Social licences have become the premise of Justin Trudeau’s thought-provoking policy about energy-project developments. They have also be a major reason why western provinces and also the world of business have started to doubt the best minister’s leadership and his willingness to face for any healthy energy sector.
To begin with, nobody exactly understands (and never will) what a social licence is. Yet, at least a couple of things know.
First, the extractive business industries deeply transform ecological milieus, communities and economies – and frequently generate conflicts.
Second, getting a social licence involves a relatively broad and unpredictable consultation process where local communities can provide an opinion, be heard, and eventually, in extraordinary instances, exercise a veto.
Would relationships between local neighborhoods and the energy sector in Canada receive greater priority and a focus when the costs of conflict experienced by the industry were better understood?
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International research published by the Corporate Social Responsibility Initiative at Harvard Kennedy School in 2014 implies that most extractive companies do not currently identify, understand and aggregate the entire range of social-licence costs right into a single number that will catch the attention of senior management or boards.
The most frequent costs result from lost productivity because of temporary shutdowns or delays, according to the research. For instance, a significant, world-class mining project with capital expenditure of US$3 to $5 billion are affected approximately US$20 million per week of delayed production in Net Present Value (NPV) terms, largely due to lost sales.
The timeframe for new projects to come on-stream nearly doubled in the last decade
The greatest costs of conflict were “the opportunity costs with regards to the lost value linked to future projects, expansion plans, or sales that did not proceed.” Probably the most overlooked indirect costs were those “resulting from staff moment diverted to managing conflict – particularly senior management time, including in some instances those of the CEO.”
The apparent flaws that have severely damaged TransCanada’s interactions with Quebec local neighborhoods and politicians claim that the power industry still has quite a distance to go to fully recognize the functional managerial, operational and reputational costs of the social licence.
Undeniably, these cost is bound to increase. A 2010 are accountable to the UN Human Rights Council, citing a Goldman Sachs study of 190 projects operated by the major international oil companies, suggested that the timeframe for brand new projects in the future on-stream nearly doubled in the last decade.
While the business costs for social licences could keep rising, their political costs might soon end up being very costly, too.
Social licences work together with people’s to freely organize their communities based on their own personal convictions. In many ways, this right represents a considerable civilizational advancement.
However, there’s a darker side towards the fairy tale of stakeholder self-regulation and state disengagement. Social licences come also with political fragmentation that occurs when individuals see themselves disconnected more and more from their fellow citizens in common projects and allegiances. No surprise people and locally based organizations infused having a social-licence doctrine have difficulties reconciling their interests using the common good from the Canadian society.
This lack of identification isn’t just fuelled by sovereigntist attitudes. It also reflects a far more deeply fragmented thought process, by which activists as well as political representatives increasingly begin to see the Canadian state in purely instrumental terms. It fosters disunity, because the lack of effective common action in the federal level only serves to throw communities back on themselves.
The energy sector and also the Canadian federation are generally immensely valuable but fragile resources. Underestimating the business and political costs of social licences might weaken Canada economically and politically, with the cost of repair weighing heavily on the next generation.
Bertrand Malsch is associate professor and Distinguished Research Fellow in Accounting, Smith School of Business, Queen’s University.
