October 2019

A proactive approach to maintaining social licence

  • By Terence Jeyaretnam Partner, Climate Change and Sustainability, EY

This article is a summary of a presentation delivered at the AusIMM Social Licence to Operate Forum in Melbourne, May 2019

The current social licence paradigm

Social licence used to apply only to the mining and oil and gas sectors, but now plays a pivotal role across a large number of industries: banking, health and aged care, live animal exports, agriculture, tobacco, sugar, palm oil, gambling, technology and social media, pharmaceutical, infrastructure and transport. 

There are two key reasons for this expansion. 

Rapid and pervasive 21st century industrial growth has put severe pressure on our ecosystems and consequently, our communities. This has led to social licence becoming ever more important to an increasing number of industries.

Second is the growth in connectedness of our society through the internet and social media. This has led to stakeholder-first approaches being even more important, as rapid and widespread communication can quickly define common sentiment and perception. 

Within these mega trends, a new proactive approach is needed to maintain social licence. There are six key factors to this approach.

1. A focus on materiality

Approaches to gauging the materiality of social licence issues have evolved considerably over the past two decades. These approaches have become similar to those used by the financial professionals in defining financial materiality. It is important to regularly refresh the process so that new and emerging issues are identified and proactively managed. The Global Reporting Initiative provides a framework to consider material issues for an asset or organisation (Global Reporting Initiative, 2015). 

2. Stakeholder primacy

Stakeholder primacy was key during the birth of the industrial age, and is now considered just as important. That is, to know who your key stakeholders are, their levels of influence and impact, their views regarding your operations, and to know them as they change. The set of standards released by AccountAbility (2018) around stakeholder engagement, assurance and assurance principles provide a useful framework to understand stakeholder materiality, responsiveness, inclusivity and impact.

3. Voluntary disclosure

Involuntary disclosure (when someone else makes the disclosure on your behalf) is reputationally much more damaging (eg an exposé) than voluntary disclosure. There are significant drivers for voluntary and transparent disclosure of your impact, including from investors, the stock exchange and civil organisations. Early and voluntary disclosure is a critical tool in building and retaining trust with your key stakeholders.

4. Best practice performance and targets

It is important that organisations have best practice performance and targets to ensure that social licence is maintained. This is well-known, but what is different today is the availability of information to your key stakeholders about what best practice is. If you are below expectations, it is likely that you will be held to account by stakeholders.

5. Collective impact

Collective impact refers to a group of important actors from different sectors committing to a common agenda to solve a specific social problem. A program involving only one actor (eg a mining company) may be appropriate for addressing non-complex problems. However, collective impact is an approach to solving complex social problems. Taking a collective impact approach requires moving away from the traditional, more isolated ways that organisations attempt to solve problems. In a mature social licence context, it is important that social and community investment by the mining sector is collective in its approach in order to help solve the endemic local issues faced by our communities.

6. Executive capability

Social licence issues may mostly be identified at the operational level, but it is critical that the entire organisation is able to understand and respond to these issues as one. Consequently, executive and board level capability in environmental, social and governance issues is central to the ability of the entity to respond and manage issues in a timely and effective manner.

Conclusion

Social licence comes from maintaining and growing legitimacy, credibility and trust. The resources industry needs to reaffirm trust with its key stakeholders. This trust narrative must come from within and must engage all types of stakeholders, from investors to activists. The narrative put forward by the sector must show vulnerability, courage and leadership. It must have a point of view on critical emerging issues and must not be afraid to single out and be vocal against the relatively small number of operators and proponents that may tarnish the rest of the industry’s reputation. 

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

References

AccountAbility, 2018. AA1000 AccountAbility Principles (AA1000AP) [online]. Available from: www.accountability.org/standards/

Global Reporting Initiative, 2015. Defining Materiality: What matters to reporters and investors [online]. Available from: www.globalreporting.org/resourcelibrary/Defining-Materiality-What-Matters-to-Reporters-and-Investors.pdf

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