The term Social License to Operate was first coined in 1997 and then developed in the mining industry as “a metaphor with the legal licenses needed by mining companies to begin their projects” to notably define “the level of tolerance, acceptance, or approval of an organization’s activities by the stakeholders with the greatest concern about the activity.”1 The relevant stakeholders are those (regardless of their number) with the ability to impact a project; they may include local residents and opinion leaders, organized groups (such as political parties or NGOs), and state actors. The concept was then adopted in other sectors, such as agriculture, infrastructure, energy, and tourism.
Obtaining and maintaining a social license to operate is one of the key elements for companies to be able to implement and operate their projects. Companies are often considered responsible for obtaining the social license. State authorities in the jurisdiction in which a project is located may be included among the relevant stakeholders and may have some influence in certain circumstances.
The level of social license to operate may vary in accordance with the relevant stakeholders’ actions (whether they be lawful through, e.g. judicial challenges or unlawful, through, e.g. unauthorized site occupation) against a particular project, regardless of the overall support for a project within a certain population. Because the social license is not a popularity contest, a discrepancy can be observed in certain circumstances between the views of the relevant stakeholders and those of the general population of the country where the project is located.
II. Related Wiki Notes
III. The Social License to Operate in investment arbitration
A. The Social License to Operate through the prism of admissibility and liability
Parties have raised the alleged lack of a social license to operate in the factual presentation of their case to set out the context for the tribunal’s assessment of admissibility (including by invoking the doctrine of unclean hands)3 and liability (to notably establish the backdrop against which tribunals should assess the purpose and social benefit of the challenged measures when examining claims of expropriation or breach of fair and equitable treatment).4
Tribunals have noted the relevance of the concept of social license to operate for the merits of the case.5 Although it did not use the term “social license”, the SAS v. Bolivia tribunal, for example, assessed the factual circumstances of the case, including the social conflict in the mining project area, in a preliminary section indicating that in the “corresponding sections, the Tribunal will analyze the implications of this situation.”6 The tribunal assessed in detail whether the reversal decree (the alleged expropriatory measure in that case) met the relevant public purpose and social benefit requirements of the UK-Bolivia BIT and found that Bolivia had adopted the reversal decree precisely to deal with the social conflict.7 As a result, the tribunal was satisfied that the measure was neither unnecessary nor disproportionate.8 Moreover, the tribunal considered that the claimant had not demonstrated that the measures it had put forward to deal with the conflict would have been sufficient,9 given the mining company’s responsibility of obtaining the social license to operate. However, the tribunal found that Bolivia had not paid compensation and was therefore in breach of the expropriation clause of the treaty.
B. The Social License to Operate, causation and quantification of damages
In Copper Mesa v. Ecuador, the tribunal considered the concept of social license to operate through the prism of contributory negligence, which had an impact inter alia on causation and quantum issues discussed in the case.10 The Tribunal took into account the claimant’s involvement in the social conflict that led to the unstable social license to operate around the project when setting out and reducing the amount of compensation owed to the claimant by 30%.11
Expressly referring to the concept of social license to operate, the Bear Creek v. Peru tribunal recognized the importance of obtaining a social license to operate to carry out a project.12 Since the claimant had not been able to secure a social license to operate, the Tribunal ruled that the project remained “too speculative and uncertain.” It thus refused to adopt the claimant’s discounted cash flow valuation method and, instead, only took into account the investments actually made by the claimant.13
Faced with social license to operate arguments, other tribunals have chosen to rely on other elements to decide issues of quantum of damages. As noted, the SAS v. Bolivia tribunal considered the issue of the social conflict (and the role played by the claimant) in relation with the expropriation, but found that the State’s failure to provide compensation was a treaty violation that was not attributable to the claimant and, accordingly, refused to reduce the amount of compensation.14
Boutilier, R., Black, L. and Thomson, I., From Metaphor to Management Tool – How the Social Licence to Operate can Stabilise the Socio-Political Environment for Business, Proceedings, International Mine Management Conference, Melbourne, Australia, 2012.
Joyce, S.A. and Thomson, I., Earning a Social License, Mining Journal, 1999, Vol. 332 (8535), pp. 441-443.
Thomson, I. and Boutilier, R., Ch. 17.2. Social License to Operate, in Darling, P. (ed.), SME Mining Engineering Handbook, 3rd ed., 2011, Society of Mining Engineers, Littleton, Colorado, USA, pp. 1779-1796.
Thomson, I., Boutilier, R., Modelling and Measuring The Social License To Operate: Fruits Of A Dialogue Between Theory And Practice, Proceedings International Mine Management Conference, Brisbane, Australia, 2011.
Charlotin, D., South American Silver v. Bolivia (Part 3 Of 3): Majority Sees No Breach of FET or Full Protection; Damages Analysis Sees Only Sunk Costs As Due, IA Reporter, 21 Februrary 2019.
Marcoux, J-M., Newcombe, A., Bear Creek Mining Corporation v. Republic of Peru: Two Sides of a ‘Social License’ to Operate, ICSID Review - Foreign Investment Law Journal, Vol. 33, Issue 3, Fall 2018, pp. 653–659.
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