Social License to Operate: A way forward

In an era of shifting regulations and evolving political landscapes, securing Social License to Operate (SLO) is a critical component of successful project development. With a new presidential administration and Congress in the US, significant changes are happening in environmental regulations, with an emphasis on deregulation and a pivot away from language like community benefits; environmental justice; and diversity, equity, and inclusion (DEI). Furthermore, proposed changes to National Environmental Policy Act (NEPA) implementation may further relax requirements, or lead to more diverse procedures between states. In Europe, the Corporate Sustainability Reporting Directive (CSRD) increases reporting requirements for investors and developers regarding community impact and worker relations. Regardless of the changing political landscape and evolving regional regulations, the need for community engagement remains constant. Stakeholder acceptance is not only a moral imperative but a strategic necessity for mitigating risk, ensuring project viability, and maintaining long-term operational stability.

SLO refers to the ongoing acceptance of a project by external stakeholders, particularly the communities impacted by the project. Regulatory requirements for engaging with communities differ from one country to another, and even within the US from one state to another. However, unlike regulatory approvals, which are legally mandated, SLO is an informal yet critical factor that determines whether a project will proceed smoothly or face opposition. As the old adage goes, “projects move at the speed of trust.”

For companies adhering to internationally recognized best practice, such as International Finance Corporation (IFC) Standards, SLO is necessary. Differences in regulatory frameworks across jurisdictions complicate this effort, making it essential for businesses to lead the adoption of internationally recognized best practices tailored to each infrastructure project.

SLO is an integral part to corporate social responsibility (CSR) and risk mitigation. CSR is an umbrella term used to describe the balance of responsibility to a business’ stakeholder and society at large, including responsibilities to project stakeholders, local and international communities, and the natural environment. CSR is generally understood to be voluntary behavior that goes beyond legal compliance¹ and is a key risk mitigation strategy.

Maintaining a strong relationship with the community and operating within social acceptability is often associated with a project’s development and continued success. Engaging stakeholders early and continuously is a risk mitigation tool used to drive that success. In general, project developers are moving away from the problematic “decide and defend” paradigm, in which stakeholders are notified of major development decisions after that fact, often leading to oppositional movements characterized by “not-in-my-backyard (NIMBY)” push back.

Companies with strong community relationships experience numerous advantages, including:

• Keeping projects on schedule and within budget
• Reducing risk of disruption due to community opposition
• Attracting and retaining a skilled workforce
• Minimizing health and safety risks
• Positive reputation, enhancing brand value
• Enhancing brand reputation and investor confidence

• Creating local employment and business opportunities
• Boosting local economic activity
• Encouraging additional community investments

It is in the best interest of all parties to build a relationship based on trust and transparency, and to work together to avoid social conflict, solve grievances, and maximize benefits for all stakeholders.

Companies and projects exist on a spectrum of social responsibility. In recent years there has been a growing interest in sustainability with an increased number of companies aiming to conduct business in a sustainable way. Many companies seek to limit the negative impacts of their business activities on society, natural resources, and the environment, while continuing to meet sustainable financial and business objectives. Conversely, other countries and industries still have more work to do to meet best practices obtaining SLO.

Minimal social safeguards: Projects or companies with minimal safeguards often face public backlash and/or lawsuits from activists, non-governmental organizations (NGOs), communities, workers, and shareholders, leading to long-term delays, financial losses, and reputational damage. Companies with projects in this zone often learn that SLO cannot be self-awarded².

Partial social safeguards: Projects or companies with partial social safeguards comply with regulatory requirements, but do the bare minimum in terms of community engagement, leading to increased scrutiny and operational risks. These entities can experience schedule impacts in the development phase and higher safety incidents and turnover rates in the operational phase.

Strong social safeguards: Projects or companies with strong social safeguards are often used as examples of successful projects and showcase the practice of good corporate citizenship. These projects require more upfront planning but receive smoother regulatory and financial approvals in the development phase³. These companies can also experience improved safety performance and a higher workforce retention rate in the operational phase.

Notably, a company’s environmental, social, and governance (ESG) rating often correlates with its SLO standing, influencing investment decisions and long-term profitability⁴. Moreover, companies who are leaders in CSR also maximize shareholder value and have significantly higher stock valuations: by about 5%.⁵

Proactive stakeholder engagement is essential for securing and maintaining SLO. A well-crafted stakeholder engagement plan can be used as a management tool to avoid, minimize, and offset impacts by a project, all the while exploring collaboration opportunities. Essential parts of this plan should be:

Tailored and inclusive: Understanding the needs and expectations of a particular community ensures that investments benefit all stakeholders.

Data-driven: Utilizing geospatial tools and digital platforms helps companies identify and analyze stakeholders to understand burdens and potential benefits, ensure timely engagement, and track stakeholder sentiment.

Continuous: Engagement is a two-way process that should conducted in a transparent manner with local communities at a pre-determined frequency, to build long-term trust.

These tools can help support early planning and mapping of stakeholder groups that is inclusive from shareholders to local community members. With a solid understanding of the stakeholders, more successful engagement strategies can be developed to support building an early SLO and de-risking the project. Early engagement with communities is key, and it should be done as early as possible in the project feasibility phase. While a company may have subject matter experts on engagement, they may not have the local knowledge that communities have.

For example, consider a developer that hosts a community meeting and finds that the project may impact a beloved community tree located at the edge of the project’s site. The tree has a cultural heritage significance to the tribal group living in the area. With early modification to the project layout to keep the tree untouched and accessible to the locals, the developer builds trust with local community, which then leads to good will throughout the project lifecycle. Building a relationship early may be more time consuming, but it de-risks the project when communities perceive that they have an open communication channel to the project development team.

Engagement must be continuous. Companies who are considered leaders in SLO engage with communities throughout a project’s lifecycle in a meaningful way.

• Planning phase: Soliciting community feedback to refine project design, identify potential concerns early, and develop partnerships that enhance both project feasibility and community benefits.
• Construction phase: Monitoring and adjusting mitigation measures, addressing grievances in a timely manner and optimizing strategic benefits for both the company and the community
• Operational phase: Integrating commitments into corporate management systems and maintaining ongoing communication about emergency response plans and other general updates
• End-of-life phase: Engaging with stakeholder to address uncertainties around project decommissioning, discussing the transfer of assets, and planning a smooth transition of workforce