Collaboration and Energy Development: Incentives to invest in "Social License"
L. Steven Smutko1
Jessica M. Clement1
1Haub School of Environment and Natural Resources, University of Wyoming
An exploratory study in northern Colorado regarding local stakeholder perceptions of oil and gas development led to the conclusion that the company involved would benefit from using a collaborative approach to project development. This outcome caused us to ask the question, “What would compel this particular company to do so?” In this paper we tookthe next step to investigate the social, economic, and institutional incentives for energy development firms to convene or participate in community engagement and collaboration in order to achieve “social license to operate”. Collaboration involves face-to-face interaction with all parties to encourage long-term relationships between the industry and affected communities by resolving any opposing interests in order to achieve their respective goals. We explored these incentives to collaborate from the point of view of the firm.
Social license in this context refers to society’s, or a local community’s acceptance or approval of a firm’s activities or operations. Social incentives to gain this license are based on the desire to preserve or enhance the firm’s reputation as being good environmental citizens, leading eventually to “good business”, in turn creating positive results on the Stock Exchange and in the perceptions of shareholders. The social incentives are highly variable and include factors such as place, culture, experience, and complexity of stakeholder relationships. Social incentives are also tied to factors internal to the firms themselves including personal commitments and affiliations, which are in turn tied strongly to worldviews. Economic incentives also play a role in a firm’s desire to attain social license, sometimes being a condition necessary to stay in business. Larger companies with more leeway in their profit margins, and certainly global companies, have greater capacity to embrace stakeholder demands and community engagement while smaller companies can only make a profit by “getting in and getting out” with low tolerance for community engagement.
We evaluated the effect of various regulatory compliance requirements in the United States on the incentive to collaborate. The National Environmental Policy Acthas so far predominantly caused the agencies to focus on meeting procedural requirements while many NEPA experts indicate that there is considerable amount of opportunity to use more integrated, collaborative approaches to this type of decision making. The Federal Advisory Committee Act (FACA) was designed to improve the quality of advice given to federal administrative agencies by ensuring a diversity of perspectives and providing guidance on how agencies can work with collaborative groups. However its effect has been to dampen public involvement, because many agencies view FACA requirements as onerous and unclear while potential collaborative partners are frustrated at agencies’ caution and the lack of opportunity to resolve issues. Finally, the Integrated Licensing Process (ILP) administered by the Federal Energy Regulatory Commission (FERC) is the streamlined process that was established in 2006 which combined the creation of a Preliminary License Proposal (PLP) and NEPA scoping. In the course of the creation of a PLP, a firm can create settlements with all involved stakeholders. FERC favors PLP’s that include settlements and has provided guidance on what they should include. This provides clear guidelines for any collaboratively agreed settlement and final PLP.
We assert that although the attainment of social license is emerging as a key principle in many firms’ perception of a sustainable bottom line, and that numerous social and economic incentives exist to support this, institutional barriers to collaboration are a significant disincentive for firms to extend beyond minimum regulatory requirements. FERC hydro relicensing processes were the exception. We provide several suggestions for further research, including an exploration of regulatory frameworks in other countries, especially Canada since its historical and regulatory contexts are similar. Ultimately we believe that socially and economically the incentives exist for the investment in social license by the corporate sector, but that the regulatory frameworks have not caught up with societal value changes and are therefore creating an impediment in some cases.