VIEWPOINT

2022

SECURING THE
SOCIAL LICENSE
Recognizing the power of the people
in approaches to risk management
AUTHORSSocial risk is a critical early-stage considerationin any major business venture or project today.
Managing it is increasingly important, particularly
for companies undertaking large infrastructureand development projects, or with complex supply
chains. Essentially, where there are stakeholder
expectations, there is social risk to manage. Today’s
businesses must gain and maintain a social license
to obtain acceptance and protect their reputation.
In this Viewpoint, we explore the social license andhow it can be effectively earned, locally and globally.

Hannah Marsden
Robert Clover
James BeckARTHUR D. LITTLE

VIEWPOINT

THE SOCIAL LICENSE
TO OPER ATE

HARD TO E ARN ,E ASY TO LOSE

With sustainability at the forefront of today’s

The SLO is often best understood in its absence.

business activity, companies must adapt toStakeholder disapproval (and a withheld license)

deliver on stakeholder expectations. ESG

can present serious, if not catastrophic, risk to(environmental, social, and governance) reportinga project. Objection can quickly hinder projectis commonplace for many institutions and may

progress (e.g., through planning applicationeven become a formal requirement. However,processes), and social outrage may even be

when considering ESG factors, our experience

sufficient to motivate an opposition campaign.

tells us that social issues are comparatively
less well understood, with associated risks often
poorly managed. Social factors are inherently
complex and can be difficult to define, hard tounderstand, and almost impossible to quantify
or measure. The concept of the “social license tooperate” (SLO) was borne out of a need to frame
this complicated and neglected dimension for
major business projects.

Stakeholder acceptance and approval can often
be very difficult to achieve, requiring months
or years of relationship building. When a social
license is granted, it is often in the form oftolerance rather than enthusiasm, leaving it
vulnerable to withdrawal. The SLO is dynamic
and must not only be earned but proactivelymaintained. In the most extreme cases, such as
the Jukkan Gorge example (see case study), theThe SLO has been granted various overlappingsocial license, strengthened over decades, can bedefinitions; put simply, it is a measure oflost in an instant.

stakeholder acceptance of a project orundertaking, sufficient to allow the project toprogress according to plan, on the basis that itcontinues to meet stakeholder expectations.
Such a “license” is unwritten and neither
formally granted nor reliably measured. However,
it is a useful concept when developing an
understanding of stakeholder perceptions — andhow they can be influenced to control social risk.

The costs associated with the absence of asocial license can be severe and materialize as
delayed production (and associated loss in sales),legal fees, security, reputation and shareholder
confidence, and opportunity cost (e.g., for futureexpansion), among others. For instance, a single
protest cost the UK’s High Speed 2 (HS2) rail
project £3.5 million, while PNAS estimates thatdelayed production at a large mine can incur
costs of US $20 million per week.

CASE S TUDY — RIO TINTO JUK K AN G ORGEIn May 2020, Rio Tinto destroyed two rock

Following the incident, the constructive

shelters in Western Australia while extending anrelationship between Rio Tinto and the PKKP

iron ore mine. These sites were of great cultural

people broke down after 17 years of collaboration.

significance to the local indigenous (PKKP)

It is unlikely that the PKKP people will trust

people. The rock sites showed evidence of having

Rio Tinto again, making accessing indigenous

been inhabited for 46,000 years, and a recent

land much more difficult in the future. Threearchaeological dig revealed several artifacts,

executives have all since resigned from their

including 4,000-year-old plaited human hair.

positions, including CEO Jean-Sébastien
Jacques, whose renumeration package was
opposed by 61% of shareholders following
significant international backlash.

SECURING THE SOCIAL LICENSE

2

ARTHUR D. LITTLE

VIEWPOINT

BE YOND CORP OR ATE
SOCIAL RESP ONSIBILIT Y

EFFEC TIVE COMMUNIT YENGAGEMENT

Many executives may think that they are

In most cases, the community local to a project

managing social risks through corporate social

has the greatest right to be involved in decision

responsibility (CSR) policies and initiatives,

making and, similarly, can also have the greatest

but this is fallacious. CSR is too often a public

impact on the project. The key to gaining andrelations exercise that will not materially impact

maintaining an SLO is building relationships

the achievement of a social license. The problems

through community engagement.

with CSR policy are manifold:- CSR is generally seen as external to core

Identifying stakeholders

business activities, whereas building an SLO

No community has a cohesive, homogenousis a vital part of project development.

voice. The first step in the process is to identify- Often CSR activities are, or are perceived as,
tokenistic and do not effectively mitigatesocial impacts.

- CSR is too often implemented as a short-term fix to stakeholder demands and does
not incorporate the foresight necessary tomaintain the social license in the long term.

stakeholder groups that share common
worldviews, ambitions, and values. This enables anunderstanding of the social, cultural, and politicalenvironment from which one can anticipate
potential concerns and inform the engagement
approach. If possible, identify individuals who may
act as representatives for groups, such as local
politicians or councilors. Particular care must beMoreover, philanthropy is not considered best

given to identifying minority and marginalizedpractice when it comes to achieving an SLO. It isgroups, such as indigenous peoples who may

important to consider the social license not as abe less able to represent themselves but whosemeans of reducing resistance but as a long-term

cause is more likely to be taken up by externalcommitment to working with stakeholders toplayers.

manage expectations and bring about mutual
net benefit. Consider for example, a donation
to a local charity. Though well-intentioned,
this may be perceived as an attempt to “buy”
favor and will be unlikely to offset any negative
impacts. Instead, actions such as employing
local people and procuring local services are in
the long-term interest of both parties and thus
more likely to build stable support. A step further
may see projects offering shared ownership tocommunities whereby they receive, for example,a share of the profits in return for hosting the site.

Providing information
Stakeholders must be provided with sufficientdetail that allows them to build informed views.
Thus, businesses must be fully transparent —any aims to hide information will only inhibit theprocess if exposed in the future, and any sense oftrust will likely collapse. Moreover, stakeholders
must be informed on the engagement process
so that their expectations are managed andthe ways in which they can be involved is clear(e.g., by providing designated points of contact).
Businesses should utilize a range of media toensure sufficient reach and thus maximize
inclusivity: online, social media, leafleting,and local news, among others.

SECURING THE SOCIAL LICENSE

3

ARTHUR D. LITTLE

VIEWPOINT

Stakeholder dialogue
Dialogue is a two-way exchange, requiring input

A KEY COMPONENTOF THE SLO IS TRUST

and listening from both parties. For dialogue
to be constructive, it must be authentic andcollaborative with both sides engaging openly

3. Grievance mechanisms. The way in which aand responsively.

project deals with stakeholder complaints andAs Figure 1 illustrates, there are four important

objections largely impacts the tone and thus

components that feed the stakeholder dialogue
process:
1. Openness to change. Businesses must
prepare themselves to adapt projects
and activities as a result of engaging withstakeholders; otherwise, the whole process
is inconsequential. To build credibility, it’s
important to demonstrate this early.
2. Keeping promises. A key component of theSLO is trust. The community must trust thatthe business will keep its word or else thedialogue will break down.

outcomes of the dialogue. It is important todesign formal grievance mechanisms whereby
stakeholders can be heard, misdemeanors
acknowledged, and solutions sought. Poor
response to complaints often leads todissatisfaction being expressed through other,more public channels such as social media.
4. Stakeholder monitoring. While engaging
with communities, it is vital to monitor
stakeholders and their evolving perceptionsof a project. Tracking this allows the businessto preempt concerns and adapt the approachaccordingly. The business should integratesocial risks into the organization’s key risk
indicators (KRIs), triggering action when risk
is beyond the risk appetite.

gure 1. Figure
Four1. Fourcomponentsof stakeholder
dialogueA successful community engagement strategy
components of stakeholder
dialogue(see case study of onshore wind farms) controls
social risk through prevention and mitigation

STAKEHOLDER
IDENTIFICATION

of social impacts with corresponding benefits
for the community. Engagement should be

PROVISION OF
INFORMATION

maintained throughout the project lifecycle, withthe strategy adapted accordingly to ensure thatGRIEVANCEMECHANISMS

OPENNESS TOCHANGEactions are keeping up with developing social
attitudes and concerns. Regular consultation
workshops are a simple means to sustain theconversation.

DIALOGUEKEEPINGPROMISESSTAKEHOLDER
MONITORINGSLO GRANTEDMUTUALBENEFITSCONTROL
OF RISK
Source: Arthur D. Little: Arthur D. Little

SECURING THE SOCIAL LICENSE

4ARTHUR D. LITTLE

VIEWPOINT

CASE S TUDY — ONSHORE WIND FARMS
Despite being an important generator ofA similar development by ERG at the Porspoderrenewable energy, wind farms are often awind farm in France organized workshops withcontentious local issue. Those living close

the local community to openly discuss theto proposed sights often express concerns

potential impacts and hear thoughts fromregarding noise, damage to the local

the locals on the best location of the windenvironment, and inconvenience during

farm. They also chose to use language that

construction. Wind turbines are often considered

encouraged identification and ownership (e.g.,

an eyesore — and a scar on the landscape. The“our windfarm”).

Königshovener Höhe wind farm in Germany
developed by Innogy/RWE, however, was ableto navigate this complex situation througheffective community engagement.

Some wind developments have implemented
effective financial recompense schemes for their
host communities. These are most successfulwhen they are clearly linked to the project (e.g.,

A communication plan was developed early inoffering reduced electricity bills to locals) or can

the planning process, which ensured that thesupport the mitigation of negative impacts. For

local community was well-informed and reliably

instance, if there are concerns that the wind farm

updated on the wind farm plan and its progress.

may damage wildlife habitats, then the developer

There was a strong focus on encouraging themay choose to fund a local conservation

local population to identify with the wind farm.

initiative.

This was successfully achieved through effective
engagement and education (e.g., in interactive
Q&A sessions and the creation of a local windfestival).

ENGAGING WITH A GLOBAL ,NE T WORK ED COMMUNIT YInternational visibility means that it is possible,

Acceptance from the local community may noworld to object to a project. This vast pool oflonger be sufficient to secure a social license.

stakeholders is likely to present an even more

Innovations in communications technology havediverse set of attitudes and expectations, often

connected a global community and transformed

more ideological in nature. Such groups may

the business environment. Social media, inexist to support and back up local communities

particular, provides an unrivaled platform forbut frequently act to further their own,

sharing information and opinions and mobilizing

separate cause. These groups are generallyaction groups. One tweet from an influencer, or abetter resourced with louder voices than localviral video, can have immediate, wide-reaching,communities, with the ability to damage wider

and potentially catastrophic impacts. Paired

business reputation beyond that of a single

with the growing trend for socially conscious

project.

and common, for not only locals but individuals,
NGOs, and campaign groups from across theconsumerism and political activism, there exists
a rapidly evolving social risk.

SECURING THE SOCIAL LICENSE

5ARTHUR D. LITTLE

VIEWPOINT

Social media can also be dangerous territory forcompanies trying to manage social risk. Though- Adaptability. Use available tools to track
reach and engagement. Tailor approach

it can be a highly effective way to interact withaccordingly (e.g., through targeted andstakeholders, it must be managed with greattime-appropriate messaging).

care. There is neither a structure to the debate
nor accountability for what is said and as exposed
during the COVID-19 pandemic, misinformation isrife. NGOs and campaign groups have been quick
to take advantage; they are savvy and highly able
to manipulate information and influence users toan extent that most businesses cannot match.

It is vital to be responsive. This does not mean
reacting to every provocation and taunt but
instead replying swiftly and efficiently to genuine
concerns and complaints. A poorly maintainedsocial media presence is open to exploitationby the opposition and is often worse than nopresence at all. For this reason, accounts should

Compared to local communities, identification

be actively managed by knowledgeable staff thatof stakeholder groups across this global network

are trained in communications best practice —is a more complicated task, and there is not

it is not a role for the office intern.

the same opportunity to lay the foundations ofthe discussion. Engagement on social media
thus requires a more nuanced approach, withparticular attention paid to the following factors:- Transparency. Stick to the facts and beconsistent. It is too easy for an opposition
to highlight discrepancies and expose

SOCIAL MEDIA CAN BE
DANGEROUS TERRITORYF O R C O M PA N I E S T R Y I N G
TO MANAGE SOCIAL RISK

exaggerations.

- Neutrality. It is best practice not to polarize
the discussion; hold the middle groundand avoid emotive language. Celebrateachievements and milestones but be sensitive
to the perspective of others and do not gloat.

Figure 2. Four components of stakeholder dialogue
Figure 2. Three factors of engagement on social media

TRANSPARENCYNEUTRALITY

ADAPTABILITY

Source: Arthur D. Little

SECURING THE SOCIAL LICENSE

6

ARTHUR D. LITTLE

VIEWPOINT

CONCLUSIONINSIGHT FORTHE EXECUTIVEI N T O D AY ’ S C O N N E C T E D W O R L D , I T I S N OL O N G E R E N O U G H T O C O N S I D E R O N LY T H E
RISKS P OSED BY JUST THE LOCAL P OPUL ACE
Social risk is no longer an optional element to a project’s
risk mitigation strategy. CSR rhetoric will not be sufficient
to secure the necessary acceptance from local and global
stakeholders that will allow a project to progress without
conflict and the associated lost time and costs. Local
communities need to see a meaningful share of project
benefits, along with genuine mitigation of negative impacts.
In today’s connected world, it is no longer enough toconsider only the risks posed by just the local populace.
Concerns that arise locally can rapidly escalate to a global
audience with a diverse range of views and ambitions. Thisrequires an adapted approach with a carefully managed useof social media platforms.
To gain and maintain a social license — and control social
risk — businesses should:
1

Design strategies for engaging with stakeholders that
promote active engagement from an early stage in the
project lifecycle.

2

Be dynamic and responsive to evolving stakeholder
expectations.

3

Develop in-house digital literacy and approach social
media with calculated caution.

4

Prioritize delivering mutual benefits over philanthropy
and tokenistic gestures.

SECURING THE SOCIAL LICENSE

7

Arthur D. Little has been at the forefront of innovation since1886. We are an acknowledged thought leader in linking
strategy, innovation and transformation in technologyintensive and converging industries. We navigate our clients
through changing business ecosystems to uncover new growth
opportunities. We enable our clients to build innovation
capabilities and transform their organizations.
Our consultants have strong practical industry experience
combined with excellent knowledge of key trends and dynamics.
ADL is present in the most important business centers around theworld. We are proud to serve most of the Fortune 1000 companies, inaddition to other leading firms and public sector organizations.
For further information, please visit www.adlittle.com.
Copyright © Arthur D. Little Luxembourg S.A. 2022. All rights reserved.