Renewable energy is not immune to ‘social license to operate’ challenges

May 2022

This article highlights some of the key stakeholder, environmental and socio-political challenges associated with developing renewable energy projects, the importance of establishing a strong ‘social license-to-operate’, and what companies can do to help secure it.

The imperative and the problem

The development of renewable energy projects is an essential tool in advancing the global energy transition. As critical sources for low-carbon energy, renewable energy investments are expected to increase significantly over the coming years with a range of positive impacts, not least in respect to carbon reduction. However, with this ramp-up in investment, it is important to consider that renewable energy projects can be subject to many of the same ‘license-to-operate’ and value destroying pitfalls traditionally associated with more controversial extractives-sector projects. These risks, including environmental impacts, human rights abuses, corruption, resettlement issues and damage to local livelihoods, can cause lengthy and costly delays to projects and lead to serious reputational damage at the corporate level. Such issues can be particularly profound when companies are unfamiliar with the local operating context or when regulatory and legislative frameworks are still in their infancy. As such, it is vital that companies seek to establish a secure social ‘license-to-operate’ in order to protect themselves from stakeholder issues that can have potentially significant reputational and financial costs. Companies operating in the extractives sector have learnt, often the hard way, that their ‘social license-to-operate’ can easily be lost and that, once lost, the necessary trust with communities and stakeholders is difficult to regain. Companies developing renewable energy projects should take note of the experience of the extractives sector and ensure they have taken the necessary steps to establish and protect their social ‘license-to-operate.’

Environmental and stakeholder risks wont blow away.

Key ‘license to operate’ challenges associated with the development of renewable energy projects

Like companies in the extractives sector, most typically associated with falling foul of license-to-operate challenges, renewable energy companies are vulnerable to a host of issues that have the potential to undermine their reputation and ability to successfully develop their projects. Some of the key challenges include:

Land rights and property ownership
Renewables projects, particularly hydro, solar and wind, invariably require significant amounts of land which puts pressure on land value, ownership and usage. Land purchase processes can be extremely complex, protracted and costly while failure to adequately respect local land rights can also lead to long and costly delays.

Potential impacts on the environment
Renewable energy projects do not commonly carry the same environmental risks as conventional extractives projects but they are not immune to opposition on environmental grounds. Concerns about their impact on biodiversity, for example the destruction of wildlife habitat or birds’ migratory paths, can be ‘show-stopping’ issues if these impacts are not fully appraised ahead of time.

Competing stakeholders agendas
Depending on the technology, scale and location, project developers will invariably have to engage and build relationships with a variety of stakeholders who may have competing or opposing agendas. For example, a national government might warmly welcome investment in a renewables project while local political leaders are opposed to the potential environmental and social impact on their constituency or a perceived lack of benefit from the revenue and taxation the project might bring.

Failure to respect indigenous and human rights
Perceived and verified violations of human rights are one of the most serious threats to renewable energy projects’ license-to-operate. The Business & Human Rights Resource Centre (BHRRC) has catalogued more than 200 human rights allegations against renewable energy companies, over half of which were made in the last three years. In many jurisdictions opposition from indigenous communities is a major obstacle to developing projects, particularly in the absence of a process of free, prior, and informed consent.

Case study – Fosen Vind, Norway

In October 2021, the Norwegian Supreme Court ruled that the operating licenses of two wind farms on the Fosen peninsula in southern Norway – part of Europe’s largest onshore wind power project – were invalid. The court found that indigenous Sami rights had been disregarded when the wind farms in Fosen were built. The Sami claimed that the construction of the wind farms in Fosen constituted a breach of their human rights because the farms infringed on their right to herd their reindeer on the land, a right they consider to be akin to property rights. The project developers are now facing prospect of the wind farms being dismantled.

Public perceptions of unfair participation processes and inadequate inclusion
Many jurisdictions have a well-defined legal obligation for companies to undertake thorough community consultations, but even this does not guarantee smooth sailing. There have been numerous cases where communities have challenged contracts in court following what they feel to have been an inadequate, intentionally misleading or disregarded consultation process.

Securing its ‘license to operate’ is an integral part of successful project development, and threats to its integrity can have serious ramifications

Objections to a project on the basis of a high-profile issue such as human rights can endanger not only a company’s local reputation but also have the potential to draw significant attention to the project from further afield. NGOs and environmental organisations are becoming increasingly sophisticated in their media campaigns and project level controversies can quickly become headline making issues. Furthermore, civil society organisations are increasingly converging around environmental protection, transparency, and human rights issues which can lead to significant scrutiny from NGO’s seeking to address these issues. The prevalence of social media has given stakeholders an effective tool with which to call out companies’ approaches. As a result, companies have less control over their own reputations and need to double down on ensuring that their ‘social license’ precludes reputational tarnish.

Unlike extractives projects, renewables projects are rarely able to deliver the same degree of economic impact to a local area in the way of employment opportunities and technical training. In the absence of significant job creation opportunities, there may be an even greater imperative, and expectation, that companies contribute to local communities via other means, such as the construction of roads, healthcare facilities and other areas where government action may be lacking. Partial delivery or failure to adhere to commitments can erode the integrity of a company’s ‘license-to-operate’.

Case study – Lake Turkana wind farm, Kenya

Africa’s largest wind power project has faced widespread international criticism due to a host of ‘license to operate’ challenges including failure to acknowledge indigenous land claims, mismanaged resettlement of communities and allegations of corruption. These issues have resulted in over six years delay to project competition and a tarnished reputation. The project continues to face challenges; in November 2021 a case in the Meru County High Court argued that the constitution had not been followed when 150,000 acres of community land was allocated to Lake Turkana Wind Power Ltd. Authorities now have one year to regularise the process, after which the title deeds will be cancelled and the land will revert to the community.

Best practice experience drawn from the extractives sector has a lot to offer renewables companies

Companies should go above and beyond statutory requirements to ensure they remain ahead of threats to their social ‘licence-to-operate’. Some of the approaches companies might consider include:

Early and detailed assessment of the project context can help companies to identify potential risks and plan for how different scenarios might play out. Ensuring that potential risks are identified can also help companies set appropriate timelines and budgets that factor in the necessary community and wider stakeholder engagement initiatives.
Meaningful contribution to the social welfare of communities in the vicinity of the project is often crucial to offsetting the potential lack of other socio-economic benefits. The implementation of ‘just transition plans’ to alleviate the impact of job losses in traditional industries, e.g. coal plants, can be effective in justifying a project’s long-term presence.
Investment in skills development in the community can provide a path to employment, serve to expand the capacity for local sourcing and meet the company’s local content obligations.
Engendering a sense of pride and ownership over the project in the local community can be an asset in securing local approval for development. Espousing a project’s role in supporting the fight against climate change can be effective in the face of NIMBYISM, although such arguments are much less tangible in developing countries.
A well-rounded and trusted community liaison function, akin to those deployed by extractives companies, is essential to liaising with the community, responding to their concerns and presenting an approachable ‘face’ of the project.
In countries with indigenous communities, thorough analysis of the potential impacts on local groups’ human rights is essential.
Rigorous due diligence of the social factors surrounding a project, and embedding this understanding into the company’s overall companies approach is key to effective engagement. This may take the form, for example, of ensuring that public information and community agreements are provided in all local and indigenous languages.