The World According to CSR

THE rule will be introduced no later than the end of this year. Despite the relatively long time left, it still leaves the hearts of entrepreneurs pounding with wariness. That’s the government regulation (PP) on corporate social responsibility, more popularly known as CSR. “We are finalizing the rule as soon as possible,” said Director of Harmonization of Legislation, Department of Justice & Human Rights, Wicipto Setiadi.

CSR is one of several new elements in the Limited Liability Company Law (UU PT), which was also newly endorsed by the House of Representatives (DPR) on July 20. The other new rules, for instance, concern the merger policy, which requires the approval of employees, and the simplified procedure for corporate license application. Compared with the old Law No. 1/1995, the new UU PT is “thicker.” While the former law had 129 articles, the new one comprises 161 articles.

The entry of CSR to this law is indeed under the scrutiny of business circles. Chairman of the Indonesian Entrepreneurs Association, Sofyan Wanandi, described the rule as a cost-raising factor to be borne by companies. “Apart from creating a high-cost economy, the changing CSR allocations as determined by the government will only give rise to uncertainties,” he said. This association is even anticipating a judicial review of the newborn law.

The law’s stipulation on CSR is contained in Article 74, which provides that a company whose business concerns the field of or is connected with natural resources shall be obliged to carry out its social and environment responsibility. Any violation is liable to penalties.

Businesspeople were taken aback upon noticing the inclusion of this CSR article in the law. It’s because in the bill proposed by the government, the CSR provision was completely untouched. According to Wicipto, the spirit indicated by the government at that time in fact expected the business world to implement CSR on a voluntary basis, without being legally obliged. “After exploiting natural resources, they should care for local environments and communities.” It later followed that the government expectation got a different response from legislators.

According to a member of the Special Committee (Pansus) on the Limited Liability Company Bill (RUU PT), Refrizal, the CSR article was included after legislators’ observation of the environmental damage caused by the mining industry like such operations in Papua and other regions in Indonesia. “Pansus approved the idea. The government also agreed,” said Refrizal. He added that the government accepted it for being aware that some firms showed no concern. “So this provision may be a stimulus.”

The DPR and government circles dismissed the businessmen’s fear of an imminent high-cost economy arising from the requirement for CSR. Wicipto noted that CSR had actually become a normal practice of mining companies. “The law only institutionalizes it,” he pointed out. Refrizal regarded the worry among entrepreneurs as unfounded. The presence of CSR, he said, would reduce corporate tax burden. “It’s because CSR costs are deductible from their profits, making their tax value automatically reduced as well,” added Refrizal.

The types of companies required to realize CSR were also debated in Pansus meetings. Originally, this stipulation was meant to bind all firms. The consideration: all of them certainly produce environmental impacts. However, the government did not share the view. The sessions, for instance, cited examples of firms in the industry of services without direct impacts on the environment like travel bureaus, which could only have two employees each. Pansus members then “gave up.” “Finally, it was agreed that only companies engaged in the field of natural resources are obliged to implement CSR,” revealed Refrizal.

The other heated debate dealt with the percentages of CSR to be required. Some demanded that the rates be specified in the law. Others maintained that they should be defined in a government regulation. Owing to their technical nature, the rates were transferred to a PP. “Penalties and their mechanism will all be regulated in a PP,” said Chairman of the Special Committee on RUU PT, Akil Mochtar.

In Refrizal’s view, the amounts of CSR cannot just be left to companies to fix. “In advanced countries it can be voluntary, but not in the developing world,” he indicated. “Loopholes can still be sought even in legal provisions, let alone without written guidelines.” What’s certain is that CSR as a mandatory corporate obligation receives a warm reception from environmental activists. “Companies should be compelled to show concern through environment rehabilitation,” said coordinator of the Mining Advocacy Network, Maimunah.

Yet an activist of the CSR Study Circle, Jalal, drew attention to things relevant to the CSR inclusion in the law. “Avoid getting stuck to the stipulation of Article 74. Examine its elucidation,” he said. According to Jalal, unlike the content of Article 74, the elucidation provides that CSR is intended for all firms producing impacts on the function of natural resources. “So, all companies can be subject to this regulation, because almost none of them are unconnected with natural resources,” he asserted.

In the opinion of Jalal, the form of CSR of a company should be linked with the core business involved. A mining firm, for example, has environment rehabilitation as its main CSR activity. In the case of a bank, it should not channel loans to companies harming the environment. So far, noted Jalal, many companies had more often carried out their CSR by granting scholarships, building bridges or organizing mass circumcision programs. “Sometimes they have nothing to do with corporate operations,” he remarked, adding, “It’s not to mention CSR funds used for officials’ travel expenses.”

In field practice, some mining firms have indeed undertaken the activities required by CSR. PT Newmont Nusatenggara, engaged in copper, gold and silver mining in West Sumbawa regency since 2000, for instance, applies CSR by conducting community development around its mining areas. This year, Newmont allocates about Rp22 billion to build a number of schools as well as their facilities and infrastructure, including nearby roads. “But I hope the value will be doubled because this region needs a lot more infrastructure,” said West Sumbawa Regent Zulkifli Muhadly to Supriyanto Khafid from Tempo.

The government is not yet able to determine precisely what details will be specified in the government rule. Wicipto Setiadi said his office would again be meeting these weeks with the Department of Energy & Mineral Resources, Department of Industry, Department of Trade and Department of Environment Affairs. The government wants to include all CSR particulars in the PP. Added Wicipto, the input of entrepreneurs would also be heard. “What is a rule for unless it is accepted by society including businessmen?” queried Wicipto.

Abdul Manan, Agus Supriyanto, RR Ariyani

Tempo Magazine, No. 49/VII/August 07-13, 2007

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