Procurement's Role in Building Social License

Organizations are recognizing procurement’s role in building social license to foster stronger ties in the communities in which they operate.

By Hugo Britt | June 13, 2024

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The residents of a small town in the Midwest were up in arms. A major manufacturing company had just announced plans to build a new production facility on the outskirts of their community. While the prospect of new jobs was exciting, many locals were wary – this company had a reputation for steamrolling over local concerns in the past.

As word of the plan spread, public meetings grew heated, with citizens voicing fears about environmental damage, disruption to their way of life, and a general mistrust of the corporation’s motives. The company’s leadership realized they had a serious problem on their hands – without the support of the community, this project simply couldn’t move forward.

This is the challenge of building and maintaining “social license” – the acceptance and approval granted by the local community for a company’s operations. It’s a critical but often overlooked aspect of running a successful, sustainable business. And as the example above illustrates, it’s an area where procurement teams can play a vital role.

Procurement's role in building social license

Procurement’s traditional domain has been managing supplier relationships and optimizing costs. Leading organizations are now, however, recognizing the function’s potential to foster stronger community ties and bolster a company’s Social License to Operate (SLO).

One powerful way procurement can contribute is through intentional supplier selection and management. By prioritizing local and minority-owned businesses, procurement can ensure that a company’s economic impact stays within the community. This not only generates local goodwill, but also provides a tangible demonstration of the company’s commitment to shared prosperity.

Procurement teams can also leverage their supplier relationships to promote sustainable practices and social responsibility. By setting clear expectations around environmental stewardship, labor standards, and community engagement, procurement can incentivize local suppliers to be better corporate citizens. This sends a powerful signal to the local populace that the company is serious about being a responsible neighbor. 

Failing to secure social license can result in costly delays, both at the outset of a project and throughout its duration. These delays carry significant tangible costs, such as penalties and additional taxes, as well as opportunity costs. Given the high proportion of projects impacted by expensive SLO-related delays, companies are increasingly viewing these issues as a strategic priority and are taking a more proactive approach to managing them.

The financial risks are particularly acute for companies operating without a stable SLO, especially for large-scale infrastructure projects like pipelines. Delays in obtaining community approval or facing vocal opposition can jeopardize the viability and economics of these capital-intensive undertakings.

Procurement can play an active role in building social license by intentionally selecting suppliers and leveraging those relationships to promote favorable practices and community standards.

Examples of procurement-led social license

Multinational mining giant BHP has placed a strong emphasis on local procurement as part of its social license strategy. By sourcing materials and services from indigenous-owned businesses near its operations, BHP has built trust and support within communities that have historically been wary of resource extraction companies.

Similarly, outdoor apparel brand Patagonia has long prioritized working with suppliers that share its commitment to sustainability and ethical manufacturing. This “values-based” procurement approach has helped Patagonia cultivate a loyal following among environmentally-conscious consumers.

Even in the often-maligned tech sector, companies like Microsoft are using procurement to strengthen their social license. The software giant has committed to sourcing a significant portion of its goods and services from minority and women-owned businesses, helping to address historical inequities in the industry.

Barriers to improving social license

Building social license through procurement does come with its share of challenges, but there are strategies procurement teams can employ to overcome them. Here are some of the key obstacles and how to address them:

Cost concerns

The most common pushback procurement teams face is that prioritizing local or values-aligned suppliers can come at a higher cost. There’s often pressure to go with the lowest bidder.

To overcome this, procurement can:

  • Quantify the long-term value of stronger community ties and brand reputation
  • Benchmark against competitors to show the market rate for ethical/local sourcing
  • Negotiate with preferred suppliers to keep costs competitive
  • Explore creative financing options like social impact bonds.

Supplier capacity constraints

In some cases, there may be a limited pool of local or diverse suppliers with the scale and capabilities to meet a company’s needs.

Procurement can:

  • Invest in supplier development programs to build their capabilities
  • Partner with industry groups or nonprofits to identify and onboard new diverse suppliers
  • Unbundle large contracts into smaller pieces that local firms can bid on
  • Be willing to forgo absolute cost optimization in favor of building a stronger supplier base.

Organizational resistance

Shifting procurement priorities to focus on social license can face internal skepticism or resistance, especially from finance or operations teams focused on short-term metrics.

To overcome this:

  • Build a compelling business case highlighting the financial and reputational upsides
  • Get buy-in from executive leadership to set the tone from the top
  • Establish clear social impact KPIs and report on them transparently
  • Celebrate early successes to demonstrate the value being created.

Greenwashing concerns

There’s always a risk that a company’s social responsibility efforts could be perceived as mere “greenwashing” if they’re not authentic or comprehensive. Procurement can:
  • Develop robust supplier screening and auditing processes
  • Collaborate with NGOs and community groups to validate impact claims
  • Transparently disclose procurement practices and impact metrics.

Conclusion

As the examples above illustrate, procurement has a vital role to play in helping organizations build and maintain social license within their communities. By strategically managing supplier relationships, procurement teams can demonstrate a company’s commitment to local economic development, environmental stewardship, and social responsibility.

In an era where public trust in large corporations is increasingly fragile, this procurement-led approach to social license can be a powerful competitive advantage. It’s an opportunity for procurement to step up as a force for positive change – and earn the community’s acceptance in the process.

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