Having a social licence to operate is proving to be more important than ever as shareholders, consumers and employees put pressure on companies to help contribute to a better world.

What does it mean to have a social licence to operate?

Put simply, a social licence to operate is when a company’s business practices and operations are accepted and respected by its stakeholders. Companies need to do more than comply with government regulation, they need to meet the expectations of increasingly powerful stakeholders including the public, shareholders, employees and partners who are stepping up to demand greater focus on sustainability, environmental protection and ethical practices.

Five incentives for change

1. The power of shareholder activism

The social activism that toppled the CEO of Rio Tinto and two other senior executives last year, showcased the power of shareholder activism, especially when it comes from super funds.

After Rio Tinto’s destruction of the ancient Juukan Gorge rock shelters which contained evidence of continual human occupation tracing back at least 46,000 years, shareholders including Australian Super, HESTA, UniSuper and some large UK pension funds, were not happy with the penalty decided by the board to strip money from three well-paid executives. They made a stand which ended in all three executives losing their jobs.

Globally superfunds make up the single largest consolidation of money in the world and, according to the Association of Superannuation Funds of Australia, we have the fourth largest savings pool.^[i] This gives superfunds, particularly here in Australia, a huge opportunity to incentivise businesses to act ethically.

2. The power of purchase

In a recent blog written by Sefiani’s Nicole Thurston called The Consumer of Now, she looks at the social awakening of consumers brought on by COVID-19, and how it has encouraged people to seek out sustainable and ethical brands and be part of a movement to drive positive change. In a world where 63% of global consumers prefer to purchase products and services from companies that reflect their own values and beliefs^[ii], companies now have a huge incentive to reassess their contributions as good corporate citizens.

3. Increased scrutiny on the value chain

Companies wanting to demonstrate they have a social licence to operate will be forced to seek out suppliers and partners that have shared values. With increased scrutiny of operations across the entire value chain, any company working with an unethical partner whose practices are made public will be tarred with the same brush, forcing companies to apply that same level of scrutiny in the procurement process.

4. Employees are demanding more from their employers

People are increasingly seeking out employers that are purpose-led and making a positive impact. According to survey by LinkedIn, 74% of candidates preferred to work in a role where they felt like their work mattered.

There is also a growing body of evidence showing the impact that working for a company with aligned values has on productivity as well as morale and loyalty. EY’s Oliver Eitelwein explains that when individuals and corporate purposes are aligned, employees are actually willing to go above and beyond what is required to express their values.

It is not only millennials who are demanding it, but people across all age groups want to work for organisations with shared values.  Organisations wanting to get the best talent will increasingly need to demonstrate they have a social licence to operate.

5. The business case for good

The argument for earning a social licence to operate is not only ‘stick’ (carrot and stick), there is also a strong financial incentive. Unilever, a company that has shown leadership in this area for some time, grew its annual sales from $38 billion to more than $60 billion within ten years and it delivered a total shareholder return of 290%. And Unilever is not alone. Salesforce, Lego, Patagonia and Microsoft are all examples of companies that have successfully created shared value; generating profit while making a positive social impact.

Not an add on

Earning a social licence takes more than piece-meal contributions. It involves making a meaningful difference in the areas where a company already operates. And that is why, the brands that are best known as sustainability champions like Patagonia, Unilever and Ikea, have a social good that is aligned with their brand purpose.

The role of PR

Strategic communication is a key part of the journey towards a more sustainable, ethical and positive future. People want transparency. They want to hear about the good news as well as the learnings. A brand’s journey and the milestones along the way need to be shared across all internal and external channels, giving stakeholders a reason to connect and engage. When done well, you can build trust, respect and support, and demonstrate you are part of the positive change that the world needs today.

How to stand out in the crowd

As more companies step up to the plate, we see many examples of brands with the best intentions fail to resonate and connect with their audiences. Brands need to ask, “how are we going to be different?” Here are three principles to keep in mind when communicating about social action.

#1. Be positive

Brands that focus on the breadth of challenges in sustainability can leave audiences feeling disenchanted, unempowered and small. According to a study by Greenbiz, videos positively depicting nature’s beauty and innovative climate change solutions were 50 times more effective at driving views than negative messaging or even a combination of positive and negative.

The H&M’s Conscious Collection, which uses products that contain at least 50% sustainable materials, consistently delivers content that is positive and inspiring, helping audiences feel like they can be part of the solution.

#2. Keep it simple

To engage consumers on the concept of circular consumption and the role of consumers in that process, IKEA created disassembly instructions for their best-selling furniture. The instructions aimed to help customers repair, reuse, resell and recycle IKEA furniture, delivering an important message in a way that is fun and on-brand.

#3. Be honest

Brands need to do what they say they will do. Dove, a brand developed as a ‘beauty soap’ is on a mission to build body confidence in young people, and to do this, they are running self-esteem workshops. So far, the workshops have reached 62 million young people. This has given Dove a powerful platform to develop award-winning campaigns, like Real Beauty Sketches, that break through the clutter and come across as genuine, relevant and meaningful.

What brands do you think are leading the way in sustainability communications here in Australia?

Julia Hoy is a Senior Consultant at Sefiani and has worked with some of the world’s leading brands in sustainability and social purpose. She is a big believer that business can and should be a force for good.

^[i] Probono Australia, 2019

^[ii] Accenture, 2018