necessary to prohibit use of SOEs as vehicles for financing political activities and for making political campaign contributions and expect that SOEs adhere to laws related to lobbying for example by declaring a meeting in the appropriate register. Appropriate measures should address other high-risk areas such as the procurement of goods and services as well as, inter alia: board and key executive remuneration, conflicts of interest, hospitality and entertainment, charitable donations and sponsorships, gifts, favouritism, nepotism or cronyism, and facilitation payments, solicitation and extortion.
The state and SOEs are encouraged to implement the OECD Guidelines on Anti-Corruption and Integrity in State-Owned Enterprises to the fullest extent possible. The provisions contained therein work as a complement and supplement to this instrument.