Social licence to operate – where the wider community accepts that an organisation’s contribution to society is legitimate and necessary – has had a seismic shift in importance in recent decades. FRAN MOLLOY writes
Once seen as a corporate 'nice‑to‑have,' social licence is now a critical part of industry operations in mining, forestry, agriculture and beyond – and actions that damage society's trust and respect in a company can have serious bottom‑line consequences.
The mining industry is no stranger to negative impacts on their reputation and social licence.
Examples abound and include the Panguna gold and copper mine in Bougainville which impacted local rivers, threatening livelihoods and inflaming conflicts; criticism of new coal developments and their potential impact on climate change and the energy transition; and destruction of sacred sites in the Pilbara where there is evidence of 46,000 years of human occupation.
Rising importance of social licence
Unlike fixed, tangible environmental and legislative licences issued by governments, the relationship between a company and community that constitutes a social licence is under constant renewal and renegotiation, says Dr Justine Lacey.
Dr Lacey is Director of CSIRO's Responsible Innovation Future Science Platform, a program exploring the social, legal and ethical impacts of disruptive technologies across various industries, including mining. She cites the OECD Trust in Business Initiative that points out that "maintaining the social licence to operate [has] never been higher on the business agenda."
"A senior OECD regulator has been quoted as saying that social licence is actually far more powerful than government or regulators, on the consequences it can have for corporations, in their reputation, their standing with investors and consumers and, ultimately, profitability," she adds.
CSIRO's Australian National Outlook 2019 reported that financial valuation of social licence in the mining industry found that failure to earn and maintain community support and approval could reduce the market value of a project by up to 70 per cent.
"The mining industry engaged early with the ideas and debates around societal acceptance of their role and the reputation of organisations within their industry."
"Letters of complaint, community backlash and adverse media or other reports about environmental damage or other harm were early signals that a company or industry didn't have a social licence," she says.
Over time, Lacey says, companies realised they needed to get ahead of social licence, engaging with potential threats to their reputation and operations before they occurred.
"Our work asks, how do you know when you have social licence? Is it when there is no-one outside your office holding up a sign? Is it when more letter-writers support your work than object?"
Social licence, responsible innovation and the bottom line
Lacey and her CSIRO colleagues use a variety of social science research techniques to identify the various drivers of people's trust and their acceptance of different activities in the landscape, particularly those – like mining – that can be contentious.
The team has worked with the mining industry and the communities where miners operate to develop and validate these techniques, using the findings to inform more effective industry engagement, reduce social conflict and support increased social acceptance.
"Social licence is part of a push for change in the mining industry, and concerns around the management of impacts such as carbon emissions play a big role in this," Lacey says.
In a survey of 150 global mining companies about business risks in 2020, Ernst and Young found that 44 per cent cited social licence to operate as the number one risk to their business.
These results are all the more remarkable when set against mining's growing global challenges: falling commodity prices, rising production costs and difficulties, diminishing ore grades, and the climbing costs of site rehabilitation.
Lacey explains that societal expectations have changed. Industry now faces greater scrutiny from consumers who demand a transparent and ethical supply chain and a lower environmental footprint, and from shareholder activists who press for the divestment of coal investments.
From 'social licence' to 'social value'
Last year, BHP announced to shareholders that the company would go beyond seeking a social licence to operate, to ensuring that both ‘social value’ and financial value drove core business decisions.
Former Chief External Affairs Officer, Geoff Healy, told shareholders the company must move from 'tolerance and acceptance' to 'trust and partnership.'
"Healy was arguing that social licence had been reduced to simply meeting requirements, rather than looking for improvements – they were interpreting it as being too transactional but they importantly highlight the role of social objectives in driving innovation," says Dr Lacey.
BHP's future actions around 'social value' include reducing carbon emissions in both its own operations and in customers' operations and a focus on better water management, in recognition that population growth and climate change place increasing pressure on global water resources.
"To achieve 'social licence' we must obtain relevant permits, meet legal requirements and avoid water discharge breaches," Healy said. "However, we recognise that 'a licence' to use water is not enough – because water is a precious global commodity; the management of which is emerging as one of the world's most pressing long ‑ term issues."
Lacey says that despite BHP's views on the definition of 'social licence,' its core objectives remain: that organisations adapt and respond to the needs of the communities in which they operate.
Innovation and responsibility
Lacey says that the concept of a ‘social licence to operate’ also speaks to ideas of responsible innovation – which looks at the role of new and innovative products, processes and business models in society, and how potentially disruptive areas of science and technology can deliver positive social benefits.
These can include 'green mining' processes - technologies and practices employed to optimise energy efficiency (via 'intelligent mining') and to lessen mining’s environmental impacts. Green mining involves reducing greenhouse gas emissions, minimising mining's ecological footprint, lowering chemical and water use, and upscaling wastewater processing.
Lacey cites CSIRO’s Deep Earth Imaging Future Science Platform as another example of responsible innovation driving change. Deep Earth Imaging engages smart analytics and algorithms to build geological simulations so that mining can be targeted more precisely – and the deep sub-surface can be explored through tools to let people ‘see’ what is underneath, as if looking through a 'glass Earth.' By generating new kinds of knowledge using these new approaches, decision-makers can access better support for the choices they need to make.
"More information allows decision‑makers to work out whether the course of action they select is a responsible one, whether a new technology or process is being adopted at the right time, and what trade-offs they are making when they engage in a proposed course of action," she explains.
"Just because something is technically feasible doesn't always mean it is socially feasible; we need to keep in mind the need to design innovation that is fit for purpose."
Lacey says that after ten years of research into the drivers, and impacts, of social licence to operate, CSIRO scientists have developed proven techniques and data that can help design responsible innovation into forward‑looking activities for the industry.
"Our research into social licence lets us leverage these trust-based relationships that organisations have with their stakeholders and use these to help resolve complex challenges faced by Australian industry," she says.
There are huge benefits promised by future science and technology – but these come with risks and uncertainties.
"Our work in the Responsible Innovation Future Science Platform aims to make sure that these future‑facing developments are designed and delivered for the benefit of all Australians, and also to help communities and end-users of these technologies to be fully informed about the challenges that are associated with their adoption."