The term ‘social licence to operate’ can broadly be described as the ability of a business to carry out operations in a given community because stakeholders have given the project a certain level of acceptance. Companies that have a social license to operate may experience lower operational risks, more future opportunities, greater support from the community and higher operational certainty. By contrast, companies that do not gain acceptance from the local community may face work stoppages, protests, blockades, heightened risk of conflict, political opposition, loss of operating license or other challenges. In extreme cases, loss of social license to operate may cause a company to close operations entirely or fall into bankruptcy.
A company gains the social license to operate when communities have confidence that it will behave in a legitimate, accountable, and socially and environmentally acceptable way. This trust is built not only by complying with laws and regulations, but by behaving in a transparent and accountable way, including consulting communities and responding to their concerns.
Social license to operate can be difficult to earn and can be easily revoked if stakeholders believe that the company is not meeting expectations or well-established norms around business and human rights. Companies need to continuously reassess their actions to accommodate changes in the operating environment and social expectations.
Effective corporate-community relations (including in security-related matters) allow the company to:
- Obtain and maintain a ‘social license to operate’
- Reduce the risk of local opposition, tensions and conflict that can cause delays, material damage, lost productivity, loss of property and even the shutdown of operations.
- Reduce incidents relating to the use of force, thus lowering the costs of insurance, legal support and compensation.
- Attract and retain local expertise, which can provide an understanding of the local context that the company might lack otherwise.
- Strengthen the company’s reputation and establish a competitive advantage.
- Maintain a favourable corporate risk profile, increase investor confidence and reduce the cost of project capital.