Earning a Social Licence to Operate:

Social Acceptability and Resource Development in Latin America

Susan Joyce, Golder Associates, Calgary


Ian Thomson, Consultant, Vancouver


Originally published in The Canadian Mining and Metallurgical Bulletin, Volume 93, Number 1037, February 2000


In the 1970’s, environmental concerns and associated liabilities were a new and unknown aspect of corporate risk.  Today, social concerns and the associated conflicts that they can generate constitute a rapidly expanding aspect of risk.  Although not a new phenomena- the Bougainville copper mine was forced into closure in 1988 - social risk has emerged as considerably more important, and increasingly visible, in the last few years.  Social risk is now an aspect of all mining activities which needs to be calculated into project assessments, and to be managed throughout the life of a project.  While social risk has a number of aspects at the corporate level, such as company image and shareholder relations, at the level of the individual project, its primary component is social acceptability, and the principal tool for managing it is the Social Licence to Operate.

Social Risk in Latin America

Throughout Latin America there are newly modernized mineral codes and economic systems introduced over the last ten years which, together with new environmental legislation, look very much like regulations in developed countries. To the corporations, the existence of these instruments means that the risks from the environmental issues associated with the project are known; they are legislated, defined, quantifiable and hence manageable.

It seems ironic that, just when comprehensive regulations for the environmental management of mining have been put in place throughout Latin America, there arise an increasing number of challenges to mining activities.  For, in spite of the apparent guarantees provided by these new legislative reforms, communities in Latin America today are more frequently standing up and taking exception to the presence of mining companies, or the ways in which the companies are conducting themselves.  The viability of projects becomes threatened because they are considered socially unacceptable, a phenomenon that we describe as social risk.  These challenges are less about opposing mining activities than many people would think.  Rather, they are based on an increasing desire on the part of the local population to have some measure of control over their own future, and to participate in the development process from the earliest stages.

Democracy has spread throughout Latin America to a large extent due to the failure of the nationalized economies under populist or military dictatorships and the collapse of the old political systems.  With the economic restructuring came a return to democratic processes in many countries of Latin America, including Argentina , Chile , Peru , and Bolivia .  In parallel fashion, these new national economies have become increasingly integrated into global systems of finance and trade, and have found it important to support political and legal institutions which define international ethics, or standards.  Among the issues which have gained a new hearing are indigenous rights and land claims, democratic participation, and in some countries human rights in general. 

This process of internal democratization has given voice to the interests of local groups at the same time that resource development is penetrating more aggressively into new areas. 

Increasingly, this convergence has resulted in challenges to resource development, which are fundamentally about who will benefit from the process.  In a large number of cases, the local groups are insisting that they benefit directly and in a meaningful way, as they will also ‘bear the cost’ of the project that takes place in their ‘backyard’.

Globalization of communication systems, especially the development of the Internet, has added a significant new dimension.  Today, communities in remote regions are tapped into information systems and support networks worldwide via Internet access.  Regional and international organizations are brought in to local conflicts to support local groups.  International media coverage of local conflicts, coupled with international consumer or shareholder campaigns, provide local communities with access to the power of international public opinion and pressure groups.

In the most positive framing of the conflicts that are emerging, local communities are seizing on resource development projects as opportunities to test their new democratic rights.  This, however, is taking place largely outside of any defined legislative framework, a feature that causes considerable confusion for the companies.  Understanding the sources of social risk provides a basis for developing appropriate management strategies.

Sources of Social Risk

Worldwide, mining is faced with a pattern of low credibility and social opposition, which derives from a general perception that mining is dirty business. Mining is seen as inherently destructive, that it destroys the environment, and leaves nothing positive behind when it packs up and goes - which it inevitably will.  The image of abandoned mines, tailings dumps, waste rock piles, and abandoned communities has significant resonance with the general public.  Mining is also widely seen as creating wealth for an elite that lives in cities and countries far from the site of the mine.  The local community takes all the social and environmental risks while receiving, at best, token benefits.

Coping with this negative image is an uphill battle for the mining industry because it is burdened by certain fundamental conditions.  The most significant of these is the fact that mining must take place where the deposits occur, there is no opportunity to choose the location of a mine on the basis of optimum social, environmental, logistical and economic factors.  As a result the company wishing to explore or develop a mineral resource must come to terms with the people living in the area.

It is against this common background that we have taken a close and hard look at how social risk has evolved in Latin America over the last three years.  While each exploration, development or mining project has its own distinctive and at times challenging characteristics, we have identified four problem areas that pose significant risk to companies operating in Latin America.  These are: the legacy of conflict, struggles over the distribution of the benefits of mining; legislative inconsistencies between reform processes; and a perceived lack of legitimacy in the laws and regulations on which foreign companies rely.  Companies can develop an understanding of project social risk by identifying the interplay between these four issues in a given project, and addressing their resolution.

A History of Conflict

Throughout the region there is a long history of groups, typically indigenous peoples, rural communities and the poor, being systematically repressed, abused or excluded by governments controlled by wealthy urban elites.  The result is a well established pattern of struggle and conflict between groups in society attempting to define their rights, control of resources, and access to opportunity relative to other groups or the state.  Maintaining the integrity of remnants of traditional territories, or land hard-won during agrarian reforms of the ‘50s and ‘60s are central issues for many communities.  In this context, mining projects are seen as particularly threatening, and often become the latest skirmish in a long battle.

With the recent democratization of many Latin American countries, constitutional change and progressive legislation have created a framework for a new society.  The reality in many of these emerging democracies, however, is that the reforms are little known outside of the cities, and the presence of the central government is weak or non existent in many of the areas where mineral development is most active.  Governments may also be perceived as corrupt, or regarded as negative or repressive by significant parts of the population, particularly the indigenous peoples.  A consequence of this distance between the local community and the central government, is that the facilitating and mediating role of the modern, regulatory state, taken for granted in developed countries, simply cannot exist.

Companies all too frequently assume that their issues are the central focal point of any conflict, because they are bringing in change and new wealth.  More often, however, the context in which a company is operating has been pre-conditioned. The situation may be one of long term historical conflicts in which the company may become the pawn in a new stage of the old conflict.  Alternatively, the company is walking into a conflictive environment created by the recent past activities of other companies.

In Ecuador , the relative immaturity of the mining sector might suggest that communities would not have pre-determined attitudes towards exploration activities.  Exploration and exploitation of the country’s oil and gas resources during the past four decades, however, has been a highly conflictive process, particularly for indigenous groups in the Amazonian portion of Ecuador .  Opposition to petroleum development in the northeast of the country, and the associated social and environmental impacts, has become part of the collective experience of the Ecuadorian indigenous and environmental movements.  An understanding of this background provides a specific list of ‘do’s’ and ‘don’ts’ that can help to guide a company through the perils of community relations in Ecuador.  If unheeded, relatively small actions or inaction by a company can result in significant negative reactions from the local population.

In a similar fashion, a number of communities in southern Peru and Bolivia oppose all new mining because of the visible contamination that surrounds them; the legacy of 400 years of mining, and the transfer of wealth away from "their" land.  These communities have survived Inca, Spanish colonial, republican, and dictator governments by resisting change and defending their land base and culture.  Historical mining activities did not provide them with a better future, so to propose that modern mining will be different is asking for a considerable leap of faith.  The result is a potential for conflict over the presence of an unwanted exploration or mining group and, increasingly, who controls access to and gains benefit from the mineral resources.

Distribution of Benefits

Today, many communities and regions in Latin America view mining as an opportunity for growth and development, a process that generally by passes the rural areas.  Even those opposing mining often do so not because they inherently reject the activity, rather they reject their traditional exclusion from the benefits of that activity.  Along with participation, which allows some degree of control over how the development process will affect their lives, communities are fighting to retain the economic benefits.

Any discussion on the distribution of the benefits of mining quickly encompasses the issue of severed title, a concept well understood by the mining industry but frequently incompatible with the way local people regard the land they live on.  The norm in Latin America is for the subsurface mineral resources to be owned by the state while the surface is owned separately by individuals, communities, corporations or the nation.   The right to explore and develop a mineral resource is granted by the state leaving the company to make a separate arrangement with the owner of the surface right.  This tends to divorce the company from any responsibility to surface owners beyond fair market compensation.  North American companies used to doing business "by the book" may feel that they have met all obligations at this point, with additional opportunity provided in the form of employment.  The expectation of such corporations is that government will take sole responsibility for ensuring that economic and social benefits flow back to the community.  In reality, governments in Latin America frequently lack any effective mechanism, or the will, for redistributing wealth back to the area where it was created.  The result is social tension over the distribution of benefits.

There may also be political tensions, which become part of the equation.  In Argentina , for example, there has been a lengthy struggle between the Province of Catamarca and the central government over the province’s right to collect royalties, and how high they will be.  Bolivia, by way of comparison, successfully restructured and decentralized the distribution of royalties to the Departmental governments, following a hard fought political debate over both the mechanism of distribution and the amount in which one Department sought a direct 20% royalty on all mining.  However, the Bolivian model remains weak, since it directs royalty income to the level of the Department and can not guarantee that the wealth generated by the mining will actually reach the community on whose land the mining took place.  Honduras also has legislative instruments designed to direct mining royalties back to the region in which they were generated.

The tax code is also used in some countries.  For example, Peru has a mechanism for directing specific taxes back to the region of origin.  However, the system lacks transparency and recently the central government has simply withheld the funds via Presidential Decree from provinces such as Cajamarca where considerable mining wealth is generated.  In Bolivia , there is provision for the company to invest in joint community development projects and offset these expenditures against income tax.  The program, however, is entirely voluntary.  Finally, Columbia insists that the company have a plan for investment in community development projects that forms part of the permitting process.  There is, however, no program of enforcement.  

In the types of examples described above, pressure is frequently brought to bear directly on the company, rather than government, to see that wealth generated by the mine is invested in improving the lives and futures of local people.  Without evidence of local benefit, resentment towards the mining project rises in the community leading to a heightened risk of conflict over the loss of, what the community considers to be, their entitlement.

Legislative Inconsistencies

In addition to the legislative uncertainties mentioned above, in many Latin American countries there are significant inconsistencies between various legislative instruments.  Many of these arise from the almost simultaneous reform of different legislative areas by separate specialised teams, each with their own vision of the future application of the new laws.  Discrepancies between the mining code and the description of entitlements under other laws, notably land reform laws and the status of indigenous peoples, are of consequence in several countries and are a source of social risk.

By way of example, the Mining Code in Bolivia provides for the compulsory purchase of land for mining projects, placing subsurface rights ahead of surface rights.  The 1997 Agrarian Reform Law states that communally owned land (the traditional designation of the land of indigenous communities) cannot be sold or subject to compulsory purchase except for a project of national importance.  It is doubtful that an international mining company would be willing to face the national political debate and international media coverage that would result from an expropriation of communal land.  A company wishing to gain use of surface rights that are communally owned must, therefore, work out an equitable, long term arrangement directly with the owners of that right.    

Similarly, in Peru the new environmental legislation for the mining sector requires that a full environmental impact statement be submitted as part of the permitting process for a mine.  However, the requirement for community input into the statement is ambiguous, public hearings are held in the capital, Lima, and notice of such hearings need only be published in the government gazette.  It is thus possible for a permit to be issued without the community participating in any part of the process.  This is an unacceptable situation from the community point of view and fails to build local social acceptance, nor would such a sequence of events receive a positive review by watchdog organizations or multilateral funding agencies.  Thus, the company is wise to not only consult extensively with the community when developing the environmental impact statement but also ensure that the community is well informed of, and has access to, the permitting process.

International Labour Organization Convention 169, first implemented in 1989, is a powerful international document that lies behind a number of legislative inconsistencies and is a source of significant social tension in the region.   Created as an instrument to protect the interests of indigenous peoples, ILO169 has been adopted by a majority of nations in Latin America. The convention provides, inter alia, that indigenous peoples should be given prior notice of both mineral exploration and resource development, participate in the benefits and receive compensation and mitigation from the adverse impacts of such development.  Furthermore, World Bank guidelines on resource development have adopted the language of ILO169 and broadened its application to all affected communities.  The convention, its promise of benefits, and its application to all communities is widely known in the region through the actions of various national and international non-governmental organizations (NGO’s).  In reality, however, these provisions remain to be implemented in most countries, creating a scenario of unfulfilled expectations.


From the community perspective, there are unresolved problems of legitimacy and transparency related to the entire process of mineral resource development.  At the outset, the company may be perceived as a foreign entity with no right to resource exploitation in the country; alternatively it may be seen as aligned with a government which lacks legitimacy in rural areas, or a ruling urban elite who do not represent non-urban interests.  In these circumstances, conflict can arise quickly over the very presence of the company.  More commonly, communities do not trust their governments to deliver on legal requirements of environmental protection or wealth distribution. 

The situation with respect to environmental laws provides a good example, since it brings in the role of other stakeholders.  In many countries, local communities do not believe that the government is committed to enforcing the environmental code that should protect their interests.  Nor do they believe the declaration of companies that they will meet or exceed the requirements of the regulations.  This is true of Chile as much as Bolivia and Ecuador .  At a little distance stand the environmental NGO’s who believe in the laws but point to a lack of capacity at various levels of government rather than a lack of will.  While they may accept that the international companies will usually operate to the highest standards, they do not trust them to be self-regulating.  In all these cases, the lack of credibility, a problem for mining in general, creates a situation where the company is vulnerable to the risk of being challenged for perceived, or assumed, noncompliance.

A Social Licence to Operate 

The mining industry is now faced with the fact that in many countries the legal, government awarded right to explore or mine does not bestow universal approbation on a project, and that alternative ways of gaining social acceptance for the mining activity must be sought.  We propose that a Social Licence to Operate exists when a mineral exploration or mining project is seen as having the approval, the broad acceptance of society to conduct its activities.  It is a licence which can not be provided by civil authorities, by political structures, or even by the legal system.  Most importantly for the state of current discussions within the mining industry, it can not be claimed as a product of an internal corporate process such as an audit of company practices.  It can only come from the acceptance granted by your neighbors.  Such acceptability must be achieved on many levels, but it must begin with, and be firmly grounded in, the social acceptance of the resource development by local communities.

Our analysis shows that there are many actions that a company can take to reduce the social risks associated with project development.  There are also sources of social risk that lie well outside the control of either the company or the local community, issues such as legislative inconsistencies, credibility and legitimacy, and other stakeholders that have a role in awarding a Social Licence to Operate.  Clearly, many of these issues can not be resolved by the efforts of the company alone.  The company must, therefore, be willing to operate at several levels and engage in a dialogue with the other stakeholders, to help bring social risk under control.

For the company, earning a Social Licence to Operate starts in the exploration phase with the arrival of its personnel at the project site.  First impressions are long lasting and the company must recognize that community opinion will be conditioned by previous experience, knowledge gained from elsewhere and the approach taken by the company.  Conflict can arise very quickly if there is a failure to respect local customs of land use and religious sites, give notice of actions, pay fair market compensation and so on.  Knowledge of the community and on-going communications are prerequisites for good relations.

During exploration, and later during mine development, when a project is most exposed financially, the greatest risk of social conflict is probably created by the mismatch of expectations that may exist between the company and the community.  At exploration, company expectations are typically quite low; most projects fail.  It is only relatively late in the life of a successful exploration project that confidence rises, and management considers ‘non-essential’ (i.e. non-exploration) expenses to be justified.  Community expectations, both hopes and fears, may be significant early on in exploration, and heighten dramatically as soon as earth moving equipment and drill rigs make their appearance.  Thus managing expectations, through respect and communication, is the most critical challenge of community relations during exploration.

As the project advances the company must be proactive in establishing a direct relationship with the local community based on respect, inclusion and consultation.  It will, however, be subject to constant change and require continual modification.  Community relations should be based on a real understanding of the community.  A social profile or risk assessment may be needed to ensure that local sensitivities are known.  Expectations must be managed proactively and the company must honor any and all commitments made to the community.  A community relations strategy is required that is culturally sensitive, relevant to the community and matched to the scale and intensity of the operation.

During the operational phase, the company needs to ensure that the promised benefits of mining really do accrue to the local communities.  Given the realities of Latin America, this will mean some level of direct corporate investment which, ideally, is achieved through a process of consultation and shared implementation.  Projects should be integrated with the existing infrastructure; meet community needs and be capable of continuing successfully without the presence of the company.  Failure to observe these simple guidelines risks establishing the traditional patron-client relationship so common throughout Latin America.  ‘Patronism’ engenders a dependency and indifference to the benefits being received, and leads over time to resentment from the community and a rising risk of social conflict.  Properly applied, a program of community relations and investment in community development can create true sustainability, as is happening around the Yanacocha mine operated by Newmont Gold in northern Peru .

Legislative inconsistencies and economic and mining codes that contradict social reform laws require urgent and careful attention since they disadvantage both the company and the community.  Resolving these problems will be complex and may well require the coordinated efforts of governments and international organizations such as the World Bank, acting on recommendations coming from both the mining industry and the NGO’s representing the interests of the communities.  In the interim, companies should conduct a careful analysis of the risks created at the level of governments and develop strategies that cope with these situations on a country by country basis.

The lack of capacity within governments to function as regulators of the resource sector in the manner intended by the legislation is a major issue across Latin America.  In response, companies can contribute to building capacity in local government by creatively extending training programs to include regulators (frequently as "observers" so that capabilities do not appear to be questioned), and by working with the many development agencies and NGO’s dedicated to strengthening institutional capacity.  The process can be facilitated by the company providing their own management expertise, seed funding to pull in further assistance or enabling inter-governmental contacts.

There is particular need for the company to enter into dialogue with the NGO’s.  Aid, development, education, health, rights, social justice and environment are all under the purview of these organizations.  Failure to engage these bodies makes the company appear reckless and irresponsible, inviting challenge if not opposition.  Co-operation, and even partnerships, with the NGO’s is becoming more frequent, particularly in the area of community development.  A new model of interaction is emerging, one of ‘constructive engagement’ in which multiple parties work together to achieve mutual goals.  NGOs and Community Based Organizations (CBOs) have real expertise and local skills that can greatly enhance the cost effectiveness of social and economic development programs sponsored by the company.  The NGO’s have also become key to improving issues of legitimacy, transparency and credibility.  External verification by these organizations of a company’s activities and claims for compliance with social, economic and environmental standards can often become an essential part of earning a Social Licence to Operate.      

It is apparent that social risk has emerged as the most significant challenge to the mining industry as we enter the new millennium and thus must be addressed constructively.  In this context, it is reasonable to consider the need for industry standards of social performance, a delicate and still evolving subject.  Industry groups in Canada and Australia are currently discussing the formulation of language for an industry code of practice and the International Council on Metals and the Environment is also developing early stage documentation for a potential code.  We would argue strongly that industry must take an even more open and proactive role in this process since it is essential to have workable standards and expectations for industry performance.  We also suggest that, to overcome the credibility gap surrounding the industry, it is necessary to look to third party review and evaluation of not only the language adopted but also implementation and compliance.  This mechanism could become part of confirming the Social Licence to Operate at the project, national and international levels.

Finally, we believe that the Social Licence to Operate is a fundamental unit in building what Dave Baker of Newmont Gold calls ‘reputation capital’.  This is a powerful business management strategy based on recognition that what a company does in any location and with any stakeholder, will contribute to the company’s reputation world wide.  In effect the social licence gained at the project level creates value at the corporate level: it also becomes a competitive advantage.  Reputation capital opens doors: it is a communications bridge which predisposes NGO’s, communities and other groups to enter into open discussion rather than hostile opposition.  Reputation capital carries with it credibility, such that the up front costs and risk associated with gaining social acceptability are reduced.  The companies with a proven capacity and commitment to earning a Social Licence to Operate will, in the future, be the explorers and developers of choice, with preferred access to prospective areas and projects.  

For more information see  Socialicense.com