Sustainability now taken into account in strategies and remuneration at state-owned companies – still work to be done on biodiversity and regulation

This year, the Ownership Steering Department of the Prime Minister’s Office began collecting more extensive and comprehensive information on sustainability in state-owned companies. This includes monitoring sustainability objectives in the remuneration of management, the total emissions of the company portfolio and climate-related objectives, among others.

In the 2020 Government Resolution on State Ownership Policy, the State set various sustainability requirements for companies.

“The State is a demanding owner when it comes to sustainability. In order to form an overall picture, it is important for us to monitor, at the level of corporate assets as a whole, how the various expectations of the State as an owner have been met,” says Ministerial Adviser Katariina Sillander, who is responsible for developing sustainability at the Ownership Steering Department.
At the end of 2022, the State had holdings in 69 companies with a total value of approximately EUR 41 billion.Company-specific sustainability analyses are also carried out continuously as part of

ownership strategy work. In this case, the main focus is on how sustainability factors affect value creation at the company in question, as the State aims to increase the shareholder value of the companies in its portfolio.

“Sustainability issues are already part of the State’s ownership strategy work, and we have long required companies to integrate sustainability into the core of their strategies. In this regard, we have seen positive development in companies in recent years, with sustainability being managed in an increasingly systematic and goal-oriented manner,” says Ministerial Adviser Sinikka Mustakari from the Ownership Steering Department at the Prime Minister’s Office.

Forty-seven per cent of board members are women

The State aims to ensure that the boards of directors of state-owned companies have a balanced gender distribution. In 2022, women made up 47 per cent of all board members, which is the same number as in 2021. Of the CEOs of state-owned companies, 22 per cent were women, compared to 14 per cent in 2021.

One of the key tools for incorporating sustainability into the activities of state-owned companies is the State’s expectation that companies will take into account sustainability in their remuneration practices. As of 2022, 83 per cent of state-owned companies had integrated sustainability into their remuneration schemes. On average, sustainability objectives accounted for 29 per cent of remunerations in short-term incentive programmes.

Science-based climate targets and biodiversity targets still rare

State-owned companies are expected to set ambitious climate and environmental targets. Companies are required to take into account the Paris Climate Agreement’s target of limiting global warming to 1.5 degrees Celsius, as well as Finland’s goal of being carbon neutral by 2035.
“The ability of companies to develop their business models sustainably is very important for creating and preserving the value of the State’s corporate holdings. In order to be able to assess this at the portfolio level, we also collected and analysed forward-looking data,” Sinikka Mustakari says.

The climate risk of the portfolio was assessed by analysing how the value of the State’s corporate holdings relates to companies’ carbon neutrality targets. State-owned companies that aim to be carbon neutral by 2035 at the latest account for 82 per cent, or EUR 27 billion, of the value of shareholdings.

In 2022, ten per cent of state-owned companies had set science-based targets (SBTs).
“This is a figure we would like to see grow in the next few years. Science-based targets are becoming the standard for climate work, and they may become a threshold issue for financiers or customers,” says Katariina Sillander.

The State monitors the total emissions of its corporate portfolio on a regular basis. In 2022, 73 per cent of state-owned companies reported their emissions (compared with 62 per cent in 2021). The carbon footprint of these companies in 2022 was 48 (126) million tonnes CO2e calculated based on State ownership. The change can be explained by the fact that the emissions of Fortum’s former subsidiary Uniper were no longer included in the calculations for 2022.

In 2022, 23 per cent of state-owned companies stated that they had set biodiversity targets. These targets generally focus on identifying the impacts of business activities on biodiversity and reducing the negative impacts. Companies also have targets related to restoration, which are mainly qualitative, long-term targets.

“The dependence of business activities on natural resources and the prevention of biodiversity loss are clearly rising themes that companies have also recognised. That said, companies are only just beginning to address these issues, and doing so will require a great deal of knowledge and work over the next few years,” says Katariina Sillander.

At the moment, Finnish companies also face challenges as they prepare for the EU Corporate Sustainability Reporting Directive. The new directive means a growing number of companies will be required to provide consistent, verified corporate sustainability information as part of their boards’ annual reports.

Information on sustainability in the State’s corporate portfolio is available in Appendix 4 of the Report on State Annual Accounts, which describes the State’s corporate holdings. The report also describes the principles of ownership steering and the financial results of corporate holdings in 2022.

Inquiries:
Katariina Sillander, Ministerial Adviser, Prime Minister’s Office, tel. +358 29 516 0030, [email protected]
Sinikka Mustakari, Ministerial Adviser, Prime Minister’s Office, tel. +358 29 516 0159, [email protected]