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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.’
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.’
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