From licence to operate to social impact: what “good mining” looks like is evolving

As stakeholder pressures and government expectations grow, mining operators increasingly require a more ambitious approach to sustainability and social impact.

In the last two decades, “social licence to operate” (or “social licence”) has emerged as a central measure of the social performance of mining companies. The term refers to the capacity of a mining operation to secure and maintain informal acceptance of its activities by local communities.

Expectations are broadening

Social licence has become an increasingly critical source of risk for senior mining executives: losing it not only means community opposition and operational blockages on the ground, but a tainted reputation globally and a barrier to attracting new sources of capital. For three consecutive years in 2019, 2020 and 2021, “licence to operate” topped EY’s annual survey of “Top 10 risks” for mining and metals. Yet for the first time in 2022, the broader theme of “environmental and social issues” is leading EY’s chart ahead of “licence to operate”. "Local community impact” is rated as the most important of these E&S issues. This shows that expectations towards mining operators are increasing and broadening.

Social licence has always been an elusive concept to define, and more easily measured in the negative – the absence of major discontent towards a mining operation. For operators, it developed mainly with a focus on preservation: a social licence is required because it protects an asset’s value for shareholders and its capacity to function. This has led companies to focus on mitigating environmental and social disruption from mining activities on paying taxes to governments and on making sure at least some of these payments are channelled to local communities. But this “do no harm” approach is increasingly seen as too limited in scope. Companies are under pressure to move beyond this to create a positive social impact. This is particularly the case in many African mineral producers, where mining activity makes an outsized contribution to the local economy, and operators often grapple with weak institutions and major development challenges. There, the social contract of mining operators is being redefined.

A new social contract

A few trends are driving this change.

First, community engagement and impacts are increasingly a focus of investor scrutiny globally. Civil society and activist groups are becoming increasingly sophisticated in their advocacy. At one end of the mining value chain, resource-focused local civil society groups conduct detailed field investigations about the local consequences of mining activity, and can count on social media and international activist groups to amplify their coverage. At the other, activists have effectively targeted downstream users of minerals (such as ICT manufacturers or carmakers), forcing a tightening of standards and expectations. As “clean” minerals take a central role in powering the energy transition, their producers and end-users will increasingly be called out and expected to do more to lift countries that hold a significant share of these minerals out of poverty.

Government expectations are also evolving across sub-Saharan Africa, and in many countries moving away from raw resource nationalism focused on extracting payments, towards more complex forms of pressure. Companies are being asked to build better linkages with the non-extractive economy, and to align with countries’ broader plans for industrialisation (e.g. local transformation) or for infrastructure development (e.g. rail corridors). For example, iron ore and bauxite operators in Guinea and Liberia are pressured to share their export infrastructure with other operators and with non-mining users. Meanwhile, the governments of Congo (DRC) and Zambia want to use cobalt production to develop an African electric battery value chain.

Some traditional methods used by companies to manage social pressures have not fully delivered. For example, local community funds, created with a small fraction of a company’s turnover, have been a common mechanism for companies to redistribute proceeds locally. But they often disappoint because of poor management or a lack of vision. Local funds rarely have a broader development plan to refer to, and their outcome is often a scattering of small projects with questionable impacts. Subcontracting is often just as prone to capture by well-connected elites. Especially in fragile states, operators are still constrained by low levels of trust in society, poor governance and a lack of functioning institutions.

Faced with these rising pressures and external constraints, companies are increasingly adjusting and embracing more ambitious approaches. In most African countries, managing social risks already required going beyond local legal and regulatory obligations. Operators are now looking to go a step further to achieve impact and make a positive contribution to broader societal challenges.

More than anywhere else, miners in African commodity-dependent countries have the economic weight and scale to build a lasting, positive legacy. But doing so requires a bolder vision of their social value, and more active engagement with external actors to tackle challenges beyond their control.

Aligning for impact

First, companies need to integrate social impact early on when considering entry into new jurisdictions or the development of new assets. Sustainability planning often occurs at site or local level. Companies typically refer to the UN Sustainable Development Goals (SDGs) to inform the selection of social initiatives at the local level. Taking a step back and planning for sustainability at the national level can help companies see the bigger picture – what can be our operation’s contribution to the country’s development trajectory? – and articulate a more ambitious vision of their social value. Companies can also plan for larger-scale impact by better understanding and aligning with the strategic priorities of host governments. This can involve, for example, working collectively with the state and other economic actors on creating multi-user infrastructure corridors, or supporting the development of new educational facilities and programmes that will benefit the wider private sector.

Mining operators are not equipped to tackle broader development challenges around their sites: it is not their core purpose and they should not substitute themselves for the state. But where the state shows obvious weaknesses, companies can use their influence to not only close some gaps and provide missing services (a school, a clinic, a power plant), but also help strengthen the institutions that will deliver these services in the longer term.

This involves working with a range of other development actors to address issues that are beyond their areas of competence. For example, local capacity to plan for development projects is very low in many remote, rural mining areas. In response, we have seen some mining operators partner with development agencies to help build local institutional capacity that will make local officials better planners. Companies can collaborate with development actors to strengthen local education or healthcare systems, or build partnerships with private energy providers to provide decentralised power solutions to local communities where the national grid is failing. More active and transparent engagements with local NGOs from the early stages of a project can also address the deficit of trust that too often damages the image of companies, and set the tone for more open, transparent governance of natural resources.

Placing social impact at the centre of decision-making

As the largest employers and taxpayers in a country, companies can have an outsized impact in building institutions, establishing functioning markets and strengthening trust. But seizing this opportunity also requires placing social impact at the centre of business decision-making. Companies developing greenfield projects have the most space to get things right from the start; those acquiring existing assets should make social impact considerations a key feature of their due diligence.

Too often, sustainability or social performance teams are narrowly focused on assets and their immediate surroundings. A stronger link with corporate/government affairs teams helps to integrate national-level dimensions and to put social impact at the centre of interactions with the host government. This will also help in building partnerships early on with international development actors or NGOs.

Finally, operators should feel comfortable telling their story about social impact. Mining is likely to come under scrutiny greater than ever in the coming years. The role of green minerals in a decarbonised economy gives the industry an unprecedented opportunity to overhaul its image. But for this environmental message to resonate, it will need to go hand-in-hand with an equally compelling narrative about transformative social impacts.