Sustainability Leadership SOEs: Five Government Strategies to Drive State-Owned Enterprise Impact

State-owned enterprises (SOEs) are more than just major corporations—they are the backbone of national economies, dominating sectors such as energy generation, transportation networks and heavy industry. Because they are state-owned, SOEs possess unparalleled influence to steer economic systems toward sustainability. Yet, in practice, many SOEs continue to operate in ways that are less sustainable than their private-sector counterparts. Addressing this gap requires clear strategies, not intent alone—an approach laid out in the OECD’s 2025 publication, State-Owned Enterprises and Sustainability: Leading by Example.

This blog examines five concrete government strategies outlined in the OECD report that can reposition SOEs as drivers of the climate transition. These strategies go beyond theory, offering tested policy tools to align state ownership, governance and operations with sustainability outcomes. As the 2030 net-zero horizon approaches, adopting these strategies is no longer optional—SOEs must redefine resilience and lead economies through the sustainability transition.

Strategy 1: Take Full Advantage of SOEs' Scale and Position in the Global Economy

SOEs are strong players in international arenas. Currently, they account for 25% of the world's top 500 companies ranked according to revenue, a figure which has quadrupled since 2000. Such numbers offer considerable muscle in sustainability. Almost two-thirds of SOEs are classified in sectors that have large GHG emissions, including mining, energy, utility and construction, according to the OECD Global Corporate Sustainability Report 2025 report. Public sectors own shares in companies within the top 100 GHG emitters (see figure 1 in the report).

“Yet governments can leverage this by branding SOEs as path-breakers." Talking about China's State Grid Corporation, it is known to invest heavily in renewable energy and is the global leader in the power industry by sheer size, operating massive transmission and distribution networks. Another company that fits into this category is Norway's Equinor, which is known to focus heavily on producing oil but is changing its focus to producing offshore wind and hydrogen.

It is an enormous opportunity. In 2024 alone, the public sector allocated about USD 1 trillion for energy through SOEs. Just a portion devoted to green tech could hasten the transition. Their nation’s governors have the duty to require SOEs to focus more on sustainable sourcing, circular economy-based projects and working together for international green collaboration. It is more about economic sustainability and more than just the emission factor. SOE dominance can attract even more investment to green technology.

However, the pitfall here is that, lacking careful direction, this could be a weight that becomes stagnant. There has to be an audit by governments of SOE portfolios for sustainability alignment, where a subsidy or quick approval of permits is given to the better-performing ones.

Strategy 2: Coordinate State Ownership Policies with National Sustainability Plans to future-proof many state-owned

Alignment is crucial here; when governments coordinate their ownership policies with their sustainability commitments, be it Paris Agreement goals, the pace of SOE achievement accelerates. The OECD’s "Ownership and Governance of State-Owned Enterprises" publication, however, points out that currently only 25% of countries surveyed integrate their climate objectives here.

"Progressive countries are shutting it. Finland, Norway, Sweden set an example for requiring their SOEs to fulfil clear KPIs in terms of sustainability, in line with OECD Guidelines on Corporate Governance of State-Owned Enterprises and Responsible Business Conduct. Norway’s Government Pension Fund Global, for example, has divested from high emission investments, encouraged its portfolios to go net zero."

Why? There is a direct "tone from the top" trickling down here. National boards are the bridge between 'national aims and implementing strategy’ regarding transitions in renewable-energy and preserving biodiversity. A correlated policy for SOEs such as NTPC and ONGC, prominent in the Indian electricity and oil sectors, would be the 'speed accelerator’ of the country’s proposed 2070 net-zero goal. One should picture NTPC growing its solar output past the planned 10GW by virtue of corporate ownership strategy.

This can be achieved through ownership memoranda, which are living documents that contain annual goals that are measurable. Embed ESG criteria in performance contracts, ensuring that bonuses depend on results. Problems such as short-term financial implications will always be there but long-term returns regarding energy security and sustainable exports trump them. The impact of such policies ensures that SOEs are an extension of climate foreign policy and do not operate in silos.

Strategy 3: Integrating Sustainability as a Dimension of SOE Governance, Strategy and Operations

Sustainability needs to seep through all levels—from the boardroom to the shop floor. Worldwide, the percentage of the top companies in market capitalisation with climate issues reported to boards rose from 53% in 2022 to 70% in 2024. SOEs should be no less.

Beginning with governance: ensuring boards have diverse, independent members knowledgeable about sustainability. Countries such as Austria, Australia, Ireland and Costa Rica increasingly incorporate these elements into their nominating processes. But France and Norway take it a step further by requiring sustainability committees on two-thirds of all large corporations worldwide.

The example of Enel operating in Italy is particularly notable. The company has leveraged its sustainability committee to transition into renewable energy sources. As a result, Enel has managed to lower its greenhouse gas emissions by 60% since 2017. The value of its shareholders has also increased. The adoption of climate risk scenario planning approaches can be embedded within ERM.

In terms of operations, sustainability triggers strategy. SOEs must practice science-based targets, decarbonise their supply chains and innovate—such as in Saudi Aramco’s Blue Hydrogen projects and Petrobras’s investment in biofuels in Brazil. Governments must support this by incorporating an annual sustainability audit into governance guidelines.

Diversity is also important, as boards with balanced gender representation and sector-specific expertise (Such as climate scientists) deliver on ESG. Clearly defined nomination processes also lead to meritocracy, with no room for favouritism. What results? "Robust business operations that can thrive even when faced with non-sustainable risks such as energy price volatility, producing new employment opportunities within green industries.

Strategy 4: Enhance Transparency and Accountability through Sustainability Reporting

It is not optional; it is essential. From 2022-2024, 86-91% of companies publicly reported sustainability information, although 63% for SOEs compared to the rest were lagging, specifically in terms of Scopes 3 emissions.

Credibility requires independent verification. However, less than half of the reporting listed SOEs verify their disclosures. For publicly accountable SOEs, this is highly necessary during times of greenwashing criticism. Effective reporting is helpful for decision-making and compliance with international standards such as EU’s CSRD.

Frameworks can be mandated by governments: TCFD for climate and GRI for overall ESG issues, including Scope 1 to 3 emissions. Norway's SOEs are required to report in accordance with IFRS S1/S2 reporting standards and in France, reporting is tied to executive compensation.

The benefits are many. ESG investors are attracted to Transparent SOEs; this is crucial, given the fact that sovereign wealth funds place a high emphasis on sustainability. Emerging countries such as South Africa could gain access to their first green bond issue in power utility Eskom owing to its transparency. Being audited by Big Four accounting firms tests their transparency while filtration.

There are challenges in the data. Priority gaps in Scope 3 can be addressed by using technologies such as AI platforms (related to your interests in AI-ESG). Reporting technologies should be subsidised for smaller-scale SOEs to create a race to the top.

Strategy 5: Establish Trust and Long-Value Creation through Responsible Business Behaviour

“As SOEs expand globally, responsible business conduct is no longer negotiable. In other words, RBC should go beyond mere compliance and strive to address adverse impacts and make a positive difference,” based on OECD SOE

Engagement with stakeholders is critical: just 86% of quoted companies have disclosed policies but engagement is key to credibility. This can be demonstrated by stakeholder forums where community feedback on projects is taken, as seen in Indonesia's Pertamina involving native communities on LNG projects.

Governments establish RBC expectations through ownership policies and monitoring through audits. OECD Guidelines for Multinational Enterprises promote strict observance of human rights, anti-corruption and supply chain review.

This, in turn, translates into value. Companies like Gazprom of Russia faced criticism for their poor RBC performance. This should be compared to Denmark’s Ørsted, which has managed to transition through the efforts of its stakeholders from fossil fuels to wind energy, thereby tripling its value. This could be just a transition for Indian SOEs like Coal India, through which RBC could entail re-skilling miners for solar.

Long-term, RBC reduces risks such as litigation threats and boycotts, which boost reputation. Consider integration into procurement: support suppliers with high ESG ratings.

Where to from Here?

Turning Ambition into SOE-Led Impact

The 2030 horizon requires radical solutions. SOEs, where policy and business meet, must steer the response to the climate change challenge. Governments are at the helm. Here are the measures needed to unleash USD 1 trillion+ sustainable investments. The OECD report provides policymakers with ready tools from policy blueprints to benchmarks. The success stories in the form of the Nordic Model demonstrate that this is possible. For India, with 15-20% of GDP contributed by the SOEs, such policies might meet with the green vision of Viksit Bharat, fighting green-washing through AI-based ESG analysis, aligning with your interests in fraud detection. There might be challenges like political meddling and existing assets but having a phased plan lessens these. Start by doing pilots in high-impact sectors like energy. SOEs are not spectators; they are drivers. And with these five approaches as leverage, the state crafts the SOE and nudges their sectors into the forefront of sustainability leadership. But the question is: will the leadership take up this challenge?

Our Directors’ Institute - World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organisation.