State-owned enterprises (SOEs) have a key role to play in energy transition and will shape the growth of low-carbon technology, according to a new report by Fitch Ratings.
SOEs are dominant across many industries in key emerging markets of Asia Pacific, Latin America and sub-Saharan Africa, and their contribution to global emissions is substantial.
Fitch stated: “While investor engagement with industries such as coal, steel, and oil and gas over climate change has focused on the private sector, SOEs are critical participants in reducing global emissions and mainstreaming low-carbon technologies.”
A number of prominent SOEs have tapped capital markets in recent years, with much of the value of these bonds or share issuance acquired by North American or European-domiciled asset owners. Despite this, disclosure of data on emissions remains limited among SOEs in general, Fitch noted.
It observed that the market weight of SOEs also has ramifications for the overall cost structures of low carbon technologies, adding that this has been particularly visible in the last decade, when large solar photovoltaic procurement in China, and government support in the form of subsidies and other research and development incentives, have significantly driven down component and capital costs for the solar industry as a whole. Development of green hydrogen energy and low carbon steel projects in China has been dominated by SOEs.
The ownership structure of SOEs can have implications for their strategic orientation on climate and wider environmental, social, and governance (ESG) issues, and governance of SOEs often involves a more complex chain of stakeholders than for private sector companies, including taxpayers, legislative and executive branches of government and government institutions, as well as the board and management of SOEs themselves.