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No social license to operate? Beware, it may scuttle your project

Posted on Aug 7, 2016

Infrastructure participants have been talking about the concept of social license for some time. Initially created by the mining sector in an attempt to come to terms with the growing influence of social pressure on their investments and operations. The idea was that the local communities and society could either grant or revoke an organisation’s license to operate.
It recognised that —every bit as much as legal licenses — a social license was required for any project that impacted the communities hosted them.

The fact that infrastructure participants are starting to adopt this concept is not surprising. The whole idea behind infrastructure is to impact communities and people in a positive way. And so virtually every project the sector undertakes must secure and maintain a social license.

The concept of social license has an uneasy relationship with a key tool of the infrastructure sector — social impact assessments (SIAs). Most infrastructure project owners conduct a social impact assessment before they ‘green light’ a project. A social impact assessment in some form, is usually required by authorities and is more often than not only scoped to meet regulatory requirements. This is despite project owners knowing that they could be slowed or stopped in the approvals stage if they do not have the broad acceptance of the communities they plan to impact. It is an approach that sees conducting SIAs as a compliance step towards achieving a legal license.

More than just an assessment

While social impact assessments that go beyond the scope of what is legally required are a good step, the reality is that few infrastructure players are going far enough to realise the full value of doing an SIA. Scoped well and the results used effectively it can be a powerful mechanism for understanding and predicting those impacts and issues that can threaten your social license. One problem is that most infrastructure owners and project managers tend to assess social impact at a point-in-time rather than across the full life cycle of the project — from design and construction through to delivery and operation. And, as such, they tend to miss the signals that their social license maybe in trouble.

There is also often a disconnect between the potential risk that social impacts may have and the priority placed on social impact assessments by project owners and engineers. Many simply refer to social impact assessments as a ‘non-technical input’, essentially ranking it as subservient to other assessments such as financial feasibly or planning. Given that the loss of social license can scuttle a project in mid-stream or add exponential costs later in the project life cycle, it is important that project owners and managers start to systematically consider social risk on the same level as other project risks.

Another major challenge is the ownership of social risk. All too often, project owners and developers essentially ‘externalise’ the risk to operations, preferring instead to focus on timetables and deadlines. But this is a mistake: problems are always much easier to fix in the design stage than once operations have begun. Given the recent focus on ‘whole of life’ costs and sustainability, project developers and constructors should instead be trying to ‘own’ and design out social risk as much as possible.

Upgrade your license

Infrastructure owners and managers have an opportunity to see and use SIAs differently.

Not only to gain the understanding that allows them to improve their relationship with local communities, but also to reduce risk and — in some cases — identify opportunities to drive improved value for those communities in a way that better protects their investments.

Impact assessments should be seen as a continuous management approach rather than done at a point-in-time. At the very least they should be conducted at regular intervals around major project milestones and changes — and should be adapted to reflect the changing social dynamics and the different phases of a project (social opinion often changes once the cranes start to group). Project owners should also be paying more attention to how social risks evolve and change over time, course-correcting as the project progresses.

Infrastructure players could also be using their social impact assessments to uncover new opportunities to create value for community stakeholders and —ultimately — reduce the social risk over the lifespan of the asset.

Are there opportunities to use local businesses or workers in the construction? Could a new local enterprise be created by allowing local communities access to some ‘off takes’? Could the project be designed or developed in a way that encourages engagement from the local community? Often one small change in the initial design phase can make a massive difference in the way societies respond to infrastructure.

Don’t lose it

Measuring the elasticity of a social license is not easy; some projects may enjoy wide leeway depending on the expected outcomes and benefits for the wider community. The exact boundaries of the social license can change overnight with community expectations being the key determinant. Ultimately, a social license is maintained by how responsive the project is to changing community concerns and challenges. It is a license that must be earned every day. Executives and project owners will know when they’ve lost it.

Society has a powerful ability to tell companies when they are no longer wanted.

Richard Boele is a Partner Human Rights and Social Impact Services at KPMG Banarra