President’s commentary: Investor driven pressure grows as ‘social licence’ returns to top of agenda following recent corporate crisis

In a year when a global pandemic continues to dominate the headlines, it can be tough for other stories and issues to break through into the public spotlight.

However, mining giant Rio Tinto ― and its decision to blast into the historic and culturally important Juukan Gorge rock shelters in Western Australia ― managed to do just that, sparking a major outpouring of sadness, anger and incredulity that such an action had been taken.

The actions were not against the law, but the brand and reputational impacts have been severe.

News of the blast was fanned swiftly and effectively via social media platforms, ensuring that the issue was captured loudly and clearly in the public’s mind. International headlines added to the outcry, and a parliamentary committee is set to hold an inquiry into the matter.

Many have since questioned that while an organisation may have the legal licence to take an action, do they have the social licence?

Rio Tinto’s action, the contexts and the consequences all give organisations across Australia pause for introspection on the idea of social licence, an idea that has proved contentious in corporate circles.

Most recently, in 2019, when the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations 4th edition were being discussed there was robust debate around the idea of social licence.

While the debate around the definitions and lines continue, there is no question that an organisation’s mission and purpose cannot stand apart from the history and culture and stories of the communities in which they operate, whose resources they draw onto to do business.

Businesses must hear the voices of not just their investors but also of a broader stakeholder universe including governments, customers, communities and in the case of Australia the traditional landowners. Because when those voices are not heard, there can be broad implications for reputation and brand image that can reverberate right across the stakeholder universe and along local and global supply and distribution chains.

Investors the world over have also sharpened the scrutiny on how ESG and the social license to operate is factored into decision-making. So, this is no longer a philosophical discussion. It is an ethical imperative and has a real impact on the business.

This is clear from the strong response from investors to the decision to blast the site that has now led to the resignation of Rio Tinto’s CEO plus two senior executives.

Some may still be doubtful about whether social license needs to be considered when big business decisions are on the table. However, social license needs to be considered now more than ever as the Rio incident has revealed. There is no doubt that the business impact of this entirely legal decision has been major.

We are seeing a strong emergence of greater pressure from investors, stakeholders and the public on Environmental, Social and Governance (ESG)  and social licence ― and corporate Australia will need to take note. 

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