• What is the Social Licence to Operate (SLO)?

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    The  social licence to operate (SLO) refers to the level of acceptance or approval by local communities and stakeholders of mining companies and their operations. The concept has evolved fairly recently from the broader and more established notion of “Corporate Social Responsibility” and is based on the idea that mining companies need not only government permission [or permits] but also “social permission” to conduct their business. Increasingly, having an SLO is an essential part of operating within democratic jurisdictions, as without sufficient popular support it is unlikely that agencies from elected governments will willingly grant operational permits or licences [21]. However, the need for and ultimate success of achieving an SLO relies to a large extent on functioning government and sound institutions. There has been limited scholarly research on the outcomes of SLO to date. Despite these limitations, many mining companies now consider gaining an SLO as an appropriate business expense that ultimately adds to the bottom line. Consequently, guidelines and initiatives to build and maintain SLOs have been developed both in Canada and internationally.

    Defining the Social Licence to Operate (SLO)

    The concept of “Social Licence to Operate” comes from the continuous study of the broader, older, and better established notion of “Corporate Social Responsibility” (CSR). CSR can be described as a complex structure of different corporate responsibilities, namely, philanthropic, ethical, legal, and economic. [23] Although CSR emerged in the 1930s, it wasn’t until the 1980s that local communities started to actively pressure mining companies to integrate more sustainable practices into their operations. [23] The subsequent change in corporate mining culture gained much attention throughout the 1990s and ultimately led to the idea that mining companies need to acquire “social permission” to operate and in order to conduct their business. The term “Social Licence to Operate” was coined in the late 1990s by Canadian mining executive Jim Cooney [24]. Since then, although SLO has received increased media attention, there has been limited scholarly research on its outcomes.

    The Social Licence to Operate (SLO) refers to the acceptance within local communities of both mining companies and their projects. Social acceptance is granted by all stakeholders that are or can be affected by mining projects (e.g. local communities, indigenous people) and other groups of interests (e.g. local governments, NGOs). [1] An SLO is based “on the degree to which a corporation and its activities meet the expectations of local communities, the wider society, and various constituent groups.” [2]

    The SLO does not refer to a formal agreement or document but to the real or current credibility, reliability, and acceptance of mining companies and projects. The SLO is granted by stakeholders based on the credibility of a mining company and the type of relationship that companies develop with the communities. Stakeholders tend to grant an SLO when they feel that their values and those of the company are aligned. [23]

    The SLO is dynamic [3] because stakeholders’ perceptions can change over time for different reasons including the success of CSR programs, (dis)satisfaction with the fulfillment of promises and obligations, unforeseen environmental damages, and the release of new information. The SLO can be revoked and it should never be taken for granted. [4] Obtaining and maintaining an SLO is only possible when communities feel they are consulted and receiving a fair share of benefits from mining projects. [5-8]

    How are Social Licences to Operate obtained?

    In order to obtain an SLO, mining companies must develop good relationships with all stakeholders. The World Bank recommends that governments, mining companies, and local communities undertake trilateral negotiations from the onset of mining projects. [9]

    There is no one unique formula for mining companies to gain and maintain an SLO. However, some principles are necessary, including the establishment of good relationships. Good relationships are based on mutual respect, open and ongoing communication, inclusion of all stakeholders, honesty, plain disclosure of information, and transparency of mining exploration and exploitation processes. [10] They also require mining companies to be sensitive to local cultural norms, create realistic expectations, develop fair conflict resolution mechanisms, be consistent and predictable regarding their ethical behavior but flexible enough to accommodate the needs of the community, and start the engagement process as early as possible. [10, 11]

    The SLO is only secured when good relationships are established. This type of relationship cannot be based on providing material benefits to local communities (although this might be important in some cases). The Prospectors and Developers Association of Canada warns mining companies that providing material goods “is not necessarily what communities want or need to meet the objectives of long-term sustainability”[10, p.94] and advises them to “engage the community in a discussion of the risks, costs, and benefits, to recognize needs and opportunities and discuss trade-offs.” [10, p.94] It further recommends that mining companies “interact with communities, indigenous peoples, organizations, groups and individuals on the basis of respect, inclusion, and meaningful participation.” [12, p.6]

    Maintaining a Social Licence to Operate

    To maintain an SLO mining companies must keep their promises and commitments, respond to the community’s concerns and requests, ensure that information is not only delivered but also understood by all stakeholders, be accountable to the communities at all stages of the project cycle, and not engage in dishonest or irresponsible behavior. [1] Formal written agreements can help companies gain trust from local communities and set realistic expectations, but it should be clear that an SLO should never be taken for granted and that social trust does not depend on documents. [1]

    A government’s political and legal framework is vital to a company’s capacity and willingness to restrain its activities within sociably acceptable standards. Strong democratic institutions with clearly defined social and environmental regulations tend to raise the overall quality and social acceptance of private sector practices so that companies will have an incentive to exceed legal expectations and meet socially desirable standards. On the other hand, weak governance and a poor statutory structure not only tend to discourage companies from upholding better practices, but may also obstruct their ability to do so. [21,22]

    Why is the SLO needed?

    Obtaining an SLO is essential for reducing the risks of public criticism, social conflicts, and, in general, damage to a company’s reputation. [10] It also improves the effectiveness of a company’s resources, particularly its CSR budget. [10]

    An SLO is arguably indispensable for companies operating within certain jurisdictions, chiefly those classified as representative democratic societies where having an SLO is generally needed for political support and thus real operating licences. [21]

    By contrast, Eyles and Fried (2012) observed that SLOs are irrelevant or have minimal impact on a company’s operations unless a culture of timely responsiveness to publicly raised issues is present. [21] Gunninham and his colleagues (2004) pointed out that unless stakeholders are competent enough to develop and articulate social demands, or to fully comprehend possible consequences of a company’s actions, the need for an SLO might disappear. Their research also noted that economic concerns play a major role in constraining the degree that firms are willing to go to in order to satisfy social demands. Furthermore, adapting to socially demanded standards may be costly and may become a financial burden. That means mining companies might suffer from a lack of an incentive to act; firms may be reluctant to acquire an SLO unless there is a guarantee–from the government or private parties--that their competitors will be taking similar actions and making similar expenditures. [25]

    Nevertheless, the lack of an SLO is associated with social conflict, loss of machinery due to vandalism, higher financial costs, increased difficulties in hiring skilled labour, costly delays of mine operations, and possible mine shutdowns due to community opposition to the mine.

    Damage to a company’s reputation may hamper its ability to obtain necessary workers for current and future projects. These negative impacts also come with high costs for mining companies. While completely shutting down a mine is rare, delays can occur and can cost up to two-thirds of the mine project’s initial value. [13] According to Boutilier and Thomson, “a social licence is worth 75% of the top speculative price of a world-class deposit when it is in the ground and presumed to be development ready.” [1]

    Higher costs of projects due to lack of an SLO also increase the interest rate for financing these projects. This may jeopardize the company’s ability to obtain financing and it also diminishes shareholders’ profits. Mining companies therefore have financial and operational reasons for ensuring that their projects run free of interruptions and, thus, the SLO can be seen as a type of insurance. [3]

    The importance of gaining and maintaining an SLO is now widely recognized in guidance and recommendations provided by a number of industry and international organizations. For example, 74 financial institutions have adopted the Equator Principles, which are “a credit risk management framework for determining, assessing, and managing environmental and social risk in project finance transactions.” [14] These 74 financial institutions have committed to not providing loans to projects where the borrower will not comply with the Equator Principles’ social and environmental policies and procedures.  The International Finance Corporation (IFC), Rio Tinto, and Deloitte have also developed a Financial Valuation Tool (FV Tool) to help decision makers have a clearer idea of how much of a return different social investments make; and to help companies choosing the best social investments portfolio. [15-18]


    Case Study: What Are Canadian Mining Companies Doing to Earn & Maintain their SLO?

    Some Canadian mining companies have been recognized for their commitment to social development through best business practices and CSR programs. They also participate in international initiatives such as the United Nations Global Compact, the Extractive Industries Transparency Initiative (EITI), and the Equator Principles.

    The Prospectors & Developers Association of Canada has put in place the e3 Plus Framework for Responsible Exploration, which includes principles, guidance and toolkits. The Principles for Responsible Exploration makes explicit that Canadian companies should engage with host communities, contribute to community development and social well-being, apply ethical business practices, respect human rights, protect the environment, adopt responsible governance and management systems, commit to project due diligence and risk assessment, and safeguard the health and safety of workers and local populations. [12] The Excellence in Social Responsibility Toolkit (ESR) explains in detail the objectives and principles of social engagement, the typical problems that have impeded companies from engaging with communities, the process for building good relationships with stakeholders, the companies’ requirements for engagement, and the current best practices and tools for community engagement.

    The Mining Association of Canada (MAC) has launched the Towards Sustainable Mining (TSM) initiative to responsibly meet society’s needs for minerals, metals, and energy products. [19] TSM is composed of Guiding Principles that are backed by Protocols that set specific indicators to help identify the current performance of Canadian mining companies in various key areas, one of these being community outreach. The Guiding Principles recognize the commitment of MAC members to accountability; transparency; dialogue; ethical conduct; human rights; environmental protection; health and safety of employees and communities; respect for the cultures, customs and values of people; being responsive to community priorities, needs, and interests though all stages of mining exploration, development, operations, and closure; and providing long-lasting benefits to communities through self-sustaining programs that enhance the economic, environmental, social, educational and health care standards that they currently enjoy. [19] In addition, the TSM Protocol for Assessing Aboriginal and Community Outreach Performance establishes specific indicators to measure the identification of stakeholders (communities of interest), the level of engagement and dialogue, the mechanisms for responsiveness to stakeholders’ concerns, and the accountability system. MAC members are obliged to measure and report their performance annually [20]; and these findings are available to the public at the Mining Association of Canada's Toward Sustainable Mining Progress Reports.


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    References

    1Boutilier, R. and I. Thomson. Establishing a Social Licence to Operate in Mining. EduMine [Online course] 2009 Version: 03 November 2009 [cited 2012 January 26]; Available from: http://www.edumine.com/xutility/html/menu.asp?category=xcourse&course=Xlicence.

    2Gunninham, N., R. Kagan, and D. Thornton, Social License and Environmental Protection: Why Business Go Beyond Compliance. Journal of the American Bar Foundation, 2004. 39(2): p. 307-341.

    3Nelsen, J.L., Social License to Operate. International Journal of Mining, Reclamation and Environment, 2006. 20(3): p. 161-162.

    4Kemp, D., R. Boele, and D. Brereton, Community Relations Management Systems in the Mineral Industry: Combining Conventional and Stakeholder-driven Approaches. International Journal of Sustainable Development, 2006. 9(4): p. 390-403.

    5Clark, A.L. and J.C. Clark, The new reality of mineral development: social and cultural issues in Asia and Pacific nations. Resources Policy, 1999. 25(3): p. 189-196.

    6Sethi, S.P., et al., Freeport-McMoRan Copper & Gold, Inc.: An Innovative Voluntary Code of Conduct to Protect Human Rights, Create Employment Opportunities, and Economic Development of the Indigenous People. Journal of Business Ethics, 2011. 103: p. 1-30.

    7Atleo, S., Resource Development and Indigenous People: Finding the path to co-operation, in Republic of Mining, S. Studol, Editor 2011: http://www.republicofmining.com/2011/09/14/resource-development-and-indigenous-peoples-finding-the-path-to-co-operation-by-assembly-of-first-nations-national-chief-shawn-a-in-chut-atleo/

    8de Soto, H. The Peruvian Amazon is not Avatar. 2010.

    9World Bank and International Finance Corporation, Large Mines and Local Communities: Forging Partnerships, Building Sustainability, 2002, International Finance Corporation.

    10Prospectors & Developers Association of Canada (PDAC), Excellence in Social Responsibility e-toolkit (ERS), 2009.

    11Browne, A.L., D. Stehlik, and A. Buckley, Social licences to operate: for better not for worse; for richer not for poorer? The impacts of unplanned mining closure for “fence line” residential communities. Local Environment, 2011. 16(7): p. 707-725.

    12Prospectors & Developers Association of Canada (PDAC), Principles and Guidance, in e3PLUS: A Framework for Responsible Exploration: http://www.pdac.ca/e3plus/English/pg/pdf/e3plus-pg-full.pdf.

    13Humphreys, D., A business perspective on community relations in mining. Resources Policy, 2000. 26(2000): p. 127 – 131.

    14The Equator Principles Associations. About the Equator Principles. 2011 [cited 2012 March 6]; Available from: http://www.equator-principles.com/index.php/about-the-equator-principles.

    15Jones, V.N., et al. How to Value Returns on Sustainability Investments in Emerging and Frontier Economies: Linking Community Outcomes and Business Value. Reflections from Practice - International Finance Corporation, 2011.

    16Jones, V.N., et al., Measuring Returns on Community Investments in Mining in First International Conference on Social Responsibility in Mining 2011, SRMining2011: Santiago, Chile.

    17Ednie, H., Tool means greater rigour for sustainability investment planning. CIM Bulletin, 2011. 6(6).

    18Tomlinson, A., Measuring where it counts, in HighGrade - Drilling Deeper for the News 2011.

    19The Mining Association of Canada, Towards Sustainable Mining - Guiding Principles, 2004.

    20The Mining Association of Canada. Towards Sustainable Mining. 2014. Available from: http://www.mining.ca/site/index.php/en/towards-sustainable-mining.html, as of January 10, 2014.

    21Eyles, John and Jana Fried (2012). "‘Technical Breaches' and 'Eroding Margins of Safety' - Rhetoric and Reality of the Nuclear Industry in Canada." Risk Management 14 (2): 126-151.

    22Sagebien, Julia, Nicole Lindsay, Peter Campbell, Rob Cameron, and Naomi Smith (2008) "The Corporate Social Responsibility of Canadian Mining Companies in Latin America: A Systems Perspective". Canadian Foreign Policy 14 (3): 103-VI.

    23Govindan Kannan, Devika Kannan, K. Madan Shankar (2014). “Evaluating the drivers of corporate social responsibility in the mining industry with multi-criteria approach: A multi-stakeholder perspective”. Journal of Cleaner Production. Available from: http://dx.doi.org/10.1016/j.jclepro.2013.12.065, as of January 10, 2014.

    24Jason Prno (2013). “An analysis of factors leading to the establishment of a social licence to operate in the mining industry”. Resources Policy, Volume 38, Issue 4, Pages 577-590. Available from: http://dx.doi.org/10.1016/j.resourpol.2013.09.010, as of January 10, 2014.

    25Gunninham, N., R. Kagan, and D. Thornton (2004). Social License and Environmental Protection: Why Business Go Beyond Compliance. Journal of the American Bar Foundation 39(2): 307-341.

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