Growing Role of Social License in Investor-State Disputes

At a recent White & Case seminar during PDAC’s 2020 mining convention, I was invited to answer four questions about “Social License to Operate” in the context of due diligence and international arbitration. What did I miss?

My Background & Biases

I was a Principal Environmental Specialist at the European Bank (EBRD), headed CR/ESG Research at Fitch’s CoreRatings, contribute to and critically review ESIAs, assist investors as Independent Environmental and Social Consultant (IESC), support Independent Engineers (IE), and provide expert opinions on cases before Investor-State Dispute Settlement (ISDS) and independent accountability mechanisms (IAM). 

What is a Social License to Operate (SLO)?

I think of a Social License as an extra-legal and dynamic concept. It indicates the presence of broad acceptance and trust by project-affected communities and, where appropriate, other stakeholders. Much like a marriage, developers and operators need to continuously work on their SLO so it does not erode or become irreparably damaged.

SLO is a Material Risk

Social License leads EY’s 2020 Top 10 business risks facing mining and metals survey. Mining companies and others in, for example, the renewable energy sector, have learned the hard way that the absence of a robust SLO may cause costly delays. Worse still, lack of a Social License can pave the way for creeping expropriation. In addition, ICSID cases, such as Bear Creek Mining v Peru, show that a project’s SLO status can materially influence the calculation of damages awarded.

SLO Challenges in Mining

Poor conduct of past owners or security forces, presence of indigenous people, complex land tenures and poor resettlement, and project-unrelated conflicts and insecurity can be indicators and drivers of SLO risk. Also, host governments can either provide enabling or unworkable environments for developers to pursue, secure and maintain a Social License.

Due Diligence and State-Investor Disputes 

Demonstrably aligning engagement, design, operation, closure and transparency with good international practice, ranging from the IFC Performance Standards to Sustainability/ESG/SDG Reporting, can support claims before investor-state dispute settlement mechanisms, such as ICSID.

2 Comments to Growing Role of Social License in Investor-State Disputes

  1. […] and can provide an important line of defense for projects/operations which are experiencing creeping expropriation on pretext of lack of social license to operate (SLO) and related […]

  2. […] Other sessions scheduled for the second day which got my attention revolve around project-level grievance mechanism, livelihood restoration, and conflict and cooperation. These are all critical elements in the context of developers pursuing, securing and maintaining their social license to operate, which is also growing in importance in the context of investor-state disp…. […]

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