Social licence to operate (SLO) is a major consideration for mining companies across the globe. What does social licence to operate mean to you and your team?
SLO was first coined in the 90s, and it refers to this licence of legitimacy sought by mining companies as an objective beyond regulatory compliance and the approval process.
You can describe it as the informal (but essential) broad-based acceptance that is granted by local stakeholders, employees, or communities. It should be based on legitimacy, credibility, and trust
It’s regularly ranked as one of, if not the biggest, risk for the mining industry, and it has been for many years. Companies try and build and maintain this SLO over time through meaningful local relationships and being stewards for the environment, their employees, and communities.
It means being accountable for one’s actions and building trust by doing the right things the right way.
The companies that don’t act fairly towards local and Indigenous communities and fail to achieve the SLO at the beginning of the mine life cycle, tend to lose it later. We’ve seen this in the press and social media from unexpected delays to closures, permitting, bottlenecks, negative social media, reputational damage, and then it cascades into trying to get access to capital or trouble with regulators.
I also think the industry needs to get past this outdated corporate social responsibility (CSR) approach in an attempt to secure and maintain the SLO. The CSR approach creates little value as it typically involves philanthropic activities that are not fundamentally linked to the core business, or to the real expectations of the community. They are more about boasting about how much you’d given to the community, rather than honestly talking about real impacts or the quality of local stakeholder relationships.
I think many in the industry still fail to recognize the important difference between this SLO and actual social performance. The former is only really a benefit to the company. I’ve never heard a community in all my experience, ever celebrate having a SLO. But the social performance is about impact, especially the benefit to communities, creating that societal value through equitable benefit distributions, especially local employment and purchasing. And from my own experience, companies that integrate both, the social licence to operate and social performance, are the ones that are going to be successful.
There seems to be a trust and PR issue in the industry and a disconnect where the communities don’t necessarily see the industry doing the right thing in the right way. How can this issue be rectified?
I’m not sure if there is a PR crisis, but I think there is a trust deficit. No amount of fancy PR spin or awareness raising will fix this overnight. Some of the biggest media stories that shape our mining narrative are regrettably mostly all negative. All of this has a lasting impact on a company; clearly we’ve seen that in the media game, but it also has global ramifications for the entire industry.
Mining companies need to acknowledge that going forward, being permitted is not something to be given extra credit for. It won’t, alone, de-risk a project or provide a cushion against disruption. It’s simply a necessary legal foundation. Society’s trust and the court of public opinion on ESG is what really matters and counts for all the stakeholders, whether they’re governments, communities, Indigenous groups, investors, or employees.
Now more than ever, the mining industry needs to deliver much more compelling and measurable ESG impacts, and hopefully contribute to a positive societal change. We must recognize that just because a mining company is doing no harm, does not mean it is doing good.
Building trust is not easy, and those in the industry, investors included, need to think differently. We can’t keep doing the same things over and over and expect a magically different result. Our world is a changed place, especially since COVID, and society’s relationship with industry, including mining, has shifted.
The CEO of the ICMM, Rohitesh Dhawan, has eloquently stated, “Going forward, trust is going to be the most valuable commodity for all those in the sector.” But it cannot be just more storytelling or pushing facts on why mining is needed.
As he said, and I agree with, we need is an approach that demonstrates the true impact that the mining industry has, but be genuine, show humility, empathy, and respect going forward. All those involved in the industry will have to learn how we’re going to collaborate more and be willing to work together more with all stakeholders, learn from each other, and rebuild trust.
And through that, we can collectively define what is responsible mining. Greater collaboration will mean a genuine willingness to joint-decision making, true partnerships, and making sure when we interact, especially with communities, they’re not just transactional or paternalistic, but fully support the intentions and needs of the host governments. I think we can create this new social contract for industry and win back society’s trust, thereby contributing to that green energy transition and ultimately the more sustaiable world we all desire.
What do you think the mining industry should be doing in particular on diversity and inclusion?
Diversity of thought, experiences, and worldviews helps to better identify risks and opportunities. It also helps companies to be more more effective and innovative. In any industry today, having a diverse workforce is no longer a differentiator. We need diverse talent, and it is from an ever-shrinking candidate pool.
Most companies who claim to embrace DE&I (diversity, equity, and inclusion) are struggling with a very obvious lack of it. There are a few notable exceptions where women and black, Indigenous, people of color (BIPOC) employees have risen to the top, but these are rare. Some companies are authentic in their commitments, others less so. In my experience, it really depends on the board and the executive management.
Some companies have progressed, they’ve introduced gender quotas, and are eager to promote their diversity policies. For others, it still seems to be a bit of a tick-the-box PR exercise. This underscores the real challenge that women, marginalized, and racialized people face.
There’s been a historic discomfort to talk about the systemic sexism that permeates our industry. Most would agree that mining still suffers from that macho culture that is visible at corporate offices, but even more so at mine sites. Even in Canada, groups like the Liard Aboriginal Women’s Society documented the ways in which Indigenous and racialized women are treated in the work camps in the Yukon and British Columbia.
Racism is an equally emotional and sensitive topic and it stirs a multitude of reactions. That is why, in Canada and elsewhere, people try to avoid the subject, because they don’t want to talk about it. We can’t ignore the fact that the Canadian mining sector has played a historical and ongoing role in supporting and benefiting from past racist economic policies towards Indigenous people.
Thankfully that is changing with reconciliation, but the history is still a history. Companies need to acknowledge that gender diversity alone does not necessarily lead to other types of diversity. They need to recognize the existence of sexism, racism, ableism, and homophobia and other forms of prejudice and discrimination, if they really want to be genuine in their DE&I journey.
Progress towards true diversification and inclusivity will only come about when there’s those real shifts in mindset by our industry leaders and a deeper understanding of the complexity of all forms of diversity.
It’s a complex multilayered issue, and it’s the first step in developing an authentic response that is based on facts and not assumptions. Context and clarity are the biggest challenges we have.
I always recommend companies call out the problems even if they don’t have all the answers first in this area. They should let their employees know that they see the problems, they’re committed to fixing them, and they’re working on them. Justice is the goal, but it’s a journey. We can’t keep trying to avoid the subject because of fear of saying the wrong thing.
What is your thought on quotas? How do we address these issues?
Quotas will help you with the D in the DE&I. But that gives you numbers only. People get worried about quotas – that it will lead to tokenism, but it will at least start to move the needle, and that’s important.
Quotas may also help those in management have an incentive to move forward, especially if those quotas are linked to bonuses. This is how we deal with some other ESG issues, whether it be health and safety or environment. But quotas are just a start and it helps address the diversity element alone, not the whole problem.
At Resource Capital Funds, you focus quite a bit on due diligence. What does this entail from an ESG perspective?
Though my role as the CSO is new, ESG is not new to Resource Capital Funds (RCF). We have had a strong foundation over the last 25 years to ensure authenticity in our approach. The core of my role is to ensure we continue to operationalize ESG as a mining-focused investor and walk the talk.
ESG is a complex set of long-term value drivers that are additive to investment performance. That’s important as mining investors. It’s also about reputation, operational efficiency, our long-term effectiveness, and ultimately our financial performance.
Focusing on our initial due diligence, we rely on our own in-house expertise to ensure we conduct a comprehensive and probing assessment. We also use independent consultants and subject matter experts, because we can’t have expertise in all jurisdictions, understand permitting, and all cultural issues. We have also developed a bespoke ESG assessment template to ensure a systematic approach. This is not a tick-the-box exercise, but a probing, objective, and independent evaluation of each company.
We want to learn where the company is genuinely on their own ESG journey and where they want to go, because we typically invest at the exploration or development stage. And we know that ESG is a process, not an outcome, and certainly not a score for us to rank them by.
We make sure the companies are looking at what’s material to them in their jurisdictions and with their stakeholders. This is not just about de-risking a project. We also seek to ensure positive impact that makes a meaningful contribution to the achievement of the UN’s Sustainable Development Goals (SDGs). And this is reinforced by us being a signatory to the Principles for Responsible Investment (PRI).
And all our work is ultimately all distilled into a separate and detailed ESG due diligence report that includes our risk ratings, opportunities, and recommended actions for the decision-making committee to consider. When it goes up to the investment committee, they see all this from an ESG point of view, and the recommended actions are where there could be gaps. If we do invest, we also hope to be able to influence.
How does Resource Capital Funds address post-investment corporate stewardship? What does this entail and how does your role help create value in this space?
We want to invest in great mining companies, not just companies that are good at doing ESG. ESG is critical, but so are other intangible assets that drive long-term value and create those positive externalities. This includes board and executive management, their quality, the corporate culture, and innovative capabilities, especially as we’re in investing in the junior side. This all helps to ensure more robust risk mitigation, long-term resilient returns, and more positive outcomes for all stakeholders, including us as investors.
We know that sound governance holds it all together. That’s why throughout the holding period, the period after we invest till we exit, we seek to strengthen our governance approaches with our portfolio companies with clear lines of accountability and ownership at the board and executive level.
Negotiated governance rights can be very different in different companies, the holding periods can be different, as can the actual level of influence and control we have on our portfolio companies. And this role can vary quite widely from direct capacity building at the board and management level to increase their competencies, to providing direct advice and detailed guidance on ESG performance and disclosure.
We help companies navigate ESG complexity by establishing ESG board committees, which include RCF representatives or nominated experienced board members. We know that ESG governace requires leaders with fortitude and grounded ESG knowledge. They need to be able to identify and understand what is appropriate, pragmatic, good practice, etc. What can they do as a junior with limited resources? They also need to ensure that the company’s ESG efforts are not just done from offices in Toronto or Perth, but built up from the mine sites upwards.
Without inadvertently overgeneralizing, we consider four fundamental ESG governance questions:
- Does the company view ESG as a value creation driver, and can they demonstrate it through a fit for purpose strategy?
- Has the company determined what is truly material to their operations and their stakeholders? Do they understand the systemic risks they face?
- How do they operationalize ESG effectively and efficiently? ESG is so easy to talk about. Can they make it work on site?
- How do they articulate their own ESG story? Are they controlling the narrative? Is someone else doing it?
- Is their report balanced, or is it stepping into that dangerous territory of greenwashing?
