According to Mr. Adkerson, “It was always controversial, but it was a decision that was basically said you are going to develop this mine in this location or not…But you simply can’t say 20 years later we’re going to change the whole structure of what we’re doing. You can’t put the genie back in the bottle…I will tell you this, it has no impact on our view of the value of our asset.” (Freeport-McMoRan 4th Quarter 2017 Earnings Conference Call, January 25, 2018)
The company’s stock dropped about 14 percent that day. The credit spread on the company’s 2043 bonds widened about 10 percent in the following few days as well (Bloomberg Transcript, Freeport “Q1 2018 Earnings Call”).
By increasing the environmental costs, the government of Indonesia has decreased the value of the project as it negotiates for a larger share. Each side is aware that the other side can pull out of the project and there is a balance between social costs, financial costs and jobs. Indonesia may decide that the social costs are too high, and Freeport McMoRan may decide the financial costs are too high.
A Framework For Assessing Environmental Risk
Academics have identified a useful four-pronged framework in which to think about environmental risk and social change.
• Legitimacy. Businesses must have “legitimacy,” a general acceptance by the society that the business has a right to operate.
• Legal License. Businesses must have a “legal license” which it attains by operating, or appearing to operate, within international and local laws.
• Economic License. They must also have an “economic license,” an ability to meet the demands of investors and creditors.
• Social License. Lastly, they must have a “social license,” having the support of the local community (Canadian Public Administration New Frontiers “Social License to Operate: Legitimacy by Another Name?” June 15, 2017). Or, if not support, at least a passive acceptance of its existence.