CSR à la Jakarta

Down to Earth No. 74, August 2007


The final draft of a revised 'corporates' bill was given the nod by Indonesia's House of Representatives (DPR) on 20 July, 2007. This marked the passing of the bill, which replaces the old Limited Liability Company Law, (No.1,1995). The new Limited Liability Company Law, alongside the revised Investment Law (see DTE 73), is designed to update company legislation and is part of a bundle of regulations and statutes being enacted to make the country more attractive to new investment. One new element is the introduction of corporate social responsibility (CSR) in both laws. Interestingly, the inclusion of CSR in the Limited Liability Company bill has created a real stir, while it almost went unnoticed in the revised Investment Law deliberated earlier in the year.

The new law puts Indonesia among the few countries in the world which regulate CSR. However, some voices from the business community, which opposed the inclusion of CSR, doubt that the move to make CSR compulsory will actually lead to the intended result. They argue that CSR will only mean extra levies and additional red tape, which may deter new investors. Furthermore, the fact that CSR is only legally binding for natural resources-related companies is seen as discriminatory. The exclusion of other sectors from mandatory CSR, such as the financial sector - ie the engine behind most business - raises more questions about how coherent the thinking was behind the inclusion of CSR.

Some consultants and CSO observers, albeit cautiously, welcome the move that brings CSR out of its grey area. This is the time for the state to bring business, which has often out-manoeuvred the state, back to heel.

CSR is a relatively new concept to many Indonesians, although it has been around for a long time under different names - mostly as companies' philanthropical or charitable work.

The revised legislation may well be just the beginning of the process to define what social responsibility means for companies operating in Indonesia. In the next few months we will see how the law's implementing regulations are formulated and how they will grapple with such questions as:

  • How far will the triple bottom line of People, Planet and Profit, and how far will sustainable development be reflected in Indonesia's CSR? Will CSR be genuinely transparent and participatory or will it just be window dressing? The drafting process of the new law - which did not involve key elements of civil society - does not bode well in this respect.
  • Bearing in mind Indonesia's notorious record of corruption, how can it be ensured that CSR is not translated as a kind of legally-sanctioned 'extortion fund', but is instead defined as beyond monetary value, creating space for a more level playing field among all those affected by company operations, including company workers?
  • How far will legally-binding CSR make a difference in promoting corporate accountability, when long-standing legislation and regulations on environmental management and environmental impact assessment, have suffered from a chronic lack of enforcement?
  • How will CSR enable businesses to stand on their own feet in the community without having to rely on military back-up and/or armed repression, as has too often been the case in Indonesia?

(Source: www.csr-asia.com/upload/csrasiaweeklyvol3week30.pdf; Business Watch Indonesia, CSR Review June 2006; Kompas "Fokus", 4/Aug/07; Jakarta Post 20, 25, 26 & 27/Jul/07; Mather, C. 2006, CSR: a guide for trade unionists)


CSR in new laws

Draft Limited Liability Company Law, 2007, Article 74 on Social and Environmental Responsibility
  1. Companies conducting business activities in the field of and/or related to natural resources have the obligation to carry out Social and Environmental Responsibility.
  2. Social and Environmental Responsibility as referred to in paragraph 1) is the company's obligation, which is budgeted for and calculated as a cost of the company, and which is implemented with attention to appropriateness.
  3. Companies which do not carry out their obligation as referred to in paragraph 1) shall be subject to sanctions according to the provisions of laws and regulations.
  4. Further provisions on Social and Environmental Responsibility shall be regulated by Government Regulation.
Social and environmental responsibility is defined in Article 1 of the law as:

the comany's commitment to participate in sustainable economic development in order to improve the quality of life and beneficial environment, both for the company itself, the local community, and society in general.

Investment Law No 25, 2007, Article 15 b):

Each investor is obliged to...carry out corporate social responsiblity.

(Source: legalitas.org/, unofficial translation by DTE)