By Simon Whistler, Senior Specialist, Investment Practices, the PRI
Gaining and retaining a social licence to operate, the general “acceptance or approval by communities and stakeholders of organisations and their operations”, is an increasing challenge for infrastructure investors. In a previous blog, we highlighted how failure to achieve a social licence can bear significant financial and reputational costs.
In a growing number of countries, both developed and emerging markets, it can also translate into major political and regulatory risks. Relying on having followed “the letter of the law” is no longer enough to fall back on when the public consensus is unsupportive of a project. Investors of all kinds must recognise the need to obtain a social licence as a fundamental aspect of infrastructure development, not just a tick-box exercise.
Infrastructure investors can take several steps to ensure they are committing capital to projects that seek to reduce adverse impacts, such as environmental damage, and benefit a range of stakeholders. As well as being good practice, it’s also good for business: by building trust with the local community, internal employees and central government, investors can gain a social licence that leaves them better placed to extend concessions, bid for new projects or build additional income streams for existing projects.
Even in cases where investors are not at the coalface of the process, understanding project developers’ and/or managers’ approach to the issue pre- and post-investment is critical. Civil society and governments – key external stakeholders in a typical infrastructure project – will often make little distinction between investors, developers and operators, particularly when things go wrong and a convenient scapegoat is needed.
Assembling the building blocks
Obtaining a social licence is not an exact science. However, a basic review of publicly-available frameworks and tools, and conversations with investors, project developers and civil society, reveal several themes:
- There is no one-size-fits-all approach – no two projects, sectors or countries are the same. Each project’s stakeholders and impacts are different. The underlying principles of an organisation’s approach can be the same or similar, but they must be adapted to the realities of each project.
- The stakeholder engagement process throughout the investment and asset life cycle is critical to this: how organisations identify the right people with whom to engage with, the right issues on which to engage, and the right ways in which to engage, is fundamental. Shifting social and political dynamics mean that this process can be increasingly complex. For example, migration patterns in Europe are creating questions around migrants’ rights, their roles in communities and their ability to make their voices heard, which infrastructure practitioners must find ways to address.
- This means going beyond compliance requirements on who to consult with and how to consult with them. Local communities and other key stakeholders want to be part of, or at least perceive that they are part of, the decision-making process as much as possible. With that in mind, it is no longer enough to hold town hall meetings based on PowerPoint presentations. As one participant during a recent PRI-hosted debate on the social licence said: There is a need to go “behind the lines” to properly understand the different stakeholders.
- Responding effectively to challenges is as important as trying to avoid them in the first place. The process of engaging with stakeholders is ongoing and requires open channels of communication. Formal grievance mechanisms to ensure open dialogue highlight how situations can and will be addressed, and in what timeframe, help to maintain stakeholder confidence.
- Technology, such as social media and targeted data gathering, can help inform approaches to stakeholder engagement. It can also help stakeholders better coordinate their action and make their voices heard more loudly and widely. But building relationships and trust requires a human touch that technology cannot replace. Striking the right balance in terms of using and responding to technology is essential.
The bigger picture
Obtaining and retaining a social licence can be time- and cost-consuming. In many cases, successfully doing so requires flexibility, creativity and patience – factors which are not always easy to account for in asset management plans or quantifiable for financial models.
But it is worth remembering the bigger picture; developing and backing projects with a robust social licence is often a sign of a genuinely responsible investor. It can help investors understand the outcomes of their investments in relation to the Sustainable Development Goals (SDGs). Almost by definition, projects designed, built and operated in a more socially-inclusive manner are highly likely to align with various SDGs and their targets. Infrastructure also underpins the transition to a greener, more sustainable global economy. Investment in this space requires a renewed focus on the social element of the transition to prevent communities and individuals being left behind.
Focusing on the social licence gives the infrastructure investment community the opportunity to respond positively to social and political concerns over the role of private investment in the delivery of public services. Finding the right tools to be successful and communicate outcomes should aid the process of restoring public trust, while also ensuring that private capital can deliver the critical infrastructure investment needed to build a more sustainable future.
This blog is written by PRI staff members and guest contributors. Our goal is to contribute to the broader debate around topical issues and to help showcase some of our research and other work that we undertake in support of our signatories.
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