Current Situation of CSR in Indonesia

The state of CSR in Indonesia is still in an early stage, though development has indicated encouraging signs. Four or five years ago CSR was still considered “alien” and awareness of the concept was very low. Indonesian companies, particularly those operating in the global market have become increasingly aware that they are required to balance the economic, social and environmental components of their business, while building the shareholder value.

The environment around CSR in the country has some legislation in place, such as Employment Law, Environmental Protection Law, Consumer Protection Law, as well as a Code of Corporate Governance and other regulations, however effective implementation of those is often a problem. The various initiatives on CSR related issues have also marked the Indonesian CSR environment – in the government sector, private sector, by some NGOs and even multi-stakeholder initiatives.

A remarkable recent event is the new corporate law proposed by the House of Representatives, which has at the very last stage added CSR as a compulsory item. This has resulted in a consolidated effort among the business sector major players which had endless discussions and lobbying and finally came up with a petition to convene strong concerns about the potential detrimental effects imposed by the Law. A number of CEOs gathered in an emergency breakfast meeting had spoken up and voiced their concerns as well. However, despite the strong protests from the business community, in July 20, 2007 the House of Representatives finally passed the controversial corporation bill into law, making CSR mandatory for companies operating in any business field related to natural resources, with sanctions to be imposed on non–compliant firms.

Thus Indonesia has officially become the first nation on earth to legislate CSR. The scope of CSR practices in Indonesia has mainly focused on education, environment, enterprise and economic empowerment, and human resource issues. However, focus on disaster relief is likely to decrease, while ethics and governance is likely to grow significantly in importance–this trend had been reflected in the investment allocated for the area. In Simon Zadek’s model “The Five Stages of Organizational Learning” for companies developing CSR, most of the CSR-conscious Indonesian companies are in the ‘compliance’ stage of the organizational learning curve, where they adopt policy-based compliance as a cost of doing business. However, some have reached the ‘managerial’ stage where they embed the societal issue in their core management process, and a few companies have reached the ‘strategic’ stage, where they integrate societal issues into their core business strategies.

A key challenge for Indonesia is to develop a conducive environment for corporations to perform their roles as good corporate citizens, which would include good public governance and a tax system which will give incentives to the socially responsible companies. Increasing further awareness among corporations on CSR as a critical element of a company strategy is another challenge. And an extra challenge would be to engage SMEs – which comprise over 90% of the Indonesian enterprises - to practice CSR.

Download this Paper/Presentation [ PDF 155.6KB | 26 pages ].