Social licence ‘critical’ to the success of infrastructure projects

Gaining and maintaining social licence is a “critical factor” in the success of infrastructure projects or services, a new report has found.

Building Trust: A Social Licence for Infrastructure, published this week by think-tank Infrastructure Partnerships Australia and LEK Consulting, set out nine principles for developing social licence in the infrastructure sector, including making it a key consideration at every stage of the project and ensuring that the benefits of a project are communicated more clearly to end-users.

The report found that social licence is more relevant than ever following several high-profile public inquiries and corporate scandals, citing the Australian examples of the Royal Commission into Misconduct in the Banking, Financial Services and Superannuation Industry among others.

“Declining trust in institutions is a reflection that communities are no longer satisfied with the business-as-usual approach, demanding new levels of accountability and transparency,” the report said.

Infrastructure operators have unique challenges around social licence given their role in providing essential services, often as regulated monopolies that last for many decades.

“Businesses with monopoly characteristics can be particularly susceptible to attracting community distrust if they are perceived to be exploiting their market position,” the report said.

“In a changing environment, the long-term nature of infrastructure assets can also prove to be challenging, sometimes conflicting with short-term political and policy cycles and the pace at which community expectations can change.”

The report said that while the public sector may take initial responsibility for a project and help to make its case, it is up to financiers, developers and builders to maintain social licence once a project is under way as part of a public-private partnership, or has been handed over entirely to the private sector.

“There is a growing expectation from the public that investments will be made ethically,” it said, with Australia’s superannuation sector landscape also providing unique challenges.

“Industry superannuation funds are … concerned about maintaining a strong social licence given it can impact long-term returns. The ease at which Australians can change superfunds makes the need to carefully consider investment decisions even more paramount.”

One anonymous investment fund quoted in the report said: “Social licence to operate is the biggest issue on the minds of infrastructure funds – by miles.”

Asset recycling lessons

The report highlighted how different government positions have led to vastly different outcomes for the social licence of the private sector to operate infrastructure assets in each Australian state.

Under the federal government’s Asset Recycling Initiative, New South Wales presented a “clear strategy for how to divest the assets as well as protect the proceeds”, with infrastructure funding increasing as a result of privatisations and the government clearly communicating the benefits of its A$24 billion ($16.7 billion; €14.9 billion) in net proceeds to taxpayers. A similar story occurred in Victoria, which has received approximately A$14.6 billion in proceeds from asset recycling.

In Queensland, though, the Labor Party won the 2017 state election on a ‘no asset sales’ platform, with Liberal premier Campbell Newman previously proposing a series of asset sales whose proceeds would be used to pay down state debts, rather than to build new infrastructure.

“Ultimately, jurisdictions which can demonstrate the benefits to the public are less likely to face an uphill challenge when pursuing asset recycling opportunities. The onus is on the government to improve how it engages with the public on the topic of asset recycling and to deliver well-designed and successful initiatives,” the report said.

The NSW government last week flagged increased infrastructure spending to help boost the state’s economic recovery after covid-19, increasing its planned infrastructure pipeline to A$100 billion with the creation of a new A$3 billion Infrastructure and Job Acceleration Fund to be spent on shovel-ready projects that can create 20,000 jobs. NSW treasurer Dominic Perrottet described the plan as an “infrastructure-led recovery” and floated the possibility of further asset recycling in the state in an interview with the Sydney Morning Herald.

In a statement on the release of its report and following the NSW government announcement, Infrastructure Partnerships Australia chief executive Adrian Dwyer said that planned spending should take social licence into greater account.

“As we accelerate infrastructure investment and planning to speed the recovery, there is a major opportunity to innovate in the way we engage with communities and put social licence at the front of our thinking about infrastructure delivery,” he said.

“While physical distancing and barriers to face-to-face consultations with communities create challenges, they also provide an opportunity to transform the way we traditionally build and maintain social licence. When infrastructure developers and operators have the support of the communities they serve, they have more flexibility to innovate and experiment, which creates benefits for government, business and the community.”

Nine principles for developing social licence in the infrastructure sector

1. Make social licence a key consideration for every infrastructure project at every stage
2. Implement an effective governance structure for managing social licence
3. Embed social licence considerations into all decision-making and processes
4. Deploy active and tailored engagement to gain the trust of communities
5. Ensure the benefits of a project are clearly and frequently communicated to the public
6. Improve the experience of infrastructure users
7. Establish methods for monitoring and evaluating social licence
8. Work directly with consumer advocates and community groups
9. Evolve the approach to keep up with shifting community expectations