In accordance with UN Guiding Principles on Business and Human Rights, Principle 4, states have to ensure that business enterprises that they own, control, or are closely related to them respect human rights.
The OECD Guidelines on Corporate Governance of State Owned Enterprises (SOEs) define SOEs as “any corporate entity recognised by national law as an enterprise, and in which the State exercises ownership, which includes joint stock companies, limited liability companies and partnerships limited by shares”. SOEs operate in sectors such as energy, utilities, infrastructure, transport, telecommunications and banking. The proportion of SOEs among Fortune Global 500 companies has grown from 9.8% in 2005 to 22.8% in 2014, with US$389.3 billion of profit and US$28.4 trillion in assets. Although SOEs’ activities have traditionally been domestically-focused for the provision of public services, over the past decade, they have also rapidly internationalised. Asian SOEs, for example, are playing an increasingly large cross-border role, both via exports and financing for development activities.+ Read more
The World Bank defines a Public Private Partnership (PPP) as “a long-term contract between a private party and a government entity, for providing a public asset or service, in which the private party bears significant risk and management responsibility, and remuneration is linked to performance”. In 2015, the Addis Ababa Action Agenda, adopted at the Third Conference of Financing for Development, recognised that both public and private investment have key roles to play in infrastructure financing, including tools and mechanisms such as PPPs, which should share risks and reward fairly, include clear accountability mechanisms and meet social and environmental standards.
SOEs have been using the PPP model to invest in development projects. In China in particular, SOEs have emerged as the main partners of local government, rather than private investors. Governments can also offer indirect support through guarantees to reduce specific project risks such as payment, revenue, and exchange rate guarantees.
According to a 2016 World Bank report, Brazil, China, India, Mexico and Turkey were the top five states in terms of local investment commitment in infrastructure PPPs during the period 1991-2015. Brazil and India, for example, have each recorded over 850 PPP projects since 1990. Many of the PPPs were implemented in the electricity sector including the Mundra Ultra Mega Power Plant in India and the Belo Monte Hydro Power Plant in Brazil. China has recorded 1301 PPP projects since 1990 in areas such as railways and electricity for projects such as the Hangzhou – Taizhou Inter-city Passenger line and the Shandong Zhonghua Power Plant.
Allegations of human rights abuses by SOEs in their home countries and in their operations abroad have been documented and included labour-related abuses, environmental damages, land rights violations and intimidation and defamation of human rights defenders. These abuses may entail a violation of the State’s own international law obligations. As the UN Working Group stated on its 2016 Report:
“UN human rights treaty bodies suggest that States may breach the duty to respect or to protect under international human rights law owing to human rights abuses by State-owned enterprises…Given the nature of relationships between SOEs and States, it is more likely that abuses by a SOE could lead to attribution of State responsibility than those by private businesses”.
Key instruments in the field include:
- the UN Guiding Principles on Business and Human Rights (2011),
- the OECD Guidelines for Multinational Enterprises (2011),
- the OECD Guidelines on Corporate Governance of State-Owned Enterprises (2015), and
- the OECD Policy Framework for Investment (2015).
The OECD Guidelines for Multinational Enterprises (2011) notes that State-owned multinational enterprises are subject to the same recommendations as privately owned enterprises, but public scrutiny is often magnified when a State is the final owner”. Likewise, the OECD Guidelines on Corporate Governance of State-Owned Enterprises (2015) recommend that the state ownership policy fully recognise SOEs responsibilities towards stakeholders and request that SOEs report on their relations with stakeholders, as well as to make clear any expectations the state has in respect of responsible business conduct by SOEs. Additionally, they recommend, and rely on the Board of Directors to the executive management, extensive measures to report on foreseeable risks, including in the areas human rights, labour, the environment, and risks related to corruption and taxation. Lastly, they note that state’s expectations on responsible business conduct should be clearly defined and communicated via the ownership policy. The OECD has also adopted in 2015 a Policy Framework for Investment, which recommends that governments lead by example and model responsible business conduct principles and standards in their own practices, i.e. as employers, business partners, through procurement and contracting practices, and in commercial activities. This includes the activities of SOEs.
“Member States should apply additional measures to require business enterprises to respect human rights, including, where appropriate, by carrying out human rights due diligence, that may be integrated into existing due diligence procedures, when member States:…own or control business enterprises”.
Several states have adopted legislation setting human rights expectations of SOEs, including Sweden, Denmark, Chile, Norway, Finland and Ghana.
The European Commission approved the Guidelines for Successful PPP in 2003 as a tool for PPP practitioners in the public sector faced with the opportunity of structuring a PPP scheme to define current or future policy. Development Banks are also assisting countries in designing PPP and creating a balanced regulatory framework to ensure a more efficient and sustainable provision of public services and infrastructure.
- OECD, Global Forum on Responsible Business Conduct, Session Note, Responsible business conduct and state-owned enterprises, 2017: https://mneguidelines.oecd.org/global-forum/2017-GFRBC-Session-Note-RBC-SOEs.pdf
- Asian Development Bank, Public-Private Partnership Monitor, 2017: https://www.adb.org/sites/default/files/publication/381681/ppp-monitor.pdf
- Reuters, Fitch: PPP to Drive China Infrastructure Investments, SOE lead, 2017: https://www.reuters.com/article/fitch-ppps-to-drive-china-infrastructure/fitch-ppps-to-drive-china-infrastructure-investments-soes-lead-idUSFit989432
- Council of Europe, Human Rights and Business, Recommendation CM/Rec(2016)3 of the Committee of Ministers to Member States, 2016: https://edoc.coe.int/en/fundamental-freedoms/7302-human-rights-and-business-recommendation-cmrec20163-of-the-committee-of-ministers-to-member-states.html
- Office of the High Commissioner for Human Rights, State-owned enterprises must led by example on business and human tights, New UN report, 2016: http://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=20123&LangID=E
- World Bank, State of PPPs, 2016: file:///Users/carlapoletti/Downloads/State_of_PPPs__Report-FINAL_July16.pdf
- Human Rights Council, Report of the Working Group on the issue of human rights and transnational corporations and other business enterprises, 2016: http://ap.ohchr.org/documents/dpage_e.aspx?si=A/HRC/32/45
- Addis Ababa Action Agenda of the Third Conference on Finance for Development, 2015: https://sustainabledevelopment.un.org/content/documents/2051AAAA_Outcome.pdf
- OECD, Policy Framework for Investment, 2015: http://www.oecd-ilibrary.org/docserver/download/2014041e.pdf?expires=1521184995&id=id&accname=guest&checksum=0BDCA59B3D7DC799DCC89511AB448FBB
- OECD, Guidelines on Corporate Governance of State-Owned Enterprises, 2015: http://www.oecd-ilibrary.org/docserver/download/2615061e.pdf?expires=1520944025&id=id&accname=guest&checksum=A9FA038483435C8F9FE845701B2D13F1
- OECD, Guidelines for Multinational Enterprises, 2011: https://www.oecd.org/corporate/mne/48004323.pdf
- European Commission, Guidance for Successful Public Private Partnerships, 2003: http://ec.europa.eu/regional_policy/sources/docgener/guides/ppp_en.pdf