Walking the Talk after the Pandemic

Reorienting State-Owned Enterprises towards

Sustainability
By Leonardo Beltran, former Deputy Secretary for Planning and Energy Transition at the
Mexican Department of Energy and Non-Resident Fellow of the Institute of the Americas

This year started with the news of the appearance of a new virus, COVID-19. The

impact and severity of its effects in public health, mortality and the world economy are

overwhelming. No public health system was prepared for this crisis, and yet governments

are reacting deploying different policies to mitigate the crisis, and recover as fast as

possible. However, public opinion is divided, some support a more stringent approach on

human liberties, others more emphasis on the economy, but the reality is that this is a

false dilemma. You cannot privilege one over the other, because without health you

cannot produce, and without production or sustenance there is no health, thus health and

economy is an indissoluble binomial.

The Intergovernmental Panel on Climate Change in its 2014 report on Climate

Change warned about the risks of global warming, in particular for health and the

economy. In terms of health, the risks of vector-borne diseases will generally increase with

warming, due to the expansion of the season and area of infection, despite reductions in

some areas that will become too warm for disease vectors. In economic terms, systemic

risks due to extreme weather events that would lead to the collapse of infrastructure

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networks and essential services, and the risk of food and water insecurity and loss of

livelihoods and incomes in rural areas, particularly for poor populations.

Today we are observing with COVID-19 the vulnerability or our public health

systems and the combined effect of the fragility of the economy globally. To the extent

that we continue without adjusting our way of production and consumption, global

warming will continue to accelerate, precipitating the materialization of negative impacts

for biodiversity, ecosystem services, economic development, and aggravating risks to

livelihoods and for food and human security.

Moreover, if we are to prepare for this future, governments in designing their

recovery plans can assess their alternatives and support a sustainable growth path. In

2015, the world agreed upon a new vision that would guide their actions in the future

adopting the 2030 Agenda for Sustainable Development and signing the Paris Agreement.

These agreements included a set of tools that can help countries select their most efficient

pathway towards low carbon development. In fact, recovery after the pandemic would be

easier if governments “walk the talk” reorienting their State-Owned Enterprises towards

sustainability.

2030 Agenda for Sustainable Developmenti

In September 2015, the heads of state and government at the UN headquarters in

New York City adopted the 2030 Agenda for Sustainable Development (2030 ASD). The

international community committed to promote the sustainable development agenda in

its three dimensions - economic, social and environmental - in a balanced and integrated

manner, for which it is essential to guarantee lasting protection of the planet and its

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natural resources and where there is universal access to a supply of affordable, reliable

and sustainable energy.

One of the key elements in the 2030 ASD includes a commitment to enhance

international cooperation to facilitate access to advanced and cleaner fossil-fuel

technology.

Paris Agreementii

On December 12, 2015, in Paris during the 21st Conference of the Parties (COP21)

to the United Nations Convention Framework on Climate Change the international

community signed the Paris Agreement, an international treaty in which for the first time

all nations came together into a common cause to undertake joint efforts to combat

climate change and adapt to its effects.

The Paris Agreement has two fundamental pieces to fight climate change. First,

foster low Greenhouse Gas Emissions (GHGs) development by incorporating carbon

planning in government policy, and the second, finance flows consistent with a pathway

towards a low carbon economy.

Walking the Talk

Today more than ever, if governments are to respond according to the crisis, one

of the best instruments they have are their State-Owned Enterprises (SOEs). SOEs have a

competitive advantage in their readiness to emerge from a crisis and embrace the

international new low-carbon development framework, for three reasons: corporate

governance, mandate and scale.

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 1. Corporate governance. SOEs have an institutional structure in which there

are representatives of the government. Therefore, board members

representing the State would be careful enough to voice and reflect the

views of the government administration into the assessments and

performance of the SOE.

2. Mandate. SOEs typically are seen as a mean to pursue development

strategies of the sector, or as tools to buy into foreign technologies and

know-how. Thus, embedding sustainability into the mission of the SOE on

one hand, would be easier given that usually the majority of the board

members are government officials; and on the other, an SOE normally

operates in sectors that are deemed strategic for the state, energy being

one of those, and sustainability would certainly would have an effect in the

way SOE corporate policy is conducted.

3. Scale. SOEs in the energy sector represent 70% of all the assets of oil and

gas production, and around 60% of the coal power plants globally. iii

Therefore, to accelerate the recovery and the pace towards low-carbon

development, size matters, and in this case, given that SOEs dominate the

energy sector, a policy focused on low carbon growth naturally has to be

led by SOEs.

If governments reorient SOEs mandate towards sustainability, they will have at

their disposal the tools arising from their 2030 ASD and Paris Agreement commitments.

These jurisdictions would be able to move faster in their low-carbon recovery pathways,

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promoting an innovation ecosystem with technology, finance and carbon planning tools to

spur new markets and business models needed to adapt to this new future.

Therefore, an opportunity for governments to speed up recovery and walk the talk

is by reorienting their SOEs towards sustainability, driving their mission and their Raison D

´être.

There are a number of benefits for the different stakeholders. For the government,

the new mandate would open access to the resources (technology, finance and carbon

planning tools) available in the 2030 ASD and the Paris Agreement; it would be consistent

both with the national and international obligations on climate action, and it will send a

strong signal of the commitment of the national government to tackle the challenges

posed by climate change. For the SOEs, it would improve their competitiveness by aligning

their mission to the new low carbon development architecture, and especially by granting

them access to climate finance, clean energy technology and carbon planning tools. For

the general public, it would be easier to hold accountable their governments, assess the

value of taking climate action, and eventually to enjoy the social revenue of a low carbon

future.

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i
UN General Assembly, Transforming our world: the 2030 Agenda for Sustainable Development, 21 October 2015,
A/RES/70/1, available at: http://www.refworld.org/docid/57b6e3e44.html
ii
Paris Agreement to the United Nations Framework Convention on Climate Change, Dec. 12, 2015, T.I.A.S. No. 16-1104.
iii
Prag, A., D. Röttgers and I. Scherrer (2018), "State-Owned Enterprises and the Low-Carbon Transition", OECD
Environment Working Papers, No. 129, OECD Publishing, Paris.