CSR Policies and Regulations in Indonesia

Feb 16, 2022 | by Yosy Christy Natalia

CSR in Indonesia: Policies, Laws, Regulations, and Implementation

CSR in Indonesia — Corporate Social Responsibility as a movement in Indonesia has seen an upward trend in the past decade. Countries are still finding feet with respect to CSR policies, laws and regulations. Disregarding environmental and social responsibility by multinationals operating in Indonesia has triggered a strong legislative response making CSR implementation mandatory in Indonesia. While much has been achieved, there is still more ground to cover to ensure uniformity and effective implementation, not just in Indonesia but across the globe. Needless to say, mere passing laws and provisions are of little help if the same are not implemented well and adhered to.    

In this blog, we shall delve deeper into understanding the CSR environment in Indonesia – policies, laws, regulations, and implementation. 

CSR in Indonesia: story so far

Indonesia enjoys a vibrant ecosystem which makes it one of the top Southeast Asian destinations for impact investing and CSR initiatives. Besides being one of the fastest-growing and emerging countries in the regions, the country enjoys cheap labor, rich raw materials, robust infrastructure, among others. For years, Indonesia’s CSR practices have largely been voluntary, primarily before the introduction of the Limited Company Liability Act Number 1/1995. The Limited Company Liability Act No 40/2007 streamlined CSR implementation in Indonesia into voluntary and mandatory.

For a long time, Indonesia’s CSR environment remained free-flowing, lacking specific guidance on mandatory CSR. Companies and organizations in Indonesia have been fulfilling their CSR programs voluntarily in the absence of any specific and technical guidance on CSR implementation from the government. International CSR standards, such as the OECD guidelines or the ISO 260000, among others, have been among the top reference points for companies trying to implement coherent standardization into their CSR practices.  

As the demand for the corporate world to show more responsible behavior and take meaningful initiatives toward the welfare of the environment and society gained steam, dedicated effort and involvement from the government provided a much-needed fillip to the CSR movement in Indonesia. 

For instance, Chapter V of Article 74 of Law No. 40 of 2007 relates to Limited Liability Companies (UUPT). It regulates social and environmental responsibility for companies and businesses engaged in or dealing with natural resources.

Article 74 paragraph (1) of the UUPT lays down a couple of criteria for the companies to implement CSR:

  1. A company conducts its business related to natural resources
  2. A company manages and utilizes natural resources for its business and operations.

There could be companies that may not directly engage in managing or utilizing natural resources yet their operations may have an impact on the environment. Then there are companies that deal directly with natural resources. In both cases, CSR activities are a must. 

Besides Article 74 of the UUPT, Article 15 of Law No. 25 of 2007 on Investment (UUPM) also provides guidelines on CSR implementation by corporates. For example, Article 34 of the UUPM, talks about administrative sanctions for companies failing to implement CSR activities in the form of:

  1. (i) Written warning
  2. (ii) Restrictions on business activities
  3. (iii) Freezing of business activities and/or investment facilities
  4. (iv) Revocation of business activities and/or investment facilities.

How much budget should a company set aside for CSR annually? 

Based on the regulation of PT and PP 47/2012, the amount of CSR funds is not specified under company policy. However, CSR costs must still be taken into account and budgeted by the company following propriety and reasonableness. This is stated in Law 40/2007 Article 74 paragraph 2.

This also works in tandem with local regulations. For example, the East Kalimantan region regulates the amount of CSR funds as at least 3% of the company’s net income each year.

Challenges and roadblocks

Despite a seamless and winning partnership between the government, social organizations, and private players, the country still struggles with robust CSR-governing laws. Despite the right intent, the implementation part still needs enhanced focus to add more muscle to the CSR regulatory mechanism in Indonesia. 

Mandatory CSR legal provision is not known to have reaped much fruit in Indonesia, again, for the lack of any standardized executing regulation or guidelines.

CSR in Indonesia: Road ahead

What stands true of Indonesia is the collective drive of local and multinational entities to voluntarily work towards achieving a larger good and helping the government scale its objectives. Companies from varied industries and sectors choose voluntary CSR, align their mission with the local strategy and, together with community and social development programs, address some of the most pressing social, environmental, societal issues in the country.

While more lucidity is required concerning CSR regulation and implementation in Indonesia, what seems to work for the region is the increased awareness about sustainability and CSR. The government and the private sector, along with social organizations, are now working more closely towards achieving sustainability, aligning with and aiming to fulfill SDGs, while tackling some of the most emergent challenges faced by the region and society. This cooperation, when continued and enhanced, can promise a brighter future for Indonesia’s CSR movement, also paving the way for establishing stricter and stronger policy building and implementing machinery. 

Our take

For further structuring of Indonesia’s CSR movement, the need of the hour is the setting up of an authorized CSR watchdog – a one-stop, all-encompassing body that issues policies, guidelines, framework, regulations, et al and also monitors and evaluates the existing CSR programs in the country.

Read also:

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