This article is sponsored by Antin Infrastructure Partners, Hermes Infrastructure, Macquarie Asset Management

Gaining and maintaining a social licence to operate is more important than ever for today’s infrastructure operators and the investors behind them. Unprecedented media scrutiny and a declining trust in institutions mean that those providing essential services to communities are being held to unwaveringly high standards and there are serious financial consequences to falling short.

Indeed, a 2020 report produced by think tank Infrastructure Partnerships Australia and LEK Consulting found that a social licence to operate is a critical factor in the success of infrastructure projects. And, if anything, covid has exacerbated the importance of building trusted relationships with local stakeholders.

“Retaining a licence to operate is fundamental to everything we do and always has been,” says Mark Braithwaite, head of portfolio and coverage at Macquarie Asset Management. “But community spirit has been heightened through the pandemic, given that so many areas of society have been challenged. A number of our companies went the extra mile to service their customers and communities, including lifting broadband data caps for customers and repurposing airport car parks into drive-through mobile testing facilities.”

“I completely agree,” says Simon Söder, partner at Antin Infrastructure Partners. “This was already a significant focus for us, but obviously the past 18 to 24 months have put certain aspects of the licence to operate in the spotlight – particularly the ability to continue to safely provide essential services.”

The importance of a social licence to operate is particularly acute in the regulated sector, most notably in utilities. “Regulated assets face additional scrutiny,” says Perry Noble, head of infrastructure at Hermes Infrastructure. “There is that political dimension, which is being aggravated by the question of affordability as inflation hits utility bills. And we now live in a 24-hour news cycle. Media attention has never been as great as it is now.”

Perry Noble

“Measurement is increasingly important because it does drive behaviours, but culture is just as important”

Perry Noble,
Hermes Infrastructure

“The fact that regulated utilities interface so directly with customers in the community means the social licence to operate equation is different than it would be for a wind farm, for example,” agrees Braithwaite.

Söder, however, says this is changing, as the essential nature of other forms of infrastructure is increasingly being recognised. “The past 18 months has highlighted the essential nature of fibre, for example,” he says. “We have had to ensure those networks are functioning, otherwise the impact on society would have been significant. We take that responsibility very seriously.

“We also had businesses on the front line of the pandemic, including hospital clinics in France and diagnostic labs that have processed millions of covid tests. Ensuring those assets have been able to continue to operate has been critical. The social licence to operate definitely applies to regulated utilities, but covid has shown that taking a responsible approach has been equally important in other sectors where the debate around the essential nature of services provided is now over.”

Licensing principles

The Infrastructure Partnerships Australia and LEK report pointed to nine separate principles for developing a licence to operate, including making that licence a key consideration for every infrastructure project at every stage. It also recommended implementing an effective governance structure for managing the social licence and embedding social licence considerations into all decision-making and processes.

Other priorities should include deploying active and tailored engagement to gain the trust of communities; ensuring the benefits of a project are clearly and frequently communicated to the public; improving the experience of infrastructure users; establishing methods for monitoring and evaluating social licence; and working directly with consumer advocates and community groups.

“Over the years we have got better at being consistent in our approach and at targeting and measuring,” says Braithwaite. “We have a set of minimum standards that we apply across a whole host of areas, including the environment, health and safety, governance, sustainability, stakeholder mapping and social contract. We continue to refine those measures and ensure they are in place at every stage of every investment.”

“Measurement is increasingly important because it does drive behaviours, but culture is just as important,” says Noble. “Every year we identify three or four themes and then really deep dive those through the portfolio, although I would add that many of our portfolio companies are very large businesses where we are likely to be minority investors, so the focus is more on soft influence.

What is a social licence to operate?

The concept of social licence to operate is highly valued and well understood in the infrastructure world.


Implicit acceptance of an asset’s management by its employees, stakeholders and the community it serves is integral to the success of any investment and the longevity of any asset. But as ESG becomes an increasingly potent term, is the idea of a social licence to operate becoming less relevant?

“We don’t separate ESG and licence to operate,” says Macquarie’s Mark Braithwaite. “It all comes down to responsible investment.”

Perry Noble of Hermes adds that licence to operate is not a specific area of interest for LPs. “I don’t think LPs differentiate between ESG and licence to operate. They see it in the round,” he says. “They pay us to take these things seriously. They care deeply about responsible investment and are increasingly focused on the climate emergency, in particular. I don’t think that licence to operate is something they see as a separate issue.”

ESG has become paramount for investors. Braithwaite references a recent survey by Macquarie of 180 investors, representing $21 trillion of capital; two-thirds of respondents said they were placing an increased focus on ESG outcomes. “That’s not surprising, of course,” he says. “Investors are telling us loud and clear that if we don’t get this stuff right, they won’t invest.”

Increasingly, ESG is about more than just the environment, even in an asset class so closely aligned with the fight against climate change. Antin’s Simon Söder points to a growing emphasis on human rights and modern slavery, in particular. “A lot of these more human issues are now being brought under the ESG umbrella as well as licence to operate,” he says.

And although licence to operate is a fairly nebulous concept that is best recognised after it has been lost, with ESG there is a clear and growing emphasis on measurement. “There are ESG frameworks that we follow,” Söder says. “We have ESG-focused people internally who help put in place frameworks and track the relevant KPIs, many of which are intrinsically linked to our social licence to operate. That said, ESG is everyone’s responsibility and while numbers are great, they are not readily able to capture culture and values. It is important to maintain a strong focus on both.”

“We have had a big focus on workforce mental health, for example, and I am particularly interested in local economic impact and how the licence to operate can be affected by that, especially in a post-Brexit world. We are also thinking carefully about diversity. We communicate with investors in advance of selecting those themes and then we measure the impact of our efforts and report back on those.”

Noble adds that authenticity is key: “Our values should be reflected in the way we behave at the board table and the way we interact with stakeholders. We want people in the firm to be genuinely passionate about being responsible. We won’t win every conversation and we won’t persuade everyone on a particular course of action. But, generally speaking, the industry is increasingly coalescing around a set of values. There may be differences in tone and there may be differences in pace, but everyone now recognises the need to maintain legitimacy in the public arena and we are all trying to get our arms around what that means in practice.”

The final recommendation in the report alludes to evolving one’s approach to licence to operate in order to keep up with shifting community expectations. The rapidly unfolding field of DE&I is a case in point. “That originally focused on gender equality and then moved to encompass ethnicity,” says Noble. “Increasingly now, the focus is also on social mobility. And that evolution is going to continue.

“It has been a long time since we have been sending children up chimneys and no doubt people will look back at what we are doing today in 100 years’ time and judge it unacceptable. What is important is that we continue to keep pace with that change. Our industry is already very different today when compared to a decade ago.”

Rebuilding trust

Building and maintaining a social licence to operate is one thing. But how do you regain that public trust if things do go wrong? “First you have to identify the issue and then be transparent about what the findings are,” says Söder. “Ultimately, you then need to put together a clear plan to address what has gone wrong, providing the resources necessary to try to remedy the situation. Those resources may mean people, and we have internal expertise that we can bring in a number of areas. But it may sometimes also mean capital.”

Southern Water is an example of an infrastructure operator that has endured a challenging few years, culminating in a £126 million fine from UK regulator Ofwat for the dumping of raw sewage between 2010 and 2017. Hermes, UBS Asset Management and JPMorgan Asset Management all invested in the utility in 2007 – the latter was the largest shareholder, owning a 40 percent interest. Whitehelm Capital is also an investor in the company, but came on board in 2016 when it acquired an 8 percent stake.

Simon Soder

“The social licence to operate definitely applies to regulated utilities, but covid has shown that taking a responsible approach has been equally important in other sectors”

Simon Söder,
Antin Infrastructure Partners

“We had a particular incident with one of our assets in the water sector, which lost the confidence of the regulator and therefore badly damaged its legitimacy in the public arena,” says Noble. “There were a series of separate events that came together like a tsunami overwhelming the business. What do you do in that situation? The worst thing you can do is just sell it. We don’t automatically reach for the exit button. We work with other shareholders and executive teams to solve the problem.”

Noble believes that ensuring you have the right management in the company is an essential component of building, maintaining or restoring the social contract: “A world in which there is limited potential for management to damage an infrastructure asset is long gone. What management does today really matters.”

He adds that it is also important to actively reach out to regulators if problems occur. “We try to encourage a culture of mea culpa – a culture of transparency and openness where issues are confronted head on,” he says. “But make no mistake, it takes time to earn back trust and it can be very damaging financially. And unless you deal with the root cause, you will never recover from that financial hit.”

Macquarie came on board as Southern Water’s majority shareholder in September 2021, though it has not disclosed the ownership interest it acquired. It is also unclear how the previous investors’ holdings have changed or whether any have exited.

“Regulated utilities are like oil tankers,” says Braithwaite. “They cannot quickly be turned around. But I absolutely agree with Perry. Transparency and upfront disclosure are important. Ongoing communication is also key. It can be challenging explaining what can and cannot be done with some of these utilities. It isn’t as simple as saying let’s invest five times as much and get everything solved. You have contracts with the regulators. You have customer bill implications. You have to articulate what can be done and over what time period and then measure yourself against those targets. That way trust can slowly be restored, but it takes time.”

Braithwaite also agrees that the quality of the executive management team and those below them is paramount. “You have to have the right teams, with the right plan and the right incentives,” he says. “Where we have relevant resource and expertise – around regulation, or D&I or sustainability, for example – we will bring that to bear to try and accelerate outcomes. But a lot comes down to the quality of the management team and culture of the organisation, and that is a medium- to long-term fix.”

Mark Braithwaite

“Regulated utilities are like oil tankers. They cannot quickly be turned around”

Mark Braithwaite,
Macquarie Asset Management

Söder agrees. “It can absolutely sometimes be necessary to change or reinforce management to make sure the right expertise is in place to address what has gone wrong in the past,” he says. “What we cannot do as investors is simply give up without trying to fix the situation. We must act responsibly when things do not go as planned, which means putting in the time and resources to try to rectify the situation and regain trust. Ultimately, I don’t see a contradiction between that and being good financial investors because without that social licence to operate there will be no value creation – there will be no business – in the long run.”

“It has become absolutely obvious to everyone investing in this space that breaking the licence to operate has financial consequences,” says Braithwaite.

“It may not be immediate but it will catch up with you and so it is in everyone’s interest to make sure you are doing the right thing by your customers and your community stakeholders.”

For Noble, it all comes down to shifting definitions around what it means to be owners and the concept of stewardship. “We look after these assets for a relatively short time in the context of their long life,” he says. “Our stewardship is intrinsically linked to sustainability and everyone has to win – the consumer, the investor and every other stakeholder, including the environment. We have moved away from a mindset of winners and losers. That is not going to work anymore, given the nature of the challenges we face and the scrutiny that we are quite rightly under. There has been a fundamental shift in what it means to own infrastructure.”

Meet the panel

Perry Noble
Head of infrastructure, Hermes Infrastructure

Perry Noble joined the infrastructure team in 2012 and is now responsible for all aspects of infrastructure investment team activities including chairing the infrastructure investment committee. Noble was previously a partner at a London law firm. He also chaired the M25 PPP company.

Simon Söder
Partner, Antin Infrastructure Partners

Simon Söder joined Antin in 2014. He previously spent eight years in the infrastructure, utilities and renewables team at Macquarie, where he worked on principal investments and advised clients, including Antin, on infrastructure transactions. He joined Macquarie after roles at Westpac and Lacima Group.

Mark Braithwaite
Head of portfolio and coverage, Macquarie Asset Management

Prior to joining Macquarie, Mark Braithwaite was chief financial officer of Thames Water, the UK’s largest water and wastewater services company. He was also finance director of the customer and energy divisions at EDF Energy and held a number of senior finance positions at Seeboard.