Not getting a social licence to operate can be a costly mistake, as coal seam gas firms have found

In a wide-ranging recent speech, Rio Tinto chief executive Jean-Sebastien Jacques said there was:

…an opportunity for all of us to turn our social licence into a stronger social bond or contract. I believe this is a “make or break” for companies and it’s especially important for those of us in the extractive sectors.

He’s right. His comments serve as a useful reminder of the importance of obtaining a social licence to operate – meaning ongoing local community acceptance of a company’s business.

Read more: Australian gas: between a fracked rock and a socially hard place

My research on coal seam gas firms and social licence reveals what’s at stake if they get it wrong, and how they might get it right in the future.

What is a ‘social licence’?

“Social licence to operate” is a term that describes how much community support a project, company or industry has in a region.

Some companies view it as intangible, and put it in the too-hard basket. However, my research has found that there are some relatively simple ways to measure it.

Earning community support isn’t always straightforward. It involves interactions between a complex network of individuals and groups in society, and their views can change over time. It’s more than just getting one or two local representatives on side. If you don’t get that support, community pushback can cause expensive and time-consuming issues for a company. Regulations can change. People take to the streets.

Social licence can be a struggle to maintain, but it can also be a tool for promoting collaboration. Case studies in which this has been achieved effectively are still relatively few and far between, but we’re aiming to change this.

More than just a legal contract

Present legislation requires land access agreements to be drawn up between companies and the landholders on whose land they wish to operate. However, my research has found that this isn’t enough.

It can often create winners and losers. Natural resources such as freshwater systems extend beyond property boundaries. Just outside the land on which a project operates can be exactly where challenges to a social licence begin. We found that the exclusion of important stakeholders (and not treating them as a stakeholder group), can lead to substantial social licence issues.

For example, in the New South Wales Northern Rivers region (which includes places like Lismore, Byron Bay and Mullumbimby) the social movement against the coal seam gas industry began when a group of local ladies were having afternoon tea on their farm. They noticed a drill rig had appeared across the valley to drill on a neighbour’s property.

Those few women, who had never heard of the coal seam gas industry until that moment, nor had they previously participated in activism of any kind, were instrumental in the emergence of the anti-CSG movement.

What drives social licence?

Local context is key. The legitimacy of a project hinges on whether people think a project will create more benefits than problems. And people’s perceptions emerge from a combination of local economics, demographics and social values.

This is where a company needs credibility - a reputation for living up to its commitments and responding to concerns. Having a strong social licence is about not only being seen to be doing the right thing; it’s about actually doing the right thing. It’s also about transparency.

It’s important that government and industry approvals and processes are seen as fair.

Losing your social licence is expensive

Chief executive of gas company Metgsaco, Peter Henderson, explained to me in early 2012 that he viewed social licence as “an opportunity for NIMBYs to complain” (NIMBY meaning: “not in my backyard”). His view was that we had a democratically elected government that people should trust to make decisions on their behalf.

When we spoke again a year later, Metgasco was experiencing major operating restrictions, resulting from regulatory decisions made with what he saw as “absolutely no scientific, risk-management or factual basis”. His firm’s social licence was lost, and social resistance was in full swing.

A survey of Lismore voters that we conducted on behalf of Lismore City Council showed that in September 2012, 87% of voters did not support CSG development.