Indonesia has taken the unprecedented step of passing legislation that
will require companies to spend money on corporate responsibility
programmes.
The controversial law was passed last month by the country’s elected
House of Representatives as part of a wide-ranging review of company
law.
Article 74 of the Limited Liability Company Law says that companies
conducting business ‘in the field of and/or related to natural
resources’ will have to ‘carry out social and environmental
responsibility’ and allocate a specific budget for them. Failure to do
so will result in ‘sanctions’.
Erin Lyon, a director of the CSR Asia consultancy, said that the
legislation was most likely to affect mining, oil and gas, and oil palm
plantation businesses. However, accompanying commentary states that
other firms that do not exploit natural resources but affect the
environment must also have CSR programmes. This raises the prospect of
the law applying to other sectors. The full scope of the legislation,
including penalties for failure to comply, will become clearer when
implementing regulations are published, probably before November.
Some countries, among them France, Germany and the UK, now require
companies to report regularly on their social and environmental
impacts, but Indonesia is the first to attempt to mandate responsible
business practice.
Lara Blecher, senior associate at CSCC, a US-based supply chain
monitoring agency that operates in Indonesia, says the law is a
milestone in the debate about the role of government in advancing
responsible business practice.
Other countries that have introduced ‘pieces of legislation limited to
single legal issues … do not address CSR in general’, she said,
whereas the Indonesian law ‘seems to be targeting CSR as a whole.’ She
added: ‘Perhaps its greatest contribution will be symbolic, closing the
gap between legal and voluntary in the realm of CSR.’
The law has been opposed by the Indonesian Chamber of Commerce and
Industry, which in a joint statement with other national and local
business groups, said that mandating responsible business behaviour
would be counterproductive.
Noke Kiroyan, managing partner of the consulting firm Kiroyan Kuhon in
Jakarta, said that the law showed ‘muddled thinking’ and had been
formulated ‘without even bothering to define the term corporate social
responsibility’.
He added: ‘The problem with the law, as demonstrated by the debates in
parliament, is that it views CSR as cash contributions to alleviate
some of society’s ills.’
