Social Licence to Operate: A Solution for Community Crises with Oil Companies

Social Licence to Operate: A Solution for Community Crises with Oil Companies

Globally, resistance from local communities threatens the growth of extractive and energy sectors such as oil and gas and mining. For instance, over the past decade, Nigeria has witnessed drastic reduction in crude oil outputs, not mainly because of oil price volatility in the international market, but due to resistance from host communities in the Niger Delta. Such resistance has led to several deaths, economic losses, prohibition of projects, and has continued to threaten the activities of oil and gas companies not for the lack of a legal license to operate, but for the lack of a Social Licence to Operate (SLO).

Social Licence to Operate and the Niger Delta Crises

Social Licence to Operate is described as a community’s perception of the acceptability of a company and its local operations. The licence in this case is a psychological agreement and broadly depends on the ability of host communities to trust companies on several areas such as: community health and safety; economic growth of the community; environment conservation; and negative footprints in the community. Collectively, this trust is what makes companies good neighbours and acceptable in their communities, as well to earn customers loyalty, workforce retention, and attract equity investors. This concept indicates that companies cannot succeed without a proper plan for peaceful cohabitation and engagement with their host communities.

While SLO has been taken serious by oil and gas companies operating in many countries by playing pivotal roles in the economic growth and industrialisation of communities where they operate, the case is different in Nigeria. Many oil and gas companies operating in the Niger Delta only earn the license to operate from the government, without considering how community trust and relationship will affect their businesses. Even at that, these companies have caused a lot of environmental pollution in the Niger Delta. Though many of them have engaged in several intervention projects to mitigate their impacts, but these projects are yet to meet community expectations as the communities are always not engaged in the process. In most cases, this results to local community resistance to the intervention projects and business activities of the oil and gas companies.

The inability of oil and gas companies operating in Nigeria to obtain SLO from their host communities has aggravated economic woes, environmental degradation, insecurity, disunity and lack of peaceful cohabitation in Nigeria. For instance, decline in crude oil production in the Niger Delta due to insecurity results to a frequent decline in export value and low foreign currency reserve, budget deficits, and poor international balance of trade that plunged the nation into economic recession. These problems could have been averted with effective stakeholder engagement and social license to operate prior to the commencement of operations in the communities.

This means that without the support of the host communities, oil and gas companies in the Niger Delta cannot operate sustainably with literal exploration licences that are tangible pieces of paper with signatures alone.

How Oil Companies Can Obtain Social Licence to Operate

Social licence to operate is usually obtained on a project or community specific basis, as each situation and community is different. Hence, it is vital that every company should investigate and understand the social issues and needs of the individuals, groups, and organisations that form a specific community under consideration. The following are factors that can help organisations to earn the trust of their host communities:

Community Engagement

Community engagement should be geared to build trust, enlist new resources and allies, create better communication, and improve overall health (project) outcomes. Companies and their contractors or third party representatives should start to communicate openly and honestly with the community, using representatives that community members may know and trust.

As Social licence can never be self-awarded, business cannot determine the level of socio-environmental risk intervention needed to meet community expectations. The reality is that corporate social responsibility or investment projects that are carried out with community engagement to determine what their needs are, not one that is too much of a side-show or green washing, will help the company to obtain social licence to operate.

Conduct Impact Assessment and Disclosure

Companies can also obtain SLO from the communities by conducting sustainability impact assessment that reveals their negative socio-environmental footprints, and providing solution to address them. Maintaining transparency through appropriate reporting and disclosure of their impacts to the concerned stakeholders and monitoring it at the board level, accords a company the opportunity to earn the trust of their host communities and other concerned stakeholders.

Create Shared Value

One of the interesting business transformation in recent times is the shift from profit greed to shared value. With the new shift, firms are now building long-term profitability and existence that is hinged on cohesion with communities and other key stakeholders. This requires that company’s activities should add positive value to the local economy, enhance the capacity of people, support community development, and enhance income generating activities such as contracts, jobs and other payouts.

How to Measure Social Licence to Operate

According to the Thomson and Boutilier framework, SLO exists in a four-level hierarchy. To advance in the hierarchy, the project must meet criteria of legitimacy, credibility, and trust. But at the lowest level, SLO does not exist, and projects cannot proceed; the community perceives them as illegitimate.

The Pyramid Model of the SLO

Source: Thomson and Boutilier, 2011

Social Legitimacy

Social legitimacy is based on the norms of the community, that may be legal, social and cultural and both formal and informal in nature.  Companies should understand and respect these norms, as failure to do so risks rejection.  In practice, the initial basis for social legitimacy comes from engagement with all members of the community and providing information on the project, the company and what may happen in the future and then answering any and all questions.


The capacity to be credible is largely created by consistently providing true and clear information and by complying with any and all commitments made to the community.  Credibility is often best established and maintained through the application of formal agreements where the rules, roles and responsibilities of the company and the community are negotiated, defined and consolidated.  Such a framework helps to manage expectations and reduces the risk of losing credibility.


Trust comes from shared experiences and requires that companies should create opportunities to collaborate and generate shared experiences with host community. It is dynamic and non-permanent because beliefs, opinions and perceptions about different projects and companies are subject to change.  Hence trust has to be earned and then maintained. If lost, trust can also be regained as in the case of Safaricom:

Kenyan mobile phone operator, Safaricom, whose network – along with others – was inadvertently used to spread hate speech by including bulk text messages after the 2007 elections violence which led to over 1,000 deaths mainly in the Rift Valley. Safaricom worked hard in the period before the next election in 2012 to share the precautions it was taking to limit hate speech whilst protecting freedom of expression – including the involvement of third party observers. Safaricom built up strong social licence at a time of national transition and very significant social challenges.

The best way oil and gas companies can live in peace and earn the trust of their host communities in the Niger Delta is not by deploying security agents to force their operations, but by setting a stage for innovative problem solving and initiating dialogue that enhances mutual learning with communities.


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  1. Business and Society: Defining the ‘Social License’. Guardian, John Morrison
  2. Industry’s Social License to Operate. Adjacent Oil & Gas, Nathan Meehan, 2016 President
  3. Obtaining A Social License To Operate – A Challenge For The Industry. BP Global Speaker: Dev Sanyal, 22 November 2012, London
  4. Securing A Social License To Operate Is More Important Than Ever. Mary Hogan, Hart Energy Friday, February 6, 2015
  5. What Is the Social License? Ian Thomson and Robert Boutilier

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