Understanding local expectations and safeguarding your 'licence to operate' in the extractive industries

The need for natural resources is unabating; world populations are growing and demand is increasing. This means that companies need to move into new, highly complex areas to extract, and with these commercial opportunities come new reputational risks. 

What can we learn from our research about what these localised reputational challenges might be, and how can extractives companies navigate through them and secure their social ‘licence to operate’? 

Firstly, what do people expect from companies in the extractive industries, as they expand into new regions? 

Our data shows that there is support for expansion, but it is not without caveats.  Data from Ipsos’s study of Key Influencing Customers (KICs) in the UK shows very few (only 5%) think that companies should be free to seek and develop new material resources wherever they can be found, with no controls in place. It is more common for KICs to believe that companies can expand into new areas as long as they have the right social and environmental protections in place, or when they have shown that there is no alternative option. 

The most important guarantee influential consumers want to see in place before companies begin extractive activities is a commitment that companies will minimise environmental impacts and clean up after the operation has ceased. Other important factors are economic benefits to the local area and jobs created for local people, and extractive firms working in an open and transparent way.

The importance of these issues – environmental responsibility, local economic benefits and transparency – may not come as any surprise; many companies already recognise these as areas to focus on. 

However, our wider research shows that it is absolutely crucial to understand the exact expectations of the local population. Consulting with local people is vital, both through effective stakeholder engagement and regular ‘fenceline’ research among local communities. In particular, any such approach should take care to solicit the views of indigenous communities and stakeholders in an open and culturally appropriate way. 

In our experience, the local operation of a company, while tied to the corporate ‘parent’ brand, is often perceived in an entirely different frame. This is because the touchpoints and interactions which build perceptions of a company’s local operations are markedly different from the corporate or consumer-facing brand. This highlights the importance of an engagement agenda that first listens to the local community and then responds to their needs.

From our work in this area, we have drawn together the following top lessons:

1. Stock the well of goodwill: A low profile may seem like a good idea in the short term. But if reputational challenges or even crises do strike, you need an established, mutual basis for  communication and trust.
2. How you’re judged: In the absence of true familiarity, local residents may judge a company by its global reputation, irrespective of its local contribution – this is a fragile reputation to have locally. 
3. Make sure priorities are aligned: It is important to measure your key issues (e.g. social, economic, environmental impacts), but early-stage research should identify what the community prioritises, bottom-up, then assess what you can do to meet these expectations.
4. The lightening conductor effect: An industrial zone or town may have a dominant company – this ‘lightning conductor’ may be blamed for local issues, whether or not they are responsible, while smaller neighbours may be ignored.
5. Take all opportunities to communicate: Brand building to achieve social licence to operate can piggyback on local interests, such as local safety obligations or updates on construction phases.
6. Who is your community manager? The person who manages the relationship between your company and the local community and opinion formers is an important asset for building trust with local stakeholders.
7. Community contribution is competitive: While there are benefits in co-operation with community initiatives, the activities and communications of other local companies can continually raise the bar for what is acceptable.
8. Community initiatives work best as partnerships: Genuine, two-way engagement with local organisations, and even dual branding of community initiatives, will help build credibility and relevance.
9. Employment will be an issue: as we see in our client work as well as our more general public perceptions research, providing employment for local people is always an issue, especially in manufacturing or industrial sectors. 

While further evidence may be superfluous in convincing companies of the importance of their corporate behaviours at a local and global level, Ipsos’ Global Trends research confirms that consumers see behaving well as crucial to long term company success. Across the world, more than two-thirds (68%) think that companies who make a positive difference will be the most successful brands of the future. This rises to 80% or more in key emerging economies like Indonesia (86%), India (83%) and China (80%), where environmental issues and labour relations have an increasing profile.

As extractive companies explore new geographies in order to satisfy growing and changing demands, the challenges to their reputation and licence to operate will become ever harder to predict. Understanding the local context, tracking emerging issues, addressing stakeholder expectations and measuring progress, will be ever more vital to success.