Publications

The importance of managing social risk has become increasingly well understood by companies in the Oil and Gas industries. Social risks arise from the dissatisfaction and grievances of external communities and stakeholders. Failure to manage these issues can have enormous economic costs, significantly damage the reputations of organisations involved and even put the entire investments at risk. Social risk arises also when companys own behaviour or action of stakeholders in its operating environment creates vulnerabilities. In the case of social risk, stakeholders may identify those vulnerabilities and apply pressure on the corporation for behavioural changes. As the ability to listen to company stakeholders perspectives on social issues becomes a competitive necessity, managing social risks needs to become more fully embedded in corporate strategy. Stakeholder analysis is the first step to identify local persons or groups who influence the operation of the company, and whose livelihoods will be influenced by the existence of the company. Generally, stakeholder analysis comprises of the following broad activities: (1) identifying and selecting stakeholders, (2) gathering data and information, (3) processing data and information, (4) analysing and synthesizing the data and information, and (4) establishing strategic and tactical conclusions and recommendations. The emergence of social risk is characterized by four components: (i) a dominant issue, (ii) a stakeholder or group stakeholders, (iii) a negative perception about the company, and (iv) the means to do damage or conflict. These four components are analysed in an integrated fashion. The range of benefits of a sound stakeholder analysis will be (1) a better understanding of the diversity of the local culture and stakeholders as well as their influence on and how they will be influenced by the company, and (2) obtain best options for responsible investment in emerging markets while potentially achieving lower operating costs, gain stakeholder recognition and enjoy competitive advantage.