(csr) public policy in indonesia

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CORPORATE SOCIAL RESPONSIBILITY (CSR) PUBLIC POLICY IN INDONESIA:
PROFILE, STATE OF THE ART AND THE KEY MOTIVE
Sri Oktavia*)
The Business School
University of Huddersfield
Huddersfield, The United Kingdom
[email protected]
and
Faculty of Law, Andalas University
Padang, West Sumatra – Indonesia
[email protected]
and
Julia Meaton**)
The Business School
University of Huddersfield
Huddersfield, The United Kingdom
[email protected]
ABSTRACT
The paper aims to provide the profile of CSR public policy in Indonesia. As an effort, this paper applies
three dimensional approaches of CSR public policy: (1) CSR context dimension, (2) CSR content
dimension and CSR rationales dimension. This paper also aims to link between the empirical approaches
of CSR policies and the literature on the new governance in terms of policy instrument and new form of
regulation, to be closer to public policy studies.
This paper argues that CSR public policy in Indonesia is shaped by various aspects such as: political,
economic, social, and environmental context. It found that all of those aspects have been shaped CSRrelated policy during Indonesian presidential eras. Meanwhile, this study found that the key
government’s motive behind CSR legislation in Indonesia lies on the facts that many corporations in
Indonesia are less-consider in managing the environment and social responsibly (social motives). The
evidence has shown the massive number of corporations operate in Indonesia but dedicated very less
efforts, contribution and attention to the social and environment. Moreover, the massive pressure from
local and international NGOs as well as the other social organisation has pushed the government to
respond these by adopting the CSR issue into the draft of legislation (political motives).
Keywords: Corporate Social Responsibility (CSR), CSR legislation, CSR public policy
*) - PhD student at the Business School - University of Huddersfield - United Kingdom
- Lecturer at the Faculty of Law, International Law Department - Andalas University – Indonesia
**) Senior Lecturer at the Business School – University of Huddersfield – United Kingdom
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1. Introduction
CSR has become a unique case for CSR practices in Indonesia since the Indonesian Parliament passed
Law No. 25/2007 on Investment and Law No. 40/2007 on Limited Liability Company and the
Government Regulation No. 47/2012 on Social and Environmental Responsibility of Limited Liability
Company in Indonesia. Even these laws have become debatable issue among business, government,
social organisation, academics and practitioners, it has however, an important role to achieve
institutionalization of CSR in Indonesia.
More than three decades, Indonesia’s economy was built on the basis of the theory of growth, which
provides unlimited opportunities to the big companies in the exploitation of natural resources. It was
realised that the industrial sector was able to make the major contribution to the Indonesian national
economic growth. However, the exploitation of natural resources by large companies has caused the
environmental degradation and the destruction of social order. The incidents have created the unharmonious relationship between companies and local communities, and further, have brought various
conflicts and tensions. These were also triggered by variety of demands from communities, such as the
compensation for environmental damages caused by the companies, profit sharing and other problems
that were very poor handled. Thus, the good solution to satisfy the public or local community has not
been realised.
The change of the political order at the end of the 1990s, with the fall of the New Order Regime under
President Soeharto has drastically changed such outlook. This allows a more rapid development of CSR
in Indonesia. The democratisation process that followed the fall of the Soeharto regime has increased
opportunities for the local NGOs in criticising both domestic and foreign companies to contribute in
addressing social and environmental issues, such as deforestation, pollution and the destruction of
local communities and demanded that the strict rules that regulate their activities (Walhi, 2004) and
also influence the policy-making process (Rosser et al., 2005). Moreover, the massive movement from
local NGOs has encouraged the issues of CSR to become an important public agenda and has made
aspects of CSR to become a point that is stipulated in the Law No. 40 Year 2007 on Limited Liability
Company. Hence, the article regarding CSR becomes a main topic of debates, either for the business
sector, government or other social – community organisations, especially when it has been legalised by
the Indonesian Parliament in 2007. Since then, CSR became a mandatory in Indonesia.
2. Conceptual Underpinnings
One of the most important and contentious public policy issues in this century is the issue that is
related to the role of business in the society. Currently, the role of business goes beyond the economic
creation and the financial wealth. This role is increasingly shaping society’s values and norms and
defining public policy as well as its practices (Zadek, 2001). It is proven that the biggest issues that we
need to tackle today are mostly informed by business practices, from the climate change and the
deforestation to the hunger and the security.
The role of business in the society is also become a hot topic amongst public policy makers, NGO, trade
unions and the business community itself (Swift and Zadek, 2002). The G8 Summit in Heiligendamm in
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2007 and the United Nation Summit in Johannesburg in 2002 have also underlined the importance of
CSR for the political arena. At the national level, the role of CSR has been put forward as both a
mechanism and to address welfare deficit and simultaneously as a means of promoting national
competitiveness. Meanwhile, at the international level, CSR is understood as a mechanism for
companies to contribute to the sustainable development.
In terms of the role of the government in CSR, Moon and Sochaki (1996) pointed out that the first
debate on this topic has been recognised in the documents from the last decade of the 20th century.
These documents mostly revealed the need for the government to promote CSR actively as a response
to the social and environmental problems that caused by corporations within globalised economic
context (Moon, 2004). As a response to this, a new voluntary framework, in which CSR is defined as
government’s reflection and as their capacity to regulate the businesses action, has been transformed
into the social and environmental issue (Albareda et al, 2007). Related to this topic, the most studies on
the role of the government in CSR suggested the existence of the new government’s role in the CSR
issue (Fox and Ward, 2002; Nidasio, 2004). The analysis of the role of the government in CSR as a new
approach has been analysed under several various perspectives. Nelson and Zadek (2000) analysed the
role of the government in promoting CSR under the new form of public-private partnership linked to
CSR (Nelson and Zadek, 2000). Other scholars, such as Guarini and Nidasio (2003), analysed the role of
CSR in order to resolve social problems, to promote coordination with the business, social organisation
and local government as a model of governance. Meanwhile, Joseph (2003) introduced another
approach to understand the CSR public policy by applying the soft policy approach, in which the role of
the government is identified of being collaborative and facilitating through the use of soft tools which
needs to collaborate continuously with the private sectors (Joseph, 2003). Another study of the CSR
public policy has been conducted based on the comparative difference of government behaviour and the
CSR culture between European and North American administration. The study conducted by Aaronson
and Reeves (2002) focused on the relevance of cultural differences and elements in the development of
CSR model.
It is clear to say that the government’s actions play significant roles in strengthening CSR. Therefore,
based on the relevance literatures (see: Fox, et al, 2002; Ward et al, 2007; UNESCAP, 2010) it can be
summarised that the role of the government in CSR, can be describe as follow.
a. Regulating
The government can play its role by creating stricter regulations. This can be in the form of
laws, regulation and penalties as well as associated measures to control business’s aspects in
their operation.
b. Facilitating
Through this role, governments can provide incentives business the sector to engage in CSR and
to improve social and environmental condition. This role requires the government only plays a
secondary or supporting role.
c. Brokering/Partnering
Under this role, the government can combine the public resource with the business and other
actors to leverage complementary skills and resources for addressing issues within the CSR
agenda. The government can act as a broker in partnering public sectors agencies, businesses,
civil society organisations and other stakeholders in tackling complex social and environmental
challenges.
d. Warranting/Endorsing
The government can provide political supports and public warrants of the CSR concept.
Warranting can be in various forms, including the commitment to implement international
principles, education or the awareness raising programmes, official policy documents, publicity
of the good document practices that are conducted by other leading companies, specific CSR
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related awards schemes or the endorsement of the specific pro-CSR indicator, guidelines,
system and standards.
e. Demonstration
Demonstrating the social responsibility can be in the way, in which public sector actors are
engaging with stakeholders, uphold respect for the fundamental of the human rights or
practicing the transparency and the accountability.
As the nature of CSR which is voluntary, the question of why the governments show their interest
takes into in CSR is fruitful to address. Even though, there is not much attention from CSR scholars
about this topic, it can be noted that the goals or the motives of the government engagement in CSR
are potentially varied as the goals and the motives of CSR itself. As such, they differ from one country
to another. For instance, from a sustainable development perspective, public sector engagement with
CSR spans from social, economic and environmental spheres, including the issue of corruption, the
human rights and the poverty reduction (see: Fox and Ward, 2002; Ward et al, 2007; Steurer, 2010;
UNESCAP, 2010).
The empirical research that was undertaken by Ward et al. (2007) explores the scope of the government
action related to CSR that focused more on the low and middle income countries. The recent study,
which is based on the management literatures, Stuerer (2010) argues that there are various motives of
why government show their interest in strengthening CSR and the explanation to these motives can be
seen in the following section.
a. The respective business effort can help to meet the public policy objective of the government.
The government is interested in CSR because the respective business effort can help to meet
the policy objectives on a voluntary basis. This motivation does not only lead to the policy
objective which is related to the sustainable development and the environmental protection,
but also to the foreign policy goals such as the human development and the development
assistance (Haufler, 2001).
b. CSR policy has been regarded by the government as a complement for the hard-law regulation.
In a country where the new regulation is politically not desirable, CSR can be regarded as a
complement for the hard-law regulation. Unlike the hard-law regulation, the soft-law character
of CSR and the CSR policies imply comparatively low political costs in terms of the resistance by
special interest groups (Moon, 2002, 2007).
c. The government defines CSR negatively with the conventional social and environmental
regulation because the voluntary business contribution to sustainable development starts
where the legal framework ends (McWillian and Siegel, 2001).
d. Public governance and CSR become two complementary concepts.
If we look at the recent governance literatures, it can be seen that the soft approach of CSR
policies coincides with a broader transition of the public governance altogether which leads
away from hierarchical regulations towards a more network-like and partnering modes of selfand co-regulations (see: Kooiman, 1993; 2003; Pierre 2000; Rhodes, 1997). As Steurer (2010)
also pointed out that the new governance and CSR are in fact, have become two
complementary concepts. These concepts are both implying and prompting that the steering of
the societies is no longer solely a matter of the government but one of all three societal
domains are working together through a new governance arrangement (see Moon, 2002;
Midttun, 2005).
e. CSR and the relationship between business, government and civil society
Since CSR is concerned with managing the business relations with a broad variety of
stakeholders, the concept of CSR obviously reshapes not only management routines but also
the roles and relations between businesses, the government and the civil society. In this
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respect, CSR leads to shifting the involvement of the public and the private sector (Hirschman
as quoted in Moon, 2002).
Different to the previous studies above which contextually were done with the European countries,
UNESCAP with the setting in the ASEAN countries, pointed out that there are at least four essential
motives of why the government takes CSR agenda seriously (UNESCAP, 2010). Those motives are:
1. Government’s goals and the sustainable development.
2. CSR and the competitiveness of a country
3. CSR as a new governance framework
4. Government’s contribution in shaping CSR has been growing recognised
Given the nature of the justification for public sector engagement the government participation might
be structured in relation to the underlying drivers for its engagement in CSR. According to Ward et al.
(2007), there are two sets of justification of why governments in the low and middle countries show
their interest in CSR. These are: (1) Defensive Justification and, (2) Proactive Justification. The defensive
justification is meant to minimize the potential adverse effect of CSR on the local communities,
environment and market, when it is imposed through the international supply chain and investment.
The proactive justification provides the opportunity to increase the domestic public benefits of CSR
practices, in terms of the economic, social and environmental benefits.
Those studies above lead us to the argument which is suggested by Roome (2005) that the analysis of
the different CSR approaches should take into consideration of a series of different elements, such as:
(1) the political and institutional structure, (2) the political system and processes, (3) the social
structure, (4) the emphasis on voluntary approach or acceptance of state guidelines and controls, (5)
the local and national views of the role of the companies, (6) the role and posture of NGOs and civil
association in the society, (7) the kind of educational system and the values it transmits, (8) the
expectation of the leader, and (9) the historical traditions.
Various motives for government in CSR engagement that are identified in the literature can be
summarised in the following table.
Table 1: The Government’s Motives in CSR
Authors
Fox et al (2002)
Moon (2002)
Ward et al (2007)
Steurer (2010)
Government Context
Governments
in
developing countries
Government Motives
the
Government of Australia and
The UK
Government in the developing
countries
Government in the European
countries





International policy process
Trade and investment promotion
Maintaining minimum standards
Partnership and civil society demands
Consumers demand for sustainable goods and services
 CSR can substitute for government effort
 CSR can complement government resources
 CSR is a form of legitimisation of the government
agenda to business by demonstrating that business
agenda are being accommodated
 Defensive justifications
 Offensive justifications
- In international trade
- In foreign direct investment
 CSR as respective business effort can help to meet the
public policy objective of the government
 CSR policy has been regarded as a complement for
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hard-law regulation
 CSR and public governance become to complementary
concepts
 CSR shapes the relationship between business,
government and civil society
UNESCAP
(2010)
Government
Countries
in
the
Asian




Government’s goal and sustainable development
CSR and the competitiveness of a country
CSR as a new governance framework
Government’s contribution in shaping CSR has been
growing recognised
Sources: Fox et al (2002), Moon (2002), Ward et al (2007), Steurer (2010) and UNESCAP (2010) – summarized by
The Authors
Methodology
This paper employs qualitative research approach. Document sourcing and several interviews have
been conducted as its data collection method. In more detail, this paper uses content analysis of
several articles related to CSR and CSR-related laws and regulations as well as content analysis of the
Minute of Meeting of Special Task Force of Indonesian Parliament to derive interpretation of text data.
As it becomes the key source to provide the real and the high accurate information regarding the
government motives and the CSR legislation process which was taking place during 2006 to 2007.
The study employs inductive coding with some guidance from literatures as its crucial way to
investigate the CSR in public policy discourse and CSR activities as well as CSR policy rationales. In
categorising different dimension of CSR policy, it reveals variety of dimension under the term of “CSRrelated context”, “CSR-related content” and “CSR rationales”. Themes that emerged from content
analyses in each dimension were collected and analysed. The themes were then group into several
dimensions of CSR-related context, CSR-related content and CSR rationales.
3. Results and Findings
4.1 CSR and CSR Public Policy Development in Indonesia
The analysis of several articles reveals that CSR is developed and become debatable issue in Indonesia
since 2003. In the fact however, Indonesia has implemented various activities that can be associated as
CSR activity since couple of years ago, though they were recognised in the different names and themes.
These are recognised as community empowerment, partnership programs, and Program Kemitraan dan
Bina Lingkungan (PKBL – Partnership Programs and Environmental Development Program) which is
initiated by the government and targeted to the Indonesian State Owned Enterprises (SOEs).
The programs are mainly aimed to give positive contributions to the communities, especially to the
communities surrounding the companies. There are many companies implemented this programs, but
they are mainly categorised as foreign larger companies. The programs are still considerably few,
compare to the profits gained by companies, number of companies operated in Indonesia and number
of activities that could be done. The changes in the political order at the end of the 1990s, with fall of
the New Order Regime under the President Soeharto have drastically changed the attention to CSR into
a more rapid development of CSR in Indonesia. The democratisation process that followed the fall of
the Soeharto regime has increased opportunities for the local NGOs in criticizing both domestic
companies and foreign companies to contribute in addressing social and environmental issues, such as
deforestation, pollution, and the destruction of local communities and demanded that the strict rules
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that regulate their activities (WALHI, 2004) and influence the policy-making process (Rosser, et al.,
2005).
Massive movements of the local NGOs are marked by the establishment of social organisations which
concerned to the development of CSR in Indonesia and they actively involved in various discussions in
media, publishing routine scientific articles regarding CSR and advocacy to signify the relationship
between communities, businesses and government. Some of NGOs are named such as Business Watch
Indonesia (BWI), CSR Indonesia, Lingkar Studi CSR and the Public Interest Advocacy Centre (PIRAC).
These NGOs movements have given very big contribution to the use of CSR terminology as one of
important public issues in Indonesia. Moreover, the NGOs movement have encouraged the issues of
CSR to become an important public agenda and has made aspects of CSR to become an article 74 of the
Law No. 40/2007 on the Limited Liability Company. The Article regarding CSR becomes a main topic of
debates, either for the business sector, government or other social – community organisations,
especially when it has legalised by the Indonesian Parliament in 2007. The Article 74 regarding CSR has
also triggered the attention of parties who concern with CSR in international level.
Despite the implementation of CSR which is based on the initiative of the companies is a popular topic
to be discussed in Indonesia since the last ten years, however that type of CSR implementation is rather
patchy and sector based (Waagstein, 2010). Only Multinational Corporation and larger enterprises are
having policy and implementing CSR, which are normally originated and based on the policy of their
headquarters. Most of the implementation is emphasised on the charity, education, research, health
and natural disaster assistance.
In recent years, Indonesian government has issued various laws and regulations which obligated
companies to implement various forms of social responsibilities, such as: reforestation, empowerment
of small and medium scale businesses and suitable, healthy and secure workplace. Apart from the Law
No. 40/2007, CSR is also regulated in the Law No. 25/2007 on Investment. In 2003 – before this topic
became popular, CSR - or activities that can be associated as CSR - was also regulated in the Law No.
19/2003 on the State Owned Enterprises and was then followed by The State Owned Ministerial Decree
No. Kep-23/MBU/2003 which stated that all state owned enterprises should allocate part of their profit
for social, community and environmental programmes. From all of those regulations mentioned above,
the Law No. 40/2007 on Limited Liability Company is the most debated regulation by the academics,
practitioners and social organisations. This law regulates the establishment of corporations as legal
entities, their responsibilities and their dissolution.
In this Law, CSR is regulated under the Article 74, which states:
1. Companies which are doing businesses in the field of and/or in relation to natural resources
must put into practice Environmental and Social Responsibility.
2. The environmental and social responsibility which is contemplated in paragraph (1) constitutes
an obligation of the company which shall be budgeted for and calculated as a cost of the
company performance of which shall be with due attention to decency and fairness.
3. Companies which do not put their obligation into practices as contemplated in paragraph (1)
shall be sanctioned in accordance to the provisions of law and regulations.
4. Further provisions regarding environmental and social responsibility shall be stipulated by
government regulation.
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Content analysis of the article found that the contents of the Article 74 are in ambiguous, or in another
word, very doubtful. Even though that article is a controversy, Waagstein (2010) pointed out that it has
an important role to achieve institutionalization of CSR in Indonesia from different perspectives.
In general however, this paper argues that the Government Regulation still does not clarify the
questions that initially addressed to the article 74 of the Law 40/2007 such as: which institution should
be responsible for the implementation, the size of SER fund, and who should impose the sanctions in
the case of violence.
The content analysis of the Minute of Meeting reveals that during the discussion and process of
drafting the Article 74 of the Law, the topic was not emphasised to the parties in which the CSR should
be implemented, or whether CSR should be an initiative or obligatory. Discussion was emphasised
more to the questions whether CSR should be implemented by all of the companies or only to the
certain companies. This discussion became important as many of the companies in Indonesia are not
subject to the law of the companies, such as family business or companies which are classified as small
and medium scale companies. Besides, there are also many companies in which their activities are not
directly related to the natural resources such as companies in the service sectors. Finally, it was stated
that companies which are obligated to implement CSR is limited to the company which has operations
having impacts to natural resources. Before it had been fully stated, the Article 74 has taken the
process of six times parliamentary hearing and involving 32 institutions which represent communities
and NGOs. Unfortunately, business practitioners and academics were very few involved.
4.2 CSR Public Policy Actors and Related Activities
4.2.1 CSR-State Actors
The analysis several laws and regulations as well as several articles in the media reveals that there is no
public body that has overall responsibility to CSR. However, there are several national public policy
actors to which responsibility for CSR can be attributed. One of these actors is the Indonesian Ministry
of State Enterprises which hold the responsibility for implementing the Partnership Program and
Program for Environmental Development. Another public body that can be associated as CSR actors is
the Ministry of Environment which always promotes and encourages CSR activities conducted by
Indonesian companies. It also initiates cooperation between Government, companies, academics and
Non-Governmental Organisation social in supporting CSR activities and programs.
The other CSR actor is The Ministry of Economy, Finance and Industry that in 2000 has established the
National Committee on Governance Policy (translated from Komite Nasional Kebijakan Governan
abbreviated as KNKG). The Committee is responsible for developing codes that aims to get corporation
to act under principle of Good Corporate Citizenship and social responsibility.
Currently, Indonesian Ministry of Forestry, the Ministry of Health, the Ministry of Social Affairs and The
Ministry of Manpower and Transmigration also become partners for Indonesian companies and has
been involved in their CSR activities and programs
4.2.2 CSR Non-State Actors
Indonesian companies and business association can be regarded as the country’s most and earliest
proactive drivers of the CSR agenda. Indonesian Business Link (IBL), a foundation that established in
1999 can be regarded as the leading of CSR non-state actors in Indonesia. IBL that has been initiated by
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business leader of Rio Tinto and Ernst & Young, aims to promote ethical and business practices and also
actively support CSR practices trough seminars, training, discussion, conferences and research.
The Business Watch Indonesia (The BWI) has also crucial role on CSR development in Indonesia, in
particular when the hearing session is taking place between Indonesian Parliament member and the
key stakeholder concerning with the inclusion of CSR regulation in the draft Law No.40/2007 on Limited
Liability Company. BWI, established in 2002 is a NGO that based in Solo, Central Java. It aims at mainly
cultivating possibilities of steps to democratise the exercise of economic power and governance. The
Public Interest Advocacy Centre (PIRAC) is a NGO with the Islamic orientation that established in 1998.
PIRAC has a crucial role as a commentator in the hearing session with the Parliament members related
to the CSR regulation.
These organisations movements have put the notion of CSR on the public agenda that in turn have
pushed Indonesian Parliament to put CSR as a part of the Law No/40/2007. Apart from these
organisations, there are many organisations that actively promote CSR, involving in many CSR activities
and initiate CSR seminar, publication and conferences. The increasing of these organisations has begun
since the enactment of the Law No.40/2007. These organisations can be seen in the Table 2 below.
Table 2: CSR Non-State Actors
Organisations
Brief of Profile
A+CSR Indonesia
A social enterprises that established by six experts with various expertise.
Based on their share experience on the relationship between companies
and its stakeholders in Indonesia. It aims to achieve balance between
critiques to company’s social and environmental performance and an
optimistic attitude towards performance improvement. A=CSR provides
services in advocacy, assurance, assistance and assessment
Corporate Forum for Community
Development (CFCD)
CFCD is an association that comprises Community Development Officer
of the companies and social workers.
NCSR
NCSR has been declared in 2005 by five independent organizations:
Indonesian Management Accountants Institute, the IndonesianNetherlands Association, National Committee on Governance, Forum for
Corporate Governance in Indonesia and the Public Listed Companies
Association. It aims to provide the companies in assisting, developing,
measuring and reporting of the implementation of their CSR policy.
CSR Consortium (Konsorsium
CSR)
The forum has been initiate and facilitated by Indonesian Minister of
Social Affairs and comprises business leader, NGOs, Governmental body,
and academics. It aims to provide companies with the right and clear
understanding about CSR.
The Indonesian Centre for
Sustainable Development (ICSD)
A Non-profit and non-partisan organisation that concern and promotes
sustainable development. It provides CSR training in regular basis. ICSD
conduct various collaborative research, training, policy analysis and
institution development.
PA CSR
PA CSR is a foundation that provides investor and industries in any
sectors to engage in CSR. It also helps companies to prepare the business
plan and the company’s reporting.
La Tofi School of CSR
La Tofi School of CSR is an organisation that creates a new School of
thought of Indonesian characterised-CSR. It views CSR as a company’s
creativity to develop their business.
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Mirror Committee on Social
Responsibility Indonesia (MC
SR)
MC SR Indonesia is an organisation that initiated by National
Standardisation Board in 2005 as a response the issuance of ISO 26000. It
consists of experts, government body, NGOs, Labour Union, consumers
and individual.
The Indonesian Forum for
Environment
(Wahana
Lingkungan Hidup - WALHI
WALHI is the Biggest Non-Profit Organisation in Indonesia with its
offices in 28 provinces that concern to the environmental issue. WALHI
comprises 479 organisational members and 156 individual members. At
the international level WALHI campaigns by using its network with Friend
of the Earth International.
The Mining Advocacy Network
(Jaringan
Pertambangan
–
JATAM)
JATAM is A NGO and community based Organisation that working on
issues concerning human rights, the environment, gender, indigenous
people and social justice in relation to the mining, oil and gas industry
activities.
Association
Indonesia
The API is established in 2003 that aims to increase the quality and the
quantity of philanthropy within for Indonesia and to strengthen civil
society in Indonesia. API is empowering the institutional infrastructure and
expanding the space for philanthropy as well as the non-profit sector.
of
Philanthropy
Source: The Authors
4.3 CSR Public Policy Instruments and the Role of Government on CSR
The paper finds that the Indonesian Government plays various roles in CSR engagement, but however,
the main role is as a regulator. As such, Indonesian Government applies several policy instruments that
described in the following paragraphs. This role and instruments support the previous study that has
been conducted by several scholars (see: Fox et al., 2002; Ward et al., 2007; UN ESCAP, 2010).
4.3.1 Mandatory Framework
The enactments of the Law No. 25/2007 on Capital Investment and the Law No. 40/2007 on Limited
Liability Company have triggered the discussion on CSR in Indonesia. The enactment of these Law also
has made Indonesian become the unique case that mandated CSR for Limited Liability Company that
involved in natural resources. After nearly five years the enactment of those Laws, then Government
issued the Government Regulation No. 47/2007 on Social and Economic Environmental Responsibility
of Limited Liability Company.
A. Law No. 25/2007 on Capital Investment
The mandatory of CSR in Indonesia began since the enactment of the Law No. 25/2007. According to
this Law, investor is obligated to (a) implement the good corporate governance principles, (2)
implement Corporate Social Responsibility, (c) respect local cultures and traditions surrounding their
investments area, and (d) comply with the law (Article 15 of the Law). In respect to the CSR
implementation, investor is obligated to (a) to maintain environmental natural conservation, (b) to care
the employee’s health and safety, comfort and wellbeing, and (c) to comply with the laws (Article 16 of
the Law).
Under this Law, CSR is defined as “The responsibilities embedded to every investment so as to maintain
a harmonious and balanced relationship that concur with the environment, local’s values, local’s norm
and local’s culture”. The Law however is not effective due to the weak nature of the definition, the
absence of the implementation guideline, principle and as well as standards. Furthermore, This Law
does not require the investors to report their CSR implementation
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B. Law No. 40/2007 on Limited Liability Company
In comparison with the Law No. 25/2007, the Law No. 40/2007 regulates CSR stricter by imposing
company to report their CSR implementation as an addition to the annual report. CSR in this Law is
defined as “The commitment of the Limited Liability Company to have a role in developing sustainable
economy in order to improve quality of life and environment function either for the Limited Liability
Company itself, or for local communities, or society at large (Article 1:3).
According to this Law, CSR is only obligatory for the company that involve in natural resources
extraction and other related industries is not related to the natural extraction but has affected natural
resources function (Article 74). In the article 74 it also regulates CSR activities is budgeted and
calculated as cost or expense in company’s accounting. Moreover, in the case of company fail to
implement their CSR activities, they shall be sanctioned in accordance with the law and related
regulation (Article 74: 4).
C. Government Regulation No. 47/2012 on Social and Environmental Responsibility of Limited
Liability Company
Due to the provision of Article 74 of Law No 40/2007 and Article 15 letter (b) Law No. 25/2007 on
Capital Investment, Government supposed to issue the Government Regulation not more than three
months after the enactment as the implementation regulation of these Laws. But in the fact, nearly five
years later Government has issued the said Government Regulation No. 47/2012 on Social and
Environmental Responsibility of Limited Liability Company on April 2012.
According to the Government Regulation, Social and Environmental Responsibility implemented by the
Board of Directors of the company’s annual work plan after receiving approval from the Board of
Commissioners or the General Meeting of Shareholders in accordance with the article of association of
the company, unless otherwise stipulated in the prevailing laws and regulation (Article 4:1). Moreover
in the Article 4:2 mentioned the company’s annual work plan is a plan that including activities and
budget that required in the implementation of Social and Environmental Responsibility (Article 4:2).
Table 3: CSR-Related Laws and Regulations in Indonesia
Regulations
CSR Aspect
Brief Description
Law No. 23/ 1997 on
Environmental Management
Environment
The Law is dealing with environmental management.
Several articles that related to the CSR activities and
CSR:
- Environmental impact analysis is obligatory and prerequisite for business licence for operate.
- Waste treatment and management.
- Environmental audit is required.
- Full responsibility for environmental mitigation.
- Local community and NGOs are able to take legal
against company.
Law No. 39/ 1999 on Human
Rights
Human Rights
The Law is dealing with human rights and several
aspects that related to CSR are stipulated in the Law:
- The core principle of human rights
- The rights to live
- The rights for self-development
- The rights for justice
- The rights for free form slavery
- The rights of religious freedom, political freedom,
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freedom for assembly, freedom from discrimination
and free movement in Indonesia
- The rights for free from fear
- The rights for welfare
Law No. 8/1999 on Consumer
Protection
Consumers
protection
The Law is dealing with the rights and the
responsibility of consumer and producer. The main
points that related to the CSR aspect are:
- Consumer’s rights and responsibility
- Producer’s rights and responsibility
- Illegal corporate conducts in advertising sector
- Community and consumer group are allowed to
monitor goods and services available in the market.
Law No. 31/1999 on the
Eradication and of Criminal
Act of Corruption
Anti-corruption
The Law is dealing with abuse of power, bribery and
collusion. According to the Law, society has access to
the information. Sanction can be applied up to US$ 10
million and imprisonment can be up to 20 years.
Law No. 15/2002 on Money
Laundering
Anti-corruption
The Law dealing with money laundering, that includes
money laundering criminal acts, specific regulations
regarding banking and other financial institution.
Law
No.
Manpower
Manpower
This Law dealing with the equal access to job and nondiscriminatory treatment, access to training, job
contract, no child labour is allowed, labour unions,
working condition in term of safety protection, salary
and welfare
Partnership Program
and Environmental
development
Program
According to the Law, SOE is obligated to put aside
2% of their net profit for SMEs development
13/2002
on
Law No. 19/2003 on StateOwned Enterprises
4.3.2 Soft Law
As mentioned in the previous section, Indonesia has established the National Committee on
Governance Policy in 2000 (abbreviated as KNKG). The code of conduct has been developed by the
National Committee can be regarded as the soft law for the companies in Indonesia to act under Good
Corporate Citizenship principle and social responsibility, to create the better environment for
investment. In respect to this, Indonesia also has ratified the OECD Guidelines for Good Corporate
Governance Conduct and the national contact point for the Guidelines is located in the Minister of
Finance.
At the international level, through its National Standardisation Body (Badan Standarisasi Nasional),
Indonesia has decided to adopt all ISO or Social Responsibility standardisation in 2005. Besides this,
Indonesia has also ratified the United Nation Convention on Against Corruption in 2006. The
Convention mentions that each state is to take measures to prevent corruption and enhanced
accounting and auditing standards in the private sector.
4.3.3 Initiatives and Partnership
To some extent, Indonesian Government has directly participated in the local promotion and in
implementation of CSR-related projects in partnership with companies and NGOs or other civil society
organisation as well as International Organisation. This partnership has been increasing in particular
since the fall of New-Order Regime where the communication between the Government, business
sectors and NGO become equal and the trust between has been developed. The partnership covers
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various fields ranging from economic, social and health, environmental protection and anti-corruption
movement and it is involving various governmental bodies, both in the central government and in the
local government.
4.3.4 Raising Awareness
In 1995 Indonesian Government through the Ministry of Environment has initiated to introduce a
program called PROPER (Industrial Performance Rating Program). PROPER is an alternative policy
instrument to encourage compliances by companies. The program was created to address the heavy
pressures on the environmental caused by rapid growth of industrialisation while the ability to conduct
surveillance and environmental court system were inadequate (www.menlh.go.id).
Initially the PROPER aims to provide a rating of compliance with water pollution control regulation, but
since 2002 it has been developed to evaluate compliance with air pollution, hazardous waste
management, marine pollution control and the EIA. The PROPER started by selection the company’s
sector: manufacturing, the agro-industry, hotel industry, food and drink industry, mining, oil and gas,
industrial estate and hazardous waste management and then, these companies should meet the one or
more the following criteria that has been created: large company, potentially pollute the environment,
listed on the capital market or export oriented. The next step followed by data collection, inspection
and evaluation based on the Environmental Law and regulations, standards and assessment criteria.
4.3.4 Incentives
Related to the PROPER program mentioned above, in 2005 the Central Bank of Indonesia formally
announced that commercial banks would have to refer the PROPER program in assessing their
investment.
In order to develop and to foster standardisation activities in Indonesia, in 2000 the Indonesian
Government has established National Standardization Agency (Badan Standarisasi National/BSN). The
BSN is non-departmental government institution with the main task is to develop and to foster
standardisation activities in Indonesia as well as to develop of national capabilities in the field of
standardization.
5. Conclusion
CSR public policy in Indonesia is shaped by various aspects such as: political, economic, social, and
environmental context. This finding confirms the argument from Roome (2005). This paper also reveals
that starting from 2000 there were many CSR movements in Indonesia which were promoted by
government, Non-Governmental Organisation, communities and business as well as the international
organisation. The important step from government (the Minister for Economy, Finance and Industry)
was the establishment of the National Committee on Governance Policy (Komite Nasional Kebijakan
Governance) under supervised by World Bank in 2000. This National Committee is responsible for
developing codes which aims to encourage the companies in Indonesia to act under principle of good
corporate citizenship and to be more social responsibility.
Due to many natural disasters such as: earthquake and mudslide in many regions, the tsunami disaster
in 2004, have pushed the government to ask business to be involved in the disaster relief activities. The
most notable CSR issue was the enactment of the Law No. 25/2007 on Investment and the Law No.
40/2007 on Limited Liability Company as well as Government Regulation No. 47/2012 on Social and
Environmental Responsibility of Limited Liability Company, which have shifted the voluntary of CSR
initiative discourse to the mandatory of CSR. The enactment of these Laws were become controversy
and gained the protest from various business associations in Indonesia.
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This paper found that several aspects have been shaped CSR-related Policy during this period.
Therefore, the social contexts of this period are various examples of the business’s malpractice. The
political context of this era is the enactment of the Law No. 25/2007 on the Investment and the Law
No. 40/2007 on the Limited Liability Company. The enactment of these Laws increases the number of
attentions and discussion among businesses, academics and other CSR practitioners. Meanwhile the
economic context is the lack of government’s ability in term of development funding. Hence, the
government invites the participation from business sector to provide several infrastructures and public
facilities.
The key motive behind CSR legislation lies on the facts that there are many multinational corporations
which operate in Indonesia but do not consider in managing the environment responsibly (social
motives). Evidence has shown the massive number of companies operated in Indonesia but dedicated
very less efforts, contribution and attention to the environment. CSR activities conducted by companies
have been regarded by Indonesian government as a complement for the existing regulation that
related to CSR (political motives). Government also pointed out that CSR can help Government to
achieve other government policy’s goal, in particular that related to the social and economic
development (political motive). The view from government that companies can act as the partners in
tackling various natural disasters in many regions, can be regarded as environmental motives for
government. Meanwhile, the lack of government in funding some projects in term of infrastructures
building and public facilities can be viewed as the economic motives. These all motives are in-line with
the previous study conducted by Steurer (2010) that has been explained in the previous section.
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