The role of the Finnish state as an owner of business corporations, and as a shareholder of publicly listed companies, keeps surfacing in public discussion and media. Conflicting interests of politicians and other shareholders are typically, and rightfully, cited as the primary issue. The latest major news topic in this area was when the remaining 6.3% stake of Finnish sovereign wealth fund Solidium in steel company SSAB was transferred to direct ownership of the Prime Minister’s Office. When maneuvers such as this take place, the minister of ownership steering tends to get media coverage, and the opposition, naturally, reminds of underlying dubious motives, the role of the state, or whatever suits the purpose.
Politicians’ ESG programmes
Over the last decade or so, states have increased their partial ownership in publicly listed companies through sovereign wealth funds both domestically and abroad. In my master’s thesis, I explore how this hybrid model of global state ownership behaves with relation to corporate social responsibility, inspired among other things by the Finnish state’s undertakings in the stock market.
Deriving from agency theory, I hypothesized that the accountability of the government towards citizens could be a major factor in that relationship, or more precisely, accountability of politicians towards potential voters. I wanted to see if there is a relationship, if the relationship includes a causal dimension, and if democratic and autocratic regimes differ in their actions as a part-owner.
Findings of the thesis
Using a sample of above 50 000 firm-year observations of Refinitiv ESG scores in 69 countries during 2002-2019, I found the relationship to be quite clear: state-owned enterprises tend to have substantially higher environmental and social responsibility scores, but a milder premium in governance. The positive relationship is clearly stronger in democratic countries. Importantly, when accounting for selection of state-owned companies based on size, industry, and other variables, the relationship only remains positive and statistically significant in environmental and social responsibility of state ownership by democratic countries. In those relationships too, the responsibility premium drops to about half compared to without selection. The pattern is quite similar when I categorize countries based either on the government’s (environmental policy) or citizens’ (World Values Survey results) stated interests.
The finding that democratic country state ownership is centered on environmentally and socially responsible firms is robust. This statement has been shown using several tests with different data and specifications. I have also used several methods to delve into both causality and the role of other institutional factors, such as minority investor protection. Whether states actively affect responsibility of partly-owned companies remains blurry based on my results.
Arttu Pyysing, Department of Finance, Aalto University, Graduate 2021
