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Social License to Operate (SLO): Case Review of Enbridge and the Northern Gateway Pipeline

  • Michael O. WoodEmail author
  • Jason Thistlethwaite
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Abstract

With such overwhelming support, why was the Northern Gateway Pipeline (NGP) project ultimately rejected? Through the lens of social license to operate (SLO), this chapter explains why the NGP was not approved despite overwhelming support from government and industry as well as the economic viability of the project. This chapter shows that an SLO was not attained because of the disproportionate risks to benefits that would have been borne by local and Indigenous communities along the pipeline route, as well as the realized and potential impacts to the natural environment. This chapter concludes with key takeaways for organizations seeking an SLO as well as avenues for future research.

Keywords

Social license to operate Northern Gateway Pipeline Stakeholder engagement Co-ownership 

Introduction

On November 29, 2016, the Prime Minister of Canada, the Honorable Justin Trudeau, announced that the Northern Gateway Pipeline (NGP) would be rejected (McCarthy and Lewis 2016b). The announcement countered the project’s political support at both the provincial and national levels of government, as well as evidence of economic viability. Given the political support and economic incentives to develop the pipeline, why was the NGP project ultimately rejected?

To answer this question, this chapter explores the concept of social license to operate (SLO) as a framework through which to understand why the project failed to be approved. The concept of SLO developed in the context of the extractive industries, such as mining (e.g., Gunningham et al. 2004) and has been recently applied in the context of pipeline projects (e.g., Jijelava and Vanclay 2017). In recent years, SLO has received increased attention from both academics and practitioners as an important concept to help explain when and why projects, particularly those in the extractive industries, are able to receive and sustain stakeholder support for their projects and those that are not (e.g., Hall et al. 2015; Moffat and Zhang 2014; Parsons et al. 2014; Prno 2013).

An SLO differs from the legal or political licenses in that the former tends to be granted by stakeholders of the project and not public authorities (Hall et al. 2015). Thus firms need to go beyond compliance with regulations to show stakeholders through their interactions with them, that they are committed to building value beyond that of the firm, through commitments to principles like sustainable development (e.g., Mineral Council of Australia 2015). Importantly an SLO can only be attained when firms’ activities receive acceptance from both local communities and stakeholders more broadly (Wilburn and Wilburn 2011).

This increase in scholarly research and industry focus is perhaps due to the fact that there was a high degree of uncertainty as to what constitutes an SLO and how to maintain it (Slack 2008). For firms whose operations have the potential for substantial social or environmental impacts, such as those in the extractive industries, an SLO is an important consideration given the dynamic nature of the relationship between stakeholders and the firm (Brown and Fraser 2006). Recent research has shown its relevance across industries (e.g., Hall et al. 2015) as a means of understanding the levels and boundaries of an SLO that firms must navigate with stakeholders in order reduce the potential for such impacts. More specifically, by considering the boundaries of legitimacy, credibility, and trust (i.e., Thomson and Boutilier 2011) between levels (acceptance, approval, and co-ownership) of an SLO with stakeholders of the project, a clearer picture emerges as to why the NGP was not approved. SLO is revealed as a useful and practical tool for organizations to deploy in the negotiation, implementation, and operational phases of any project.

The following section reviews the literature on the SLO to frame this assessment. Background on the NGP follows this section and then the application of the SLO framework to unpack why the project was not approved. The chapter concludes with key takeaways from the NGP experience for firms seeking an SLO and presents avenues for future research.

The Social License to Operate

Thomson and Boutilier (2011) define SLO as “the ongoing acceptance and approval from local communities and other stakeholders” (p. 1779) that relate specifically to nontechnical issues associated with a project (Smits et al. 2017). The initial push for firms to focus on SLO was as a form of risk management, which grew as a means of building understanding between the firm and the communities in which they operate (Thomson and Boutilier 2011). An SLO provides firms with a way to assess the degree of fit between stakeholders’ expectations of the firm’s behavior and their actual behavior (Salzmann et al. 2006). As a consequence, the attitude and approach to stakeholders on the part of the firm must be flexible and dynamic so as to accommodate evolving social and cultural paradigms (Nelsen 2006).

The SLO concept emerged out of industry, where practitioners were trying to understand why they were not able to gain or sustain stakeholder support for projects, despite having illustrated the technical proficiency (e.g., safety, efficiency, value proposition, etc.) of the project (Gunningham et al. 2004; Nelsen 2006). SLO has been shown to be particularly useful within industries such as energy (e.g., Smits et al. 2017), construction (e.g., Melé and Armengou 2016), forestry (e.g., Edwards and Lacey 2014), pipelines (e.g., Jijelava and Vanclay 2017), and mining (e.g., Thomson and Boutilier 2011) and has been argued as broadly applicable across industries (e.g., Nelsen 2006). However, evidence reveals that the uniqueness of the industry, context, and stakeholders must be taken into account when seeking to gain or sustain an SLO (e.g., Hall et al. 2015).

Industry leaders quickly realized that it was important to move beyond focusing solely on the legal, regulatory, and technical merits of a project (to which they had grown accustomed) and seek ways to identify, understand, and respond to stakeholders’ concerns along the life-span of the project, in order to ensure a project’s viability. Academics soon weighed in on the concept of SLO, seeking to explain why projects either succeeded or failed in gaining and sustaining an SLO (e.g., Hall et al. 2015; Jijelava and Vanclay 2017; Moffat and Zhang 2014; Parsons et al. 2014; Smits et al. 2017).

SLO emerged as an industry response to corporate social responsibility (CSR; Gunningham et al. 2004), which focuses on optimizing economic, social, and environmental value simultaneously, and is the firm-level operationalization of sustainable development (Bansal 2005). More specifically, given the centrality of stakeholders – defined as those who can affect or are affected by an organization’s activities (Freeman 2010) – stakeholder theory provided useful insights for understanding not only who to consider as stakeholders but also their relative importance to the firm (Mitchell et al. 1997). SLO in return has provided a useful way for explaining how to go about gaining and sustaining stakeholder buy-in for projects and some of the missteps firms should avoid (e.g., Thomson and Boutilier 2011).

According to Parsons and colleagues (2014), the common thread that connects the SLO to these other CSR-related concepts is that of legitimacy (Suchman 1995), which is conferred by stakeholders to the firm for a given activity or project, for a period of time. Legitimacy is defined as a “generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman 1995, p. 574). It is through the firm’s ability to illustrate and maintain their legitimacy in the eyes of stakeholders that affords them the “right” to continue their project unimpeded. Importantly, the duration of such legitimacy may or may not align with the life-span of a given project, especially, when considering capitally intensive projects such as those in the extractive industries. SLO has also emerged as a tool that stakeholders can embrace for making their concerns known throughout the negotiation, implementation, or operational phases of a project.

At the project level, SLO tends to be rooted in the perceptions and opinions of, first, the local community, which includes those living and working near the project site (Graafland 2002), and, second, stakeholders more generally. Given that stakeholders’ perceptions and opinions are dynamic and can change over the life of a project, so too can their willingness to grant an SLO. Thus, SLO must not only be gained but also sustained.

The importance of gaining a social license from stakeholders has increased in recent years. For example, Goldman Sachs (2008) found that it took almost twice as long to bring major oil and gas projects to their operational phase, in comparison to projects from the previous decade, leading to increased costs to the firm. The single largest factor contributing to such project development delays is the relationships between stakeholders and the firm (Ruggie 2010). Thus, the business case for considering how to gain and sustain an SLO becomes clear.

Gaining and Sustaining the Social License

An SLO tends to be granted on a case-by-case basis, meaning that a firm may gain a social license from stakeholders for one project but not another, due in part to the complexity associated with identifying stakeholders for a given project (Prno 2013). Determining which stakeholders are affected by a project can be particularly challenging because it is a matter of perception, on the part of the stakeholder. Traditionally, a stakeholder is identified spatially (Gould et al. 1996); those near the proposed project would be considered stakeholders. This has been the focus of the majority of research in understanding the importance of SLO (with a few exceptions, e.g., Lacey and Lamont 2014) because it is those stakeholders whose buy-in to a project (or lack thereof) is most evident on the ground. When a social license has not been granted, it tends to be local stakeholders who engage in protests or other actions (see Hanna et al. 2016), to delay, derail, or deny the project altogether (Gould et al. 1996). Proximity, however, is not the only criteria for determining a stakeholder.

Stakeholders may be spatially proximate (i.e., local), yet proximity does not constrain stakeholders’ effect on a project or the effect of a project on stakeholders (Moffat and Zhang 2014). Consider a pipeline project as an example. From an environmental perspective, if the project were to go ahead, there would be an increase in carbon dioxide emissions not only from the development of the pipeline but also through increased oil and gas products being made available for consumption. As such, the pipeline project will contribute to climate change. Because of climate change, which affects regions across the globe through rising sea level or increases in the frequency and intensity of extreme weather, is global, anyone in affected regions would be considered a stakeholder for the project. Thus, a stakeholder group, perhaps not even physically proximate to the project, may indeed be in a legitimate position to issue (or withhold) an SLO for the project.

Once the various stakeholders have been identified, they may hold differing opinions as to whether an SLO should be granted, and thus consensus may be difficult. Some stakeholders may prioritize economic development by way of job creation (Freeman et al. 2007), while others may focus on social justice issues (Scott and Oelofse 2005), and still, others may emphasize the importance of environmental sustainability (Kassinis and Vafeas 2006). In addition, Lacey and Lamont (2014) argue that increasingly, projects are being scrutinized across broader scales (e.g., regional, national, global) in that it is not only imperative for the firm to acquire an SLO from the local community but also stakeholders further afield. In the mining context, evidence suggests that stakeholders consider the operational track record across multiple operations through the value chain (Moffat and Zhang 2014), which has important implications for not only the focal firm but the industry more broadly. Furthermore, Hall and colleagues’ (2015) cross-industry analysis of SLO found that when there were conflicting opinions toward a project between local stakeholders and those further afield, it became less clear which stakeholders were more important to the firm in securing their SLO. Therefore, identifying which stakeholders to pay most attention to becomes an increasingly difficult proposition. As such, the complexities associated with trying to determine what stakeholder issues to address, whom to talk to, and how to prioritize their concerns to be granted an SLO become a challenge.

The following section explores the levels of a social license and the boundaries between them.

Levels and Boundaries of a Social License to Operate

Thomson and Boutilier (2011) identify social license as a continuum from acceptance, through approval, to co-ownership. The authors argue that a firm’s location along the continuum is dependent on stakeholders’ perceptions of the firm’s legitimacy, credibility, and trust, as realized through their mutually created social capital. For the firm, it is imperative to identify meaningful ways of participating in partnerships with stakeholders (e.g., local communities and others), which then, in turn, grant an SLO to the firm. For stakeholders, they must draw upon the social capital in their networks to ensure they have the capacity and buy-in to grant an SLO should the firm be seen as legitimate, credible, and trustworthy. Figure 1 depicts the thresholds (legitimacy, credibility, and trust) between levels (acceptance, approval, co-ownership) of an SLO.
Fig. 1

Levels of social license (Adapted from Thomson and Boutilier 2011)

According to Thomson and Boutilier (2011), the first level of a social license is acceptance. Acceptance is achieved when the firm responsible for the project can establish itself as legitimate in the eyes of stakeholders. The legitimacy of the firm (and its project) is based on its ability to identify, understand, appreciate, and respect established norms within the community of stakeholders (Kemp and Vanclay 2013). Legitimacy is also conferred through the benefits that the community derives from the partnership with the firm. Benefits can be in the form of the company investing in job, training, and other social programs (e.g., João et al. 2011). Firms must first do their due diligence to identify formal norms (e.g., economic and legal) during the project planning phase, which is important for understanding the rules of the game. Engaging with stakeholder at the community level allows the firm to share details of the project as well as giving stakeholders the opportunity to ask questions and share concerns. Such engagement with the local community – often in the form of face-to-face meetings – allows the firm to identify informal norms (e.g., cultural, social, and political), which can be incorporated into the project. A standardized approach for gaining acceptance is not recommended given that the makeup of the local community and stakeholders can vary considerably by the project (Prno 2013), which makes it difficult to identify their needs and wants (Suchman 1995). Therefore, the core principle for consideration by the firm in engaging with stakeholders is respect, respect for the health of the local community, to determine their future, their safety and security, their land and property, and the natural environment (e.g., Kemp and Vanclay 2013). Doing so builds legitimacy for the firm, increasing the likelihood of gaining acceptance for the project.

The second level of a social license is approval (Thomson and Boutilier 2011). Approval for a project is gained when the firm can establish itself as being credible. Credibility is established through open, honest, and transparent communication and engagement with stakeholders and a demonstration the firm’s ability to consistently meet the commitments to the community. Importantly, credibility relates to the firm’s social interactions as opposed to their technical credibility. Mistaking one for the other can result in failing to realize approval for the project. One type of engagement practice is the use of formal agreements, which can be a useful tool for defining and detailing the rules and responsibilities of all parties involved in the project. In doing so, commitments can be articulated so as to reduce the likelihood of there being a disconnect between commitments and expectations. Community engagement also comes in the form of face-to-face meetings. Such an approach enables the firm to build credibility with stakeholders as it gives the firm the repeated opportunity to showcase their competencies for executing the project (Dare et al. 2014) as well as the opportunity to engage in productive dialogue with stakeholder (Prno 2013). The engagement approach taken by the firm must match the expectations of project stakeholders. In some cases, a formal agreement may be preferable, whereas, in others, it is about building the personal connection through the repeated face-to-face meeting. Either approach will allow the firm to build their credibility with stakeholders and increase the likelihood of the project receiving approval.

The third and final level of social license is that of co-ownership (Thomson and Boutilier 2011). Co-ownership is realized when the firm has been able to develop their credibility to a point where they have trust with stakeholders. Trust is manifest through the continued interaction of shared experience between the firm and stakeholders, which is time-consuming to foster, thus challenging for firms to move beyond a transactional relationship with stakeholders to one that is transformational (Bowen et al. 2008). Importantly, trust acts to reduce the power distance between the firm and stakeholders, enabling each party to inculcate mental (and in some cases material) ownership of the project. Thomson and Boutilier (2011) identify two different types of trust: interactional and institutional. Interactional trust is the stakeholders’ perception that the firm genuinely listens, responds, and respects their concerns surrounding a project. Institutional trust is the concern that mutual benefit is being realized for all stakeholders. Practically this means that the firm would be genuinely concerned that stakeholders realized the benefits committed to them, in whatever form those benefits may take for a given stakeholder group through the project. Conversely, stakeholders would be equally concerned that the firm’s interests were being met. For both types of trust, Harvey (2014) suggests the firm needs to shift its efforts from project “outreach” to project “in-reach,” which is working with stakeholders in developing projects as opposed to working independently and then telling stakeholders what they intend to do. In building trust, firms will be able to engage in a transformational relationship with stakeholder and build projects that are not only of mutual benefit but also instill a mind-set of co-ownership for the project.

The following section presents background information on the NGP, which is followed by an application of the SLO framework to understand why, despite significant support for the NGP, the project was ultimately rejected.

The Northern Gateway Pipeline

Canada is globally recognized as an energy exporter in large part due to the bitumen reserves in the Athabasca region of Western Canada. These reserves are also known as Alberta’s oil sands, which represent 177 billion barrels in proven reserves (National Energy Board 2013a). The steep rise in oil prices since 2007 made bitumen production and export more lucrative than ever, spurring exponential production. The Canadian economy is closely tied to the oil and gas sector as Canada is the fifth largest oil producer and the fourth largest oil exporter (Natural Resources Canada 2014). Oil and gas products account for 20% of Canada’s net exports, almost 25% of private sector investments, and 20% of capitalization on the Toronto Stock Exchange (Pineault and Hussey 2017). Record-breaking oil prices from 2011 to 2014 bolstered private investments in increased oil sand production capacity. In 2012, the oil and gas sector invested roughly $55 billion in new capital projects across Canada (Morgan 2013), which would increase production capacity up from 1.8 million barrels per day (bpd) to 5.2 million bpd when operational (Lemphers 2013). With production anticipated to rise over the next decade, restricted pipeline capacity (Fig. 2) could cost $1.3 trillion in foregone exports (Holden 2013). Hence pipeline proponents had a strong economic case for increasing pipleine capacity.
Fig. 2

Anticipated bitumen production relative to pipeline capacity (000 b/d) (Source: Holden 2013)

Pipelines that delivered Canadian crude oil for refining and export were predominantly directed south toward the United States, reducing the price of Canadian oil. As of 2013, the United States imported 71% of Canada’s total crude production (Fig. 3), the majority of which was transported to the PADD II storage and distribution hub in Cushing, Oklahoma (Holden 2013). Stockpiles of oil inventory in the Midwestern United States, coupled with transportation bottlenecks in Canadian distribution channels, dampened Canadian crude demand and consequently depressed export prices relative to overseas benchmark rates (Hoberg 2013); Western Canada Select (WCS) prices were on average $19/barrel lower than the international West Texas Intermediate (WTI) price (Fig. 4) (National Energy Board 2013b). As a price taker on the North American market, Canadian oil producers faced a price discount that cost the industry billions in foregone revenues annually (Moore et al. 2011). As such, there was a strong incentive on the part of regulators to support Canadian oil producers in their efforts to seek alternative markets. To this end, oil producers, with the support of the Canadian government, needed to find a way to get Canadian oil to tidal water to be able to access Asian markets. After the United States, China and Japan represent the 2nd and 3rd most potential demand for Canadian crude (National Energy Board 2013a).
Fig. 3

Disposition of Canadian crude oil in 2011 (Source: Holden 2013)

Fig. 4

Crude oil benchmark prices (US$/b) (Source: National Energy Board 2013b)

The Northern Gateway Pipeline (NGP) had the potential to open Canadian exports to Asian markets and secure the industry’s profitability and growth into the future. The NGP was first proposed by Enbridge Inc. in 2004 to export Canadian oil from Alberta to the western coast of British Columbia for export. Enbridge is Canada’s leading energy infrastructure provider and the project principal on the NGP. Enbridge currently operates more than 28,000 km of pipeline, delivering over 2.8 million barrels of crude oil from Alberta daily (Enbridge 2017). As proposed, the project involved two pipelines spanning approximately 1170 km from Bruderheim, Alberta, to Kitimat, British Columbia (National Energy Board 2013a). The project also included the construction of 2 tanker berths, 3 condensate storage tanks, and 16 oil storage tanks at the port of Kitimat, British Columbia. The final estimated cost for the project was $7.9 billion (National Energy Board 2013a). As early as 2005, Enbridge had signed an agreement with PetroChina to import half of the 400,000 bpd capacity (Jones 2008).

Economic Benefits

We explore the requisite boundary criteria (i.e., legitimacy, credibility, and trust) for the three levels of SLO (i.e., acceptance, approval, and co-ownership) to assess whether Enbridge was able to acquire an SLO for the NGP.

Despite having a very clear business and economic case for pursuing the development of the NGP, it proved to be one of the most divisive and controversial projects in Canada. On the one hand, proponents argued that the estimated economic benefits through new jobs and tax revenues, which would contribute $10 billion annually (National Energy Board 2013a) to the Canadian the gross domestic product (GDP), outweighed the risks of developing the pipeline. On the other hand, opponents argued that the risk and benefits were not equally distributed; the bulk of the risks would be borne by stakeholders along the pipeline route (e.g., communities and the natural environment), while the bulk of such benefits would accrue to Enbridge and Canadian oil producers.

At the national level, the Canadian federal government has jurisdiction over issues relating to natural resources, when products like oil move across provincial or national boundaries. Northern Gateway claimed that the pipeline would generate 900,000 person-years of employment and more than 300 billion in GDP over the next 30 years, with 70 billion in labour income, 44 billion in federal revenues, and 54 billion to provincial governments (as shown in Fig. 5) (National Energy Board 2013a). However, environmental NGOs argued that the upstream environmental and social costs of oil sands developments were downplayed while the benefits were highly inflated (National Energy Board 2013a). Nevertheless, it was clearly in the federal government’s interest to increase market access for Canadian oil.
Fig. 5

Estimated economic benefits of the Northern Gateway Pipeline by province (Source: National Energy Board 2013a)

At the provincial level, Alberta’s economy and provincial government’s revenue are closely tied to the oil and gas sector, which directly employs over 170,000 Albertans and accounts for 23.9% of the province’s total gross domestic product (KPMG 2013). Moreover, Alberta had long used its oil revenues to offer the “Alberta Advantage” – a flat 10% income tax and no provincial sales tax (Rubin 2015). But waning demand and discounted prices relative to international markets led to a $1.3 billion budgetary deficit in 2012 (Gerson 2013). The provincial government of British Columbia would have also benefited from a new pipeline, yet its compensation was not proportionate to the environmental risk incurred by the province. With 58% of the proposed pipeline to be laid in British Columbia, the envionrmental risk to salmon fisheries and remote watersheds in the event of a pipeline spill outweighed the financial benefits, with only 7.4% of the $81 billion in royalties going to the province (Government of British Columbia 2012). The government of British Columbia signaled its willingness to negotiate if the province were to secure an adequate share of the pipeline’s economic benefits to compensate the province for the associated risks. The final decision as to whether the pipeline were to be built fell to the National Energy Board (NEB), the federal government’s primary regulator of pipelines. Provincial legislative authority is superseded by the federal government when they deem a project to be in the national interest (Bankes 2012).

With the economic benefits of the NGP clear and Enbridge consistently ranked as one of the world’s most sustainable corporations for their social and environmental commitments (Enbridge 2017), the project had considerable support. However, the environmental and social risks of the project challenged the legitimacy of Enbridge and the NGP on multiple fronts. Skepticism toward the pipeline was driven by concern that NGP did not consider the “big picture” implications, specifically environmental risks (Horter et al. 2009), such as oil spills, wildlife habitat, and climate change. Social risks, such those to human health, violations of Indigenous sovereignty, and the project’s long-term economic viability called into question the Enbridge’s legitimacy and threatened the acceptance of the project. Each dimension is discussed in detail below.

Environmental Risks

Oil Spills. The proposed NGP route would have crossed over hundreds of sensitive waterways and rugged mountains, before passing treacherous inner coastal and open waters (Swift et al. 2011). A study by Alberta’s Energy and Utility Board on pipeline spills counted over 12,000 incidents of leaks and ruptures over a period of 15 years, 57% of which was caused by internal corrosion (Alberta Energy and Utility Board 2007), challenging the legitimacy of the industry. Enbridge’s response to this reality was to commit to thickening pipeline walls through major tributaries; however these measures were considered inadequate given the varied terrains, unpredictable coastal weather, fragile ecosystems, and isolated pathways the pipeline would follow (Union of British Columbia Indian Chiefs 2012).

The proposed NGP route would have crossed more than 800 rivers and streams, upon which animals and humans depend. A spill along the route could have contaminated headwaters of three important watersheds – Mackenzie, Fraser, and Skeena – which host critical marine migration routes and salmon habitats (Chia et al. 2015). A recent freshwater oil spill in Canada’s Pine River exemplified this threat to marine life, where 1 million liters of petroleum resulted in a massive fish kill spanning an area over 20 km downstream from the spill site (Levy 2009), again calling into question the legitimacy of the industry. Downstream contamination not only threatens marine life but agricultural irrigation, revenues from freshwater fisheries, and British Columbia’s booming recreational industry.

However, it was not only waterways that are at risk of oil spills. Permanent ground displacement, caused by landslides, faults, or liquefaction, represented one of the most significant geo-hazards associated with pipeline systems (Nyman et al. 2008). In its current state, “stress design requirements in the standard [Clause 4.2.4] do not include the effects of inertial earthquake loads, slope movements, fault movements, earthquake-induced earth movements, frost heave, or other loading sources” (Rathje 2011, p. 3).

The risk of spills carries past the pipeline route and into coastal waters, as supertankers would pass through Northern British Columbia’s Douglas Channel and the ecologically rich Great Bear coastal temperate rainforest. The route to open waters was 185 km long, and less than a kilometer wide, through a treacherous pass of mountainous fjords and islands that often experienced hurricane force winds and dense fog (Honderich 2012). These routes were home to critical orca and humpback whale habitats, which were at risk of deadly collisions, toxic contaminants, and underwater noise impacts (Greenpeace 2012). In fear of the risk of oil spills, the proposed route – which was far narrower than where the Exxon Valdez ran aground – had never been navigated by supertankers due to an informal moratorium on all oil tanker traffic since 1972 (Honderich 2012).

Wildlife Habitat. The pipeline itself wass also believed to have adverse ecological and health-related effects. The pipeline’s permanent “right of way,” a narrow (25–30 m) slice of clear-cut forest, would have passed straight through the ranges of at least five of the most threatened herds of Woodland Caribou and eight grizzly bear populations in Canada (Cryderman 2013). Environmental NGOs lobbied to have the majority of these routes pass through previously disturbed lands, to minimize the ecological impact of the pipeline on native species.

Climate Change. Critics also opposed the NGP for its potential contribution to climate change. The proposed pipeline would have increased Canada’s (well-to-wheel) greenhouse gas emissions by as much as 100 million tonnes of CO2 equivalent (MtCO2eq) per year, which roughly translates to 14% of Canada’s 2008 emissions (Zickfeld 2011). Such an increase would have made it increasingly difficult, if not impossible, for Canada to meet its emission targets pledged under the United Nations Copenhagen and Paris Accords.

Social Risks

Human Health. Adverse impacts of hydrocarbons on human health could have also been significant, according to the Northern Gateway’s Ecological and Human Health Risk Assessment. Indigenous groups who rely on the lands were concerned about these results, citing concerns of degraded air and water quality as a result of increased industrial activity (National Energy Board 2013a). Concerns would have been amplified in the case of a spill – with disruptions to traditional diets, increased risks of chronic illnesses associated with processed foods, the potential for mental illnesses from psychological stresses, and diminished social well-being of affected communities (National Energy Board 2013a). Indigenous groups were most vocal in arguing that their lands and waterways – which have been a source of livelihood and rituals for thousands of years – were threatened by the pipeline (Gibson and Klinck 2005).

Indigenous Sovereignty. Indigenous groups opposed the NGP arguing that the pipeline’s route through their territory was a violation of their sovereignty. Over 25% of the proposed pipeline and tanker corridor sat within 80 km of 69 Indigenous communities, tribal councils, and Metis organizations, who hold traditional titles to these lands (McCreary and Milligan 2014). Indigenous titles are acknowledged under the Canadian constitution, following a Supreme Court ruling in 1973 (Calder case) recognizing Aboriginal Peoples as distinct polities with distinct rights and claims (Godlewska and Webber 2007). A 2004 (Haida case) ruling enforced the government’s duty to consult and accommodate Indigenous groups for developments that could negatively impact Aboriginal rights or titles (Newman 2009).

While the federal government called for consultations with Indigenous groups along the pipeline route (excluding downstream nations), Indigenous groups invoked international law (the United Nations Declaration on the Rights of Indigenous Peoples) to support their right to make free and informed choices about the development of their lands and resources (Boutilier 2017).The right to free, prior, and informed consent (FPIC) under the UN declaration is, however, a non-binding instrument to simply guide the behavior of states (McCreary and Milligan 2014). Indigenous groups thus requested that Indigenous rights be recognized on lands with title claims, through consultation and consent for all impacted Indigenous communities (Fine 2014). The NGP had gained acceptance from some Indigenous communities, but Enbridge faced its greatest challenges to its legitimacy among coastal Indigenous communities who feared a spill would destroy the marine environment (McCarthy and Lewis 2016a).

Long-Term Economic Viability. Increased reliance on fossil fuel operations comes at a cost to the larger Canadian economy. Higher oil prices result in inflationary pressures that influence domestic interest rates and business investments which lead to increased unemployment and declining production in non-oil-related industries like the export-reliant manufacturing sector (Allan 2012). Furthermore, foreign ownership of oil sands operations costs Canadians an even larger share of economic benefits, as profits and value-added refining capacities are exported offshore. For these reasons Canada’s largest labor union – Unifor – opposed the NGP, arguing that pipelines not only export Canada’s resources but also its profits and jobs (Unifor 2014). Thus, the legitimacy of claims to the economic benefits of the NGP for job creation were called into question.

Oil spills, destruction of wildlife habitat, climate change, risks to human health, Indigenous sovereignty, and the long-term viability of NGP resulted in the federal government’s decision to not approve the pipeline in 2016, in part, due to inadequate engagement with stakeholders (McCarthy and Lewis 2016a). Despite the economic benefits of the NGP, and Enbridge’s notoriety as being one of the world’s most sustainable corporations (Enbridge 2017), they were unable to gain acceptance for the NGP due to the absence of legitimacy in mitigating the environmental and social risks of the project.

Discussion and Conclusion

This chapter explored the concept of social license to operate (SLO) as a framework to try to unpack why, despite the strong economic arguments in favor of and political support for developing the NGP, the project was ultimately rejected. Consistent with prior work that has applied SLO in the context of industries that experience a high degree of reputational risk (e.g., extractive industries), this chapter considered the boundaries of legitimacy, credibility, and trust (i.e., Thomson and Boutilier 2011) between levels of SLO (i.e., acceptance, approval, and co-ownership). Through SLO, it became clear that the NGP was not accepted by stakeholders, primarily because Enbridge was unable to gain legitimacy with local and Indigenous communities, environmental NGOs, and others, as to the sustainability of the project. It was revealed that the environmental and social risks associated with the project yielded an imbalanced distribution of risks and benefits across stakeholders, with the majority of the former being accrued by those proximate to the pipeline and the latter conferred to Enbridge and Canadian oil companies. The plethora of risks, both environmental and social, that were revealed through stakeholder engagement, proved to seed doubt among stakeholders as to the legitimacy of Enbridge mitigating the project-related risks; the risk of oil spills, threats to wildlife habitat, contibutions to climate change, potential impacts to human health, violations of Indigenous sovereignty, and the project’s long-term economic viability. Although the federal government had much to gain through the approval of the NGP by way of tax revenue and royalties, they chose to reject the project because Enbridge was unable to counter challenges to their legitimacy by stakeholders that the risks (of NGP) outweighed the benefits, thereby failing to secure an SLO.

Through this assessment of Enbridge and the NGP project, it has become clear that from a theoretical perspective, there is great utility in the SLO framework for understanding decisions that seem counterintuitive (i.e., the federal government withheld approval of the NGP despite strong economic incentive to approve it). What the SLO framework does is illuminate the importance of stakeholder engagement in a very practical way. It provides a means for not only understanding the varying degrees of stakeholder “buy-in” to a project (i.e., acceptance, approval, co-ownership) but also what specific actions and boundaries (i.e., legitimacy, credibility, and trust) firms can take to enhance their level of engagement with stakeholders.

The SLO concept is a useful and important consideration for most firms, but particularly those in capitally intensive industries, such as the extractive industries or those engaged in large-scale infrastructure projects like pipelines. In gaining an SLO, firms can not only reduce the likelihood they’ll experience project delays, disruptions, or damage to infrastructure associated with actions by local stakeholders such as protests (Goldman Sachs 2008; Ruggie 2010) but also reduce the potential for risks that manifest with stakeholders more broadly, including regulatory action (additional conditions for development or operation, fines, legal action), impacts to reputation, negative reactions of shareholders, or the rejection of future projects. Together these risks represent significant financial risk to the firm and therefore necessitate appropriate managerial attention and focus. For firms that are able to manage their social capital as operationalized through their SLOs, they can not only reduce said risks but also increase the likelihood that other projects will receive support.

The application of the SLO framework is a useful tool for firms across industries to manage and deploy their stakeholder engagement strategy. However, in applying the SLO framework, there may be a tendency to treat stakeholder groups as homogenous, which can be problematic. Evidence has shown that opinions and attitudes of stakeholders can vary by location (e.g., Prno 2013), through time (Dare et al. 2014) and within groups (e.g., Jijelava and Vanclay 2014). The findings of our inquiry were consistent in that some Indigenous communities accepted the development of the NGP, whereas those Indigenous communities on the Pacific coast did not (McCarthy and Lewis 2016a). For these reasons, it is important for the firm to build a high degree of familiarity with stakeholders so as to understand their concerns and answer their questions, which not only acts to fill an information gap but also illustrates the firm’s respect for stakeholders, which is a central element for gaining an SLO. In doing so, the firm can foster a relationship with stakeholders, which not only reduces the potential for costly delays (or project denials, as in the case of the NGP) but also builds goodwill for gaining and sustaining an SLO over a project’s life cycle, as well as building the firm’s reputational capital as trustworthy partner.

The following section presents some key takeaways from Enbridge’s NGP experience that could serve as a learning opportunity for other firms in their pursuit of an SLO.

Key Takeaways

Gaining and sustaining an SLO is particularly important for firms in industries with high risk to reputation. Enbridge was no exception. The following five key takeaways were gleaned from the NGP experience and should be avoided when seeking an SLO.

Unequal distribution of costs and benefits. One of the overarching takeaways from the NGP experience was that the distribution of costs and benefits were not equally distributed. The bulk of the economic benefits from the project would flow to Enbridge, its shareholders, and the Canadian oil industry more generally. The costs, on the other hand, would accrue with those who had the most to lose through the project, specifically, the natural environment, and the local and Indigenous communities along the pipeline route.

In championing such projects in the future, it is important for firms like Enbridge to seek ways making the distribution of costs and benefits more equitable. By seeking opportunities to create shared value (Porter and Kramer 2011), stakeholders, particularly those directly affected by the project, are more likely to grant an SLO given the firm has shown their commitment of thinking beyond their bottom line to include to needs and wants of stakeholders.

Overemphasis on economic value creation. The projected economic benefits of the NGP were no doubt significant, estimated at $10 billion annually (National Energy Board 2013a). However, a project cannot rely solely on its economic benefits to justify its development. Recognizing that societal and cultural paradigms change over time (Nelsen 2006), the central importance of economic benefits may be called into question. A recent study by Forbes found that more than 80% of respondents thought that business should incorporate social and environmental value into their business goals (Epstein-Reeves 2012), which is in stark contrast to the business-as-usual approach of profit maximization (Friedman 2007). As society’s values shift, expectations as to what constitutes value creation may also change such that firms focusing solely on maximizing profits without considering social or environmental value may ultimately fail to secure an SLO. Incorporating elements of the triple bottom line (Elkington 1998) (i.e. the economic, social and environmental value creation) will build legitimacy with stakeholders and increase the likelihood of gaining an SLO.

One such action that Enbridge could have taken to balance the economic, social, and environmental values of the NGP would have been to give Indigenous groups a larger share of the equity in the pipeline or more authority in overseeing its construction. Although these actions would have increased costs, they might have improved the chances of securing an SLO.

Addressing complexity with a simple technical fix. One of the central environmental issues faced by pipeline companies is the threat of a pipeline leak. Pipeline safety has been called into question in recent years. Enbridge, for example, has experienced several leaks in recent history, but most notably was the leak that occurred in 2010 when 20,000 barrels of oil spilt into the Kalamazoo River, costing Enbridge more than $1.2 Billion USD to clean up the oil and hundreds of millions in fines (Hasemyer 2016). Given recent spills that have manifest from pipelines, it is understandable that the technical legitimacy of Enbridge, and the industry more generally, would be called into question by stakeholders when assurances that spills along the NGP would be mitigated by using a thicker pipe. Given the varied terrains, unpredictable coastal weather, fragile ecosystems, and isolated pathways, the pipeline follows, (Union of British Columbia Indian Chiefs 2012) a thicker pipe, may have indeed been the appropriate way to mitigate leaks. However, their solution failed to address the complexity of the natural environment in which the pipeline would be located and therefore was deemed illegitimate by stakeholders. Therefore, firms should strive to not only find the appropriate technical solution to the problem but not mistake their technical credibility for social credibility in addressing stakeholders concerns in their granting of an SLO.

Limited engagement with Indigenous communities in early project development. Large-scale infrastructure projects, and particularly those in the extractive industries, will inevitably come close to, intersect, or require the crossing of Indigenous lands. Therefore, it is essential to engage with Indigenous communities as early as possible. In the case of the NGP, Enbridge approached Indigenous communities after the project was conceptualized and at which point they were hoping to secure approval from Indigenous communities. According to Bowen and colleagues (2008), Enbridge’s approach would be considered a transactional approach to stakeholder engagement where communication was mainly in the form of information sessions, which were infrequent and one-sided (from the firm to stakeholders). This is reflected in their strong commitment to the project, such that they intended to proceed with or without Indigenous communities buy-in (Paterson 2011).

For firms that might find themselves in similar situations, that is, seeking to develop a similar scale project, in order to secure an SLO, engagement with Indigenous communities needs to happen during the conceptualization stage. Asking communities whether they want a project should be the starting point for engagement. If there is no interest in the project, there is very little likelihood the project will be granted an SLO. If there is interest, or at least an interest to see how the project could unfold, this is the opportunity for the firm to build social legitimacy with Indigenous communities. By focusing on delivering reliable and accurate information as promised will go along way in showing communities that they are respected by, and important to, the firm. From there, significant time will be required to meaningfully and honestly engage with communities to move from acceptance, through approval, to co-ownership of the project as the firm builds its legitimacy, credibility, and trust with Indigenous communities.

Future Research

There are two main avenues for future research that have emerged from the application of the SLO concept in explaining why the NGP was not approved despite overwhelming support. First, it is important to explore in greater detail the tensions that emerge in the distribution of costs and benefits for large-scale projects such as pipelines. When the bulk of the costs are borne by stakeholders most proximate to the project and benefits tend to flow to those further afield, what might be an appropriate ratio for the distribution of costs and benefits? In order to make such a determination, and consistent with the results from the empirical study by Hall and colleagues (2015), there is a need for developing metrics that could be applied on a case-by-case basis to measure the dynamic nature of gaining and sustaining an SLO. With greater ability to measure costs and benefits, particularly those that are nonfinancial (e.g., social and environmental), more equitable distribution of costs and benefits could be realized, thereby increasing the likelihood of firms gaining and sustaining an SLO and projects being developed.

The second opportunity for future research is in how to identify and incorporate the changing societal and cultural paradigms in project planning in order to gain and sustain an SLO. In the case of the NGP, Enbridge emphasized the project’s economic benefits while overlooking the importance of sustainable development to stakeholders and as such an SLO was not granted. However, when the project was conceived during the mid-2000s, the emphasis was on economic development as sustainability was just beginning to gain traction in business. Therefore, being able to identify trends that are substantive as opposed to merely fads would enable firms who are proposing similar projects to get out in front of the trend and be proactive in anticipating stakeholders changing attitudes. Doing so will increase the likelihood of projects being approved as SLOs can be gained and sustained.

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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  1. 1.School of Environment, Enterprise and Development (SEED)University of WaterlooWaterlooCanada

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