Supporting the Policy Environment for Economic Development

Social License to Operate

We have all been hearing a lot about Concession Agreements, Special Regimes, Petroleum Laws and Exploration Rights. But in the midst of this mountain of legal documents, a key contract is left forgotten. Perhaps because it is not signed in ink or does not carry the weight of law, its importance is perceived as being somewhat inferior. I am referring to the social license to operate (SLO). This is the ongoing approval granted by all affected stakeholders of a given project. This concept goes beyond the mere acceptance of a project by the community. It is a situation whereby the community is engaged with and perceives the project as having a positive impact on their lives, and where there is a relationship of trust between the various stakeholders.

One aspect that makes the concept of social license so difficult to grasp is its intangibility. Some of the key drivers of SLO are concepts such as trust, credibility and legitimacy. These are all difficult things to quantify yet are the foundations on which these positive relationships are built. Another aspect that further complicates matters is the dynamic nature of the relationship. In other words, a project may have broad based approval today and lose it tomorrow. An isolated event—an accident at a plant or an environmental incident—can abruptly threaten a harmonious relationship. This highlights the need for continuous trust and dialogue to nurture and enhance the resilience of the relationship between the stakeholders.

Companies that invest in obtaining this license tend to make it a central part of their business. They treat the local community with the same level of respect, care and professionalism as they do other stakeholders: clients, government, contractors, and shareholders. These companies benefit from a more stable, positive and productive operating environment. A more engaged community makes for a better living environment for the company’s employees, boosting morale and productivity .For example, a community that takes ownership of a project is more likely to help prevent and report crimes towards an operator’s employees or assets, thus reducing security costs and losses. In addition, a relationship of trust allows consultation processes on additional projects to run faster and smoother. Finally, having the community, and hence a portion of the country’s electorate, on the project’s side can even increase the operator’s bargaining power with local government.

Despite these obvious benefits, many companies still choose to exclude the local community from their universe of stakeholders. Why is that so? Perhaps it is because of the absence of clear financial benefit, the so-called return on social investment. However, in these situations, the intangibly of the benefits quickly transform into a set of very concrete and quantifiable consequences. Delays, stoppages and sabotage are just a few of the issues that can end up costing a project millions. Reputational damage can have a global impact on the company, lasting years and taking considerable PR and marketing investments to fix, not to mention the impact on investor confidence and the company’s ability to recruit top talent. A clear example of such dire consequences can be found in the Delta region in Nigeria where oil companies have failed to engage with communities and, as a consequence, lost millions: damages to pipelines have caused reductions in output of 400,000 barrels a day and losses of 100,000 barrels per day due to theft. This situation also spurred the emergence of the Movement for the Emancipation of Nigeria (MEND) rebel group—an armed resistance movement which rose up against what they perceive as the exploitation of local population and resources by the Nigerian government and foreign oil companies. The group has been responsible for the killing and kidnapping of dozens of oil workers and has inflicted significant damage to company assets and, of course, on their image. Similar cases appear time and time again around the World, from mines in Peru and South Africa to Liquefied Natural Gas (LNG) projects in Papua New Guinea and Indonesia.

Mozambique, with its many on-going mega-projects (i.e. Mining, energy production, natural gas and, more recently, commercial agriculture) must particularly reflect on these examples. Projects of this scale are particularly prone to having large impacts—in  terms of livelihoods, environment and social cohesion—on local communities. As such, stakeholders in Mozambique, and particularly operators, will need to get familiar with the concept of social license to operate and strive to incorporate local communities into their business plans and decisions. They must also appreciate that what worked in other countries such as Malaysia or Angola will not necessarily work here. When dealing with trust, beliefs, dialogue and perceptions, cultural awareness becomes an even more critical element.

The final crucial element for the success of any form of stakeholder dialogue is that it be co-designed by the community itself, and that it includes representatives that truly have the legitimacy to speak for the community. Companies must also be prepared to discard preconceived ideas—usually formalized in standard corporate social responsibility manuals—and listen.

In an attempt to create a platform on which a Social License to Operate can be developed, SPEED-USAID is supporting the Cabo Delgado Sustainable Development Forum. A Multi-stakeholder dialogue platform aimed at the equitable and sustainable development of natural resources in the Province of Cabo Delgado (Mozambique). The forum seeks to create a space that engenders trust and constructive dialogue, to seek solutions to policy, development, community and environmental challenges posed by the LNG sector. A key characteristic of this initiative is the fact that there is no pre-established agenda. The forum itself, through the engagement of the various stakeholders, will be responsible for forming an agenda that addresses the true concerns of its participants and allows the community and the operators to negotiate a common ground.

There is no magic pill to achieving this sort of harmony and approval but the earlier companies start engaging with the relevant stakeholders and creating platforms that facilitate open and inclusive debate, the better. Trust takes time to build.