The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

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

This briefing 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 factor in advancing the global energy transition. Thanks to their impressive carbon credentials and association with being ‘green’, renewable energy investments are often perceived to have an inherently positive impact. However, renewable energy projects are often subject to many of the same ‘license to operate’ and value destroying pitfalls traditionally associated with more controversial extractives sector projects. These risks, such as 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 context or when the 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 significant reputational and financial costs. Companies operating in the extractives sector have learnt, often the hard way, that their ‘social license to operate’ can be easily 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 subject 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. Failure to adequately respect local land rights can lead to long and costly delays.
  • Potential impacts on the environment
    Renewable energy projects do not 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 bird’s 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 political stakeholders who often 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 environmental and social impact on their constituency and a perceived lack of benefit from the revenue and taxation the project might bring. Such local leaders can be very effective in generating opposition to projects they object to.
  • 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, over half of which were made in the last three years. In many jurisdictions, principally in African and Latin American countries, opposition from indigenous communities is a major obstacle to developing projects, particularly in the absence of a process of free, prior, and informed consent.
  • 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 draw significant attention to the project from further afield. NGOs and environmental charities are becoming increasingly more sophisticated in their media campaigns, and controversies can make national or even international headlines. There is no longer such a thing as a ‘local problem’ and project level environmental impacts and community opposition can fast become front page news and political objects, not just nationally but globally. Civil society organisations are increasingly converging around environmental protection, transparency, and human rights issues which can lead to significant scrutiny from intentional NGO’s seeking to address these issues. Social media has also given communities the ability to call out companies approaches and convey their message to the wide public. All this means that 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 immediate economic impact to a local area in the way of employment opportunities and technical training. In the absence of any significant job creation opportunities, there is an even greater imperative, and expectation from communities, that companies contribute to local communities via other means such as the construction of roads, healthcare facilities and other issues where government action may be missing. Partial delivery or failure of delivery on such commitments can erode the license to operate.

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 the integrity of 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 lack of other 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 projects 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. In the context of the wider energy transition, generating a feeling of supporting the greater cause of fighting climate change can be particularly effective in the face of NIBYISM.
  • 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 group’s human rights is essential.
  • Effective due diligence on social factors and embedding the results into the business approach. This may take the form, for example, of ensuring that public information and community agreements are provided in all local and indigenous languages.