State-owned enterprises key to energy transition

June 21, 2022: 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.

While investor engagement with industries such as coal, steel and oil & 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 government-owned SOEs have tapped capital markets in recent years, with much of the value of these bond 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.

The market weight of SOEs also has ramifications for the overall cost structures of low-carbon technologies; 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. The 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 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.

Fitch Ratings