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Difficulties have emerged with the drafting of background regulations for a new law in Indonesia that will require companies to set up corporate responsibility programmes.
Parliament passed the groundbreaking legislation last year (EP9, issue 4, p1), and the government had planned to produce supporting regulations by the end of 2007.
But drafting has taken longer than expected, in particular on the question of which types of company will be affected.
Article 74 of the Limited Liability Company Law is clear in stating that the legislation encompasses all companies that manage and exploit natural resources, such as those in the oil, gas and mining sectors. But it also says other businesses that do not exploit natural resources, yet affect the environment, should come under its terms. Defining this latter group of companies has proved a stumbling block.
Noke Kiroyan, managing partner of the consulting firm Kiroyan Kuhon in Jakarta, who took part in a drafting meeting with senior officials at the Department of Justice and Human Rights last month, said the discussions were 'adjourned without resolving anything'.
He told EP: 'The first part of the elucidations [about natural resources companies] is straightforward, but the second part could be understood as encompassing all manufacturing companies as well, because modern industry makes use of natural resources directly or indirectly.
'Industries that use large amounts of water and electrical energy must be included, and where do we draw the line? Soft drinks manufacturers use water as their main ingredient, so do they fall into the second category? Textile companies use a lot of water too. These are some of the dilemmas faced in formulating the implementing regulations.'
Kiroyan added that, unless the regulations clearly state which kinds of companies are affected, they will 'add tremendously to the vagueness' of the law itself.
Article 74, which has been opposed by the Indonesian Chamber of Commerce and Industry, was passed by the country's elected House of Representatives as part of a wide-ranging review of company law. It stipulates 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 programmes. Failure to do so will result in unspecified 'sanctions', which will also be outlined in the regulations.
Indonesia is the first country to attempt to mandate responsible business practice, and the law has been hailed as a milestone by campaigners who favour a mandatory approach to corporate responsibility. Article 74 was inserted into the legislation as a result of official frustration at the lack of progress being made on voluntary corporate responsibility measures in the country.
Parliament passed the groundbreaking legislation last year (EP9, issue 4, p1), and the government had planned to produce supporting regulations by the end of 2007.
But drafting has taken longer than expected, in particular on the question of which types of company will be affected.
Article 74 of the Limited Liability Company Law is clear in stating that the legislation encompasses all companies that manage and exploit natural resources, such as those in the oil, gas and mining sectors. But it also says other businesses that do not exploit natural resources, yet affect the environment, should come under its terms. Defining this latter group of companies has proved a stumbling block.
Noke Kiroyan, managing partner of the consulting firm Kiroyan Kuhon in Jakarta, who took part in a drafting meeting with senior officials at the Department of Justice and Human Rights last month, said the discussions were 'adjourned without resolving anything'.
He told EP: 'The first part of the elucidations [about natural resources companies] is straightforward, but the second part could be understood as encompassing all manufacturing companies as well, because modern industry makes use of natural resources directly or indirectly.
'Industries that use large amounts of water and electrical energy must be included, and where do we draw the line? Soft drinks manufacturers use water as their main ingredient, so do they fall into the second category? Textile companies use a lot of water too. These are some of the dilemmas faced in formulating the implementing regulations.'
Kiroyan added that, unless the regulations clearly state which kinds of companies are affected, they will 'add tremendously to the vagueness' of the law itself.
Article 74, which has been opposed by the Indonesian Chamber of Commerce and Industry, was passed by the country's elected House of Representatives as part of a wide-ranging review of company law. It stipulates 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 programmes. Failure to do so will result in unspecified 'sanctions', which will also be outlined in the regulations.
Indonesia is the first country to attempt to mandate responsible business practice, and the law has been hailed as a milestone by campaigners who favour a mandatory approach to corporate responsibility. Article 74 was inserted into the legislation as a result of official frustration at the lack of progress being made on voluntary corporate responsibility measures in the country.
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