Social licence is a de facto form of regulation that encourages companies to go beyond merely complying with legal requirements. Failure to comply with social licence conditions can lead to reputational damage and delay. While it does not establish a new legal or regulatory requirement, social licence can push the boundaries of existing ones.
The Concept of Social Licence
Social licence is a much referenced, but also much misunderstood concept. The term social licence is coined by Jim Cooney, an executive with Placer Dome, at a 1997 World Bank meeting examining the future survival of the mining industry. The phrase was an acknowledgement that the support of communities affected by mining could only be obtained and continued if companies demonstrated transparency and entered into an open dialogue with stakeholders.
Although there is no uniform definition of social licence, it can be said to embody the following general concepts:
- It is voluntary, not a legal concept or compliance issue.
- “Beyond compliance” behaviour is encouraged.
- Though not a legal contract per se, a company needs to strive to obtain an unwritten contract with stakeholders and society.
- It is often project or location specific (i.e. those most affected should have the most say).
- There may be a number of social licences, which must be maintained as social expectations and norms change over time.
The rise of the social licence phenomenon is rooted in a growing lack of public confidence and trust in government and governmental authorities to do the “right thing” in regulating business. The rise is also due, in part, to the rise of social media and the internet, and a generational shift in the views on the purpose behind business.
Criticisms of the Social Licence Concept
The social licence concept is subject to criticism. The rise of social licence is characterized by some critics as a serious threat because it can potentially delay or frustrate billions of dollars of economic development. To some, it is simply Not In My Backyard (NIMBY) dressed up and given another name, and has become a “licence to stall”.
Despite such criticisms, the industry recognizes the importance of social licence. Many companies have tried to rise to the challenge, such as through Corporate Social Responsibility (CSR) in annual reports, and the inclusion of CSR expertise. In the corporate governance context, the term “social licence” is rarely used. Rather, it is usally referred to as “social acceptance”, a much broader term. The best vehicle to achieve social licence is, perhaps, strong and innovative transactional agreements.
Examples of Social Licence in the Commercial and Environmental Context
By Decision Statement issued June 17, 2014, the National Energy Board approved the Northern Gateway Pipeline Project, subject to 209 conditions. Despite numerous cited benefits flowing from the construction of what would be a 731 km twin pipeline running from Alberta's oil sands to the BC coast at Kitimat, it has been suggested by some that the project is quietly being shelved, largely due to social license issues. Among other things, a number of legal proceedings are currently underway in which First Nations and other aboriginal groups who would be impacted by its construction and operation, are challenging the pipeline's approval.
Because of these social license issues, as well as the added costs in meeting the 209 conditions attached to the pipeline's approval, the $7.9 billion original cost estimate is now considered to be significantly understated, and the future of the project is considered by some to be in grave jeopardy.
Ring of Fire
A similar story exists with respect to Northern Ontario's Ring of Fire. The remote area, which represents the first discovery of chromite in commercial quantities in North America, contains minerals having a potential monetary value of approximately $60 billion.
As with the Northern Gateway pipeline, the Ring of Fire and associated required infrastructure including access roads, are located in ecologically sensitive areas on traditional lands of many First Nations communities. This project has also come to a halt again, apparently due largely to social licence issues.
Tension among stakeholders escalated when Noront, co-owner of the mineral-related rights, began landing planes on two frozen lakes, without permits to do so, and in the absence of any consultation with the affected First Nations groups. As well, planning legislation was passed without any consultation. This prompted several protests, and greatly impacted relations with these groups.
As an indication of the project's potential demise, Cliffs Natural Resources (Cliffs), the other owner of mineral rights, sold its Ring of Fire assets earlier this year to Noront for $27.5 million. Cliffs had originally paid $3.3 billion in 2012 to acquire those same rights.
Québec Shale Gas
While Québec's shale gas industry has existed in one form or another since the 1950s, until the relatively recent advent of hydraulic fracturing and other technological extraction advancements, much of the reserves located in Québec's St. Lawrence lowlands has remained inaccessible. Unfortunately, as a result of having failed to properly consult with affected stakeholders including landowners, those reserves remain inaccessible. Following drilling activities with no notice to landowners and in the absence of a governing regulatory framework, intense public opposition ensued, which resulted in the imposition in 2011 of a 5 year moratorium on shale gas exploration. In 2014, the Québec environmental regulator released a report stating that “the social and environmental risks and costs of shale gas exploitation would outweigh the anticipated benefits.”
Until these issues have been addressed and social licence has been obtained, the development of Québec's shale gas resources will likely not occur.
Alberta Energy Regulator
In December 2012, the Responsible Energy Development Act (REDA) was enacted, which created the Alberta Energy Regulator (AER). Under REDA, the AER became the single regulator in Alberta for all energy resource developments. The role of the AER includes granting project approvals and regulating environmental compliance.
Oil and gas development in Alberta, especially oil sands development, is subject to intense scrutiny internationally. The AER is seen by many as the industry's environmental watchdog.
The newly elected provincial government suggested that it would be examining the AER's mandate with a view to assessing whether the single regulator should be split so that it's licensing and compliance roles could be performed by separate bodies, as a result of a perceived conflict. In an article published in the National Post, we suggested that it was too early to meaningfully assess whether the AER was properly co-managing the objectives of environmental responsibility, and resource development. To date, nothing further has transpired in terms of any initiative to split the single regulator.
It is no longer sufficient to simply focus on obtaining whatever regulatory approvals are required for a project to proceed. If social licence is not also obtained, a project may come to a screeching halt, or it may die a slower, quieter death.