Social License to Operate: New Standards for Energy Investments

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The term “social license to operate” (SLO) is now part of the jargon used by politicians, business people, and NGOs to refer to the community buy-in that legitimizes infrastructure and development projects. Unlike its cousin “corporate social responsibility” (CSR), which is a self-defined, corporate-driven strategy, SLO can only be granted by the community, requires community engagement, and implies joint stewardship.

SLO is an abstract concept; it is easier to measure its absence than prove its presence. Yet there are enough cases out there to ground our understanding of what SLO means in practice. To name a few, Innergex Renewable Energy, a developer of hydroelectric and wind power, embodied best practices by engaging with the Lil’wat Nation in British Columbia, Canada, to obtain input regarding its projects.[1] The consultation process resulted in a formal, written, endorsement of the project by the community. The mining company GTAC, on the other hand, opted to hire security guards carrying semi-automatic weapons to protect its drilling sites in Wisconsin from protesters. This would be a case of failure to earn community acceptance. The consequences of taking a confrontational approach, however, are hard to measure since the project was halted for regulatory reasons[2]. Even Starbucks, the poster child of corporate social responsibility, risked losing its social license when it was called out for not paying taxes in the UK, and had to make amends with its community over the potential loss of social services caused by its tax evasion.[3]

Obtaining SLO is not just becoming a “best practice,” it is in some cases mandated by law. As I mentioned in a previous post, the Mexican government is requiring all companies undertaking energy projects, including the existing public utilities, to conduct a social impact evaluations prior to project approval, as a means of taking community needs into account, mitigating the possible negative impacts of their projects, and promoting sustainability.

To understand better what this process entails and what SLO means in Mexico, I interviewed Dr. Gabriela Nava of the Observatorio de Desarrollo Regional y Promoción Social, A.C. (ODP) (www.odp.social).

 

S.G. What is the ODP?

G.N. ODP is an organization that studies and analyzes development needs throughout the Mexican territory to inform policy, program and investment decisions. We believe that sustainable, inclusive, development is necessarily rooted in the participation of communities in shaping their own future, and we see our role as helping communities identify, prioritize and manage their development agenda. Our work includes applied research, evaluations, and helping citizens channel their interests through appropriate public channels. We act as a bridge between communities, private firms, and the public sector, and as a catalyst of community goals.

 

S.G. What are some examples of ODP’s work?

G.N. Some examples of ODP’s projects include research for the World Bank on the relationship between youth who are neither in school nor in the workforce (known in Latin America as “ninis”—youth that “ni estudian ni trabajan”) and levels of violence; projects focused on citizen engagement in identifying and addressing social needs in several municipalities across Mexico; and a project focused on violence prevention among adolescents in Boca del Río, Veracruz. ODP has also carried out several projects on the finances of micro and small enterprises, including a national study on the psycho-social conditions that favor rural entrepreneurship, which resulted in the first large database of its kind in Mexico, and consulting engagements on the development of financial assessments for micro and small firms in Oaxaca. We have also already carried out several social impact evaluation studies for investments in the energy sector.

 

An important part of our work consists of monitoring socio-political risks at the local level across the country. To do this we use ODP’s vast relational database containing 6,000 variables for the 2,456 municipalities (counties) in Mexico. We use this data to produce a Governability Index, which in turn is composed of 4 sub-indexes: State Presence, Rule of Law, Social Vulnerability, and Challenges to the State. We use these indexes, and supplemental data we collect on a project-specific basis, to build baseline evaluations of communities for a range of public and private clients, and make recommendations on community engagement. In addition to census data, we work with a network of 400 social promoters who carry out field research and participate in community engagement. So far ODP has carried out field work in 200 municipalities, including some of the most challenging parts of the country where the highest levels of poverty, violence, and crime are found.

 

S.G. Is ODP participating in the newly required Social Impact Evaluations for energy projects?

G.N. Yes, we have several ongoing evaluations that include assessing social risks, mapping community stakeholders, evaluating social impacts, and developing negotiation and social engagement strategies for small and large energy companies. The magnitude of the task, of course, is project specific. We typically carry out an initial exploration based on which we estimate the scope and duration of the study. We also have carried out public hearings with indigenous communities on behalf of the public electric utility, CFE.

 

S.G. What is your opinion of the evaluations so far?

G.N. The evaluations required now for energy projects are very much in line with the type of work we have been carrying out, so we support the idea of incorporating community interests into infrastructure projects from the beginning. We also believe that in the long run the mandate to evaluate social conditions and engage with the community is beneficial to the private sector. Private firms should view the evaluations as a tool of risk management that protects their interests. We also feel that the evaluations can impose an excessive burden on smaller companies and projects. We understand that SENER is in the process of revising the requirements, and hopefully incorporating greater flexibility into the process such that the evaluations can be better tailored to project characteristics.

[1] Yates, Brian and Celesa Horvath. Social License to Operate: How to Get It, and How to Keep It. Paper commissioned by the Asia Pacific Foundation of Canada for the 2013 Pacific Energy Summit.

[2] Mike Simonson. GTAC Hires Armed Security To Protect Drill Sites. WPR News, 8-jul-2013.

[3] Christians, Allison. How Starbucks Lost Its Social License. Tax Analyst, 23-aug-2013.

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