In this article, we discussed social license to operate, the components, how to build and sustain it, examples of social license success and failure, the challenges and future.
Definition
The Social License to Operate (SLO) is an informal, unwritten approval or acceptance that a company, project, or industry gains from its local community, stakeholders, and the wider public to conduct its business. It is fundamentally different from a formal, legal, or regulatory permit, which is granted by a government authority.
Characteristics of the Social License to Operate
Informal and Dynamic: The SLO is not a document you can file or a static one-time agreement. It is a state of ongoing acceptance that must be continually earned and maintained. It is granted by the community and can be revoked at any time if the company loses trust
Based on Trust and Credibility: The foundation of a strong SLO is the trust and confidence the public has in the organization’s legitimacy and credibility. This is built through
Transparency: Being open about business practices, impacts, and future plans.
Fairness: Ensuring that the benefits and risks of the project are distributed equitably among stakeholders.
Ethical Behavior: Adhering to standards that go beyond minimum legal compliance (Corporate Social Responsibility or CSR).
Meaningful Engagement: Engaging in two-way communication, actively listening to concerns, and incorporating stakeholder feedback into decision-making.
A Critical Risk Factor: Losing an SLO can have severe consequences, including:
Protests, blockades, or social conflict that disrupt or halt operations.
Damage to corporate reputation and brand value.
Increased regulatory scrutiny or political intervention.
Significant financial losses due to project delays or cancellations.
Components of Social License to Operate:
- Legitimacy (The Foundation)
Legitimacy is the fundamental, minimal requirement for an organization to operate. It is the community’s judgment that the organization’s activities are proper, appropriate, and adhere to their shared values and rules.
Rule of Law: Compliance with all formal legal and regulatory requirements (permits, environmental laws, labor standards, etc.).
Social/Cultural Norms: Adherence to the community’s informal social, ethical, and cultural standards. This means respecting local traditions, customs, and ways of life
Operating a facility only after all mandatory government environmental impact assessments are approved and following the law to the letter.
- Credibility (The Performance)
Credibility is the company’s demonstrated competence and reliability in fulfilling its promises and managing its operations effectively. It is about being believable to the stakeholders.
Competence: Showing the technical skill to execute the project without causing unacceptable harm (e.g., controlling pollution, managing safety risks).
Consistency: Having a proven track record of meeting commitments, following through on agreements, and demonstrating integrity in all actions.
Transparency: Providing true, clear, and timely information about the project’s progress, impacts, and performance data.
A company promises to hire 50% of its workforce locally and actually publishes audited reports showing it met this target.
- Trust (The Highest Level)
Trust is the highest and most difficult level of SLO to achieve. It is the community’s willingness to be vulnerable to the actions of the company, believing that the company will act responsibly, even when it is not being watched.
Relationship-Building: This is built through genuine, two-way dialogue (not just one-way communication) and a long-term commitment to the community.
Fairness and Equity: Ensuring that the community receives a fair share of the benefits (e.g., jobs, infrastructure, revenue) while mitigating negative impacts (e.g., pollution, noise) in a way that is perceived as equitable.
Responsiveness: Quickly and effectively addressing grievances and adapting plans based on stakeholder feedback, demonstrating a commitment to joint problem-solving.
When an unexpected operational problem occurs, the community assumes the company will be honest about the issue, fix it quickly, and provide compensation if needed, because that trust has been earned over years of responsible behavior.
How to Build and Sustain Social License:
Proactive & Early Engagement: Begin engaging with stakeholders early in the project lifecycle to understand their perspectives and incorporate them into decision-making.
Open Communication: Foster open dialogue and a two-way flow of information, answering questions openly and generating content to build meaningful connections.
Transparency & Accountability: Maintain transparency in business practices and decision-making processes. Clearly share information and be accountable for your actions and commitments.
Responsiveness: Be dynamic and responsive to evolving stakeholder expectations and concerns, addressing them quickly and effectively.
Trust & Relationship Building: Cultivate trust gradually through consistent, responsible behavior and a commitment to fairness and sustainability.
Mutual Benefit: Prioritize delivering tangible, mutual benefits to the community that go beyond token gestures, ensuring benefits are sustainable throughout the project’s lifecycle.
Understanding Local Context: Recognize that sociocultural norms and politics influence the process, requiring a tailored approach to engagement.
Inclusion & Fairness: Demonstrate a commitment to fair treatment, employee welfare, diversity, and inclusion at all levels of the organization.
Sustaining the Social License
Continuous Dialogue: Social license is not a one-time achievement but an ongoing process that requires continuous building and maintenance of trust.
Monitoring & Reflection: Establish processes for monitoring stakeholder sentiment and reflecting on lessons learned to adapt and improve engagement strategies.
Adaptability: Be prepared to adapt to new challenges and evolving stakeholder expectations in the digital age.
Integrate into Operations: Embed social license principles into organizational processes and procedures, making it a part of the company’s culture and operations.
Examples of Social License Success
Ethical Investing: In the financial sector, superannuation funds focusing on ethical investments have seen significant growth because they align with increasing public demands for responsible business practices, thereby building a strong social license.
Proactive Community Engagement: Companies in the Australian mining sector have successfully navigated the complexities of social license by consistently focusing on building strong relationships with communities, engaging with stakeholders, and providing local benefits.
Shared Purpose: Projects that clearly define and communicate a shared purpose with local communities, like those in the Myrtle Rust program, can build trust and ensure mutual benefit.
Examples of Social License Failure
Khudoni Hydroelectric Plant (Georgia): The project was halted due to significant social protests, as it failed to establish legitimacy, credibility, and trust with the local community, leading to widespread social resistance and project cessation.
Nigerian Oil Industry: In some cases, the oil industry has failed to secure a social license by not adequately addressing host communities’ environmental and social concerns, which has resulted in long-term neglect and degraded conditions for these communities, leading to long-term discontent.
Lack of Stakeholder Engagement: Projects often fail because they delay or fail to engage with stakeholders, don’t listen to community concerns, or make promises that are not kept, eroding trust and leading to the loss of social license.
Factors for Social License Success
Context-Specific Approaches: Recognizing that every situation is unique and requires tailored strategies for building and maintaining social license, according to ScienceDirect.
Building Trust and Relationships: Establishing a social license relies on building strong, ongoing relationships and trust with the community.
Local Benefits and Participation: Providing tangible benefits to local communities and involving them in project planning and decision-making is crucial.
Transparency and Communication: Openly communicating about a company’s plans and activities, including the potential trade-offs and challenges, helps to foster trust and understanding.
The Challenges of Social License Operate;
. Intangibility and Ambiguity
Undefined Nature: The SLO is an unwritten, informal contract based on community perception, trust, and acceptance. Unlike a government-issued license, there’s no official document or clear checklist to obtain it.
Difficulty in Measurement: It is nearly impossible to quantify or definitively measure acceptance. Companies often struggle to know when they have achieved the SLO, and their assessment of community support may differ vastly from the community’s own view.
Subjective Expectations: What constitutes “good corporate behavior” is subjective, varies by culture, and evolves over time.
- Dynamics and Fragility
Constant Negotiation: An SLO is not a one-time achievement; it must be continuously earned and maintained. A single negative event (like an environmental spill or a breach of promise) can destroy years of relationship building and lead to its swift withdrawal.
Shifting Stakeholders: The composition, leadership, and expectations of the local community and other stakeholders (NGOs, investors, media) are constantly changing. A company must manage competing and sometimes conflicting interests among different local groups.
Rising Societal Expectations: Global standards for Environmental, Social, and Governance (ESG) performance are continually increasing. Practices that were once acceptable may now be considered a risk to the SLO.
- Execution and Trust Deficits
The “Decide and Defend” Trap: Many companies default to a transactional, risk-management approach—doing the minimum required by law or notifying communities after a major decision has been made. This “decide and defend” strategy immediately erodes trust.
Pro-Forma Engagement: Companies often engage in consultation that is seen by the community as tokenistic (checking a box) rather than authentic (a true two-way dialogue). When companies fail to show a willingness to adapt projects based on feedback, credibility is lost.
Failure to Keep Promises: The biggest destroyer of the SLO is breaking commitments, whether related to local hiring, infrastructure projects, or environmental mitigation. Once promises are broken, trust—the foundation of the SLO—is difficult to repair.
The Problem of Corrupt/Weak Governance: In areas with corruption or weak government institutions, companies face the challenge of being viewed as a substitute for the state. This can lead to demands for benefits (like building roads or schools) that are beyond the company’s core mandate, or dealing with local elites who do not genuinely represent the broader community.
Conclusion
The Social License to Operate (SLO) is an informal but essential asset for companies in sensitive industries. To earn and maintain it, companies must commit to continuous honest dialogue, respect for local cultures and community interests, and delivering tangible, positive benefits to the community.
READ: How to Build a Strong Social Support System