Sustainability in state-owned companies
Sustainability is becoming more and more important for the competitiveness and shareholder value of companies. As an owner, the State expects companies to lead the way in sustainable business.
The State’s expectations for sustainability
State-owned companies are expected to lead the way in sustainable business. The State’s expectations with regard to sustainability are described in the Government Resolution on State Ownership Policy issued in 2020.
As an owner, the State expects companies to integrate sustainability (ESG = environmental, social and governance issues) into their business. Companies are expected to identify ESG issues relevant to their business and set measurable objectives. Companies should also take a goal-oriented approach to sustainability in management. At their annual general meetings, companies are expected to report to shareholders on the attainment of their sustainability objectives, the measures taken to achieve them and the objectives for the coming years.
The State expects companies to comply with internationally recognised sustainability agreements and principles. These include the OECD Guidelines for Multinational Enterprises, the UN Global Compact and the UN Guiding Principles on Business and Human Rights.
State-owned companies must take human rights into account both in their in-house activities and across supply chains. Companies must comply with the UN Guiding Principles on Businesses and Human Rights and fulfil their duty of care in this respect.
Company personnel must have access to a reliable channel of communication to bring any human rights violations, shortcomings or abuses to the attention of the corporate management. For this purpose, companies must have in place either an in-house whistleblowing channel or other equivalent arrangements for reporting shortcomings or misuses confidentially and anonymously.
Companies must have an anti-corruption and reporting procedure in place.
State-owned companies are required to take into account the target of the Paris Agreement on climate change to limit the rise in global temperature to 1.5 degrees Celsius and the Government’s objective of a carbon neutral Finland by 2035. Companies must analyse the impacts of their business on the climate, the environment and biodiversity and set ambitious, measurable goals in this respect. The goals need to be attained in a way that strengthens sustainable competitiveness.
Transparent tax reporting is an essential part of sustainability. The State as an owner requires companies to file country-by-country reports on their tax footprint in a way that permits a reliable assessment of their tax responsibility. As a rule, taxes are to be paid to the country where the profits of the business activities are generated.
Aggressive tax planning is not acceptable, nor are businesses permitted to minimise taxation using tax havens, for example.
Integrating sustainability into the business of state-owned companies
As an owner, the State ensures that sustainability is integrated into the business of state-owned companies through board appointments and in general and company meetings.
The company’s main decision-making body with regard to ownership steering is the board of directors. As such, its composition is of great importance to the State as an owner. In selecting board members, due consideration is given to corporate sustainability competence. The State regularly analyses the composition of the board of directors in relation to the company’s strategy and future prospects. At the same time, the State assesses whether the board has the level of sustainability competence needed for the company to respond to challenges and seize opportunities.
At the general meeting, state-owned companies report to shareholders on their ESG objectives and their attainment.
Topics related to sustainability are also discussed regularly in meetings between companies and representatives of the State.
Monitoring and analysing sustainability
Sustainability is an integral part of ownership steering. The State monitors and analyses sustainable operations of companies as part of its ownership strategy work. The Ownership Steering Department has a sustainability team that focuses on developing and coordinating sustainability in state-owned companies.
Based on companies’ sustainability data and reporting, the State draws conclusions about which sustainability issues affect the company’s success and whether it is sufficiently integrated into the company’s strategy and objectives. The Ownership Steering Department also assesses whether the company is fulfilling its duties and achieving its sustainability expectations required by the owner. The State takes these issues into account in each company’s ownership strategy and discusses them regularly with corporate management.
Sustainability in remuneration
As an owner, the State expects companies to integrate sustainability into remuneration. For wholly state-owned companies providing essential basic services for citizens, the remuneration criteria should also include indicators measuring customer satisfaction and the quality and availability of services.
Photo: Harri Tarvainen / Visit Finland