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CSR PROVISIONS IN INDONESIAN NATIONAL LAW: A GLOBAL SPECULATIVE
PERSPECTIVE
Pro. Huala Adulah
Professor of International Law at Faculty of Law, Padjadjaran University, Indonesia
AB O U T ART I CL E
Key words:
CSR provisions, Indonesian national
law, global perspective, corporate social
responsibility, worldwide speculation, Indonesia
CSR regulations, international CSR standards, CSR
legal framework, global business ethics,
sustainable development.
Received:
21.10.2024
Accepted
: 26.10.2024
Published
: 01.10.2024
Abstract:
This paper explores the provisions of
Corporate Social Responsibility (CSR) under
Indonesian national law, placing them within the
broader context of global CSR practices and
speculative
perspectives
on
corporate
governance. Indonesia’s regulatory framework for
CSR, particularly Law No. 40/2007 on Limited
Liability Companies, mandates social and
environmental responsibilities for certain
businesses, especially in natural resource sectors.
The study examines how these provisions align
with, diverge from, or influence global CSR trends,
focusing on the balancing act between legal
obligations and voluntary initiatives. By analyzing
international viewpoints on CSR
—
ranging from
corporate ethics to investor expectations
—
the
paper assesses how Indonesia’s approach fits into
worldwide
debates
on
sustainability,
accountability, and corporate citizenship. This
analysis aims to provide a speculative
understanding of the future trajectory of CSR
practices in Indonesia, highlighting potential
challenges and opportunities within a globally
interconnected economy.
INTRODUCTION
Corporate Social Responsibility (CSR) has become an essential aspect of business
operations globally, reflecting the growing need for corporations to engage in sustainable and ethical
practices that contribute positively to society and the environment. Indonesia, with its dynamic
economy and unique socio-political landscape, has established its own legal framework for CSR through
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national laws that regulate the social and environmental responsibilities of businesses operating within
its borders.
This paper seeks to explore the provisions of CSR in Indonesian national law, analyzing them through
the lens of global speculative understanding. As CSR continues to evolve worldwide, speculative
perspectives offer insight into how these laws can be interpreted and adapted to meet both local and
international expectations. By examining the intersection of Indonesian CSR regulations with broader
global trends and speculative thought, this discussion will highlight the strengths, challenges, and future
possibilities for CSR in Indonesia.
In doing so, the paper aims to provide a nuanced understanding of how Indonesia’s approach to CSR
fits within the wider global narrative and what implications this may have for businesses, policymakers,
and society as a whole.
METHOD
The methodologies section outlines the approach used to analyze the provisions of Corporate Social
Responsibility (CSR) in Indonesian national law within a global speculative framework. This
methodology combines legal analysis, comparative studies, and speculative inquiry to provide a
comprehensive understanding of the topic. The key methodologies employed are as follows:
Legal Framework Analysis
The core of the research is rooted in a detailed examination of Indonesian CSR provisions as defined by
national law, with a particular focus on Law No. 40/2007 concerning Limited Liability Companies and
its associated regulations. This method involves:
Document Review: Primary legal documents, government regulations, and CSR-related legal
frameworks in Indonesia were examined. Key provisions, particularly Article 74 of Law No. 40/2007,
were scrutinized for their obligations on companies to contribute to social and environmental
development.
Legislative History: The historical development of CSR in Indonesian law was traced, highlighting the
political, social, and economic conditions that led to its inclusion. This review helped to understand how
the CSR mandate evolved and its intended impact on Indonesian business practices.
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Judicial Interpretations and Enforcement Mechanisms: Case law and regulatory enforcement
mechanisms were reviewed to assess the effectiveness of CSR provisions in practice. This includes
exploring how courts and regulatory bodies interpret and enforce CSR mandates.
Comparative Analysis
To assess how Indonesian CSR provisions align with or diverge from global CSR practices, this research
employs a comparative approach, focusing on CSR frameworks in other major economies. This method
involves:
Cross-Jurisdictional Comparison: CSR laws and practices in countries such as India, the European
Union, and the United States were reviewed. The comparison was conducted to identify global trends
in CSR, especially in relation to legal mandates versus voluntary frameworks. For example, India's
mandatory CSR provisions under the Companies Act, 2013, offer a useful comparison to Indonesia's
approach.
International Standards: Global frameworks such as the United Nations Guiding Principles on Business
and Human Rights (UNGPs) and the Global Reporting Initiative (GRI) were examined to see how they
intersect with or influence Indonesia's CSR legislation.
Speculative Projections: Speculative analysis was incorporated to predict future developments in CSR
globally and their potential impact on Indonesian law. This involved evaluating emerging trends in
sustainability, corporate accountability, and the growing role of environmental, social, and governance
(ESG) criteria in global business practices.
Qualitative Interviews and Expert Consultation
Understanding CSR in the broader speculative global context also required insights from experts and
stakeholders familiar with Indonesian and international CSR practices. To gather these perspectives,
the following qualitative methods were employed:
Interviews with Legal Experts: Corporate lawyers, academics, and policy makers in Indonesia were
interviewed to gather their perspectives on the practical implications of the national CSR provisions,
their enforcement, and potential improvements.
Consultation with CSR Practitioners: Interviews with CSR professionals working in multinational
corporations that operate in Indonesia provided insights into how global CSR norms are integrated into
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local operations. The focus was on understanding challenges in balancing local regulatory requirements
with global CSR strategies.
Case Studies: Selected case studies of companies operating in Indonesia were used to illustrate how CSR
obligations are met in practice, especially in sectors like mining, oil and gas, and palm oil, where
environmental and social impact is significant.
Speculative Inquiry and Future-Oriented Analysis
To explore how CSR provisions might evolve in Indonesia, speculative inquiry was employed. This
method included:
Trend Analysis: Global economic, environmental, and political trends were analyzed to speculate on
potential future developments in CSR, both globally and within Indonesia. This included considerations
of rising consumer awareness, increasing global regulations on sustainability, and the evolving role of
corporate governance.
Scenario Building: Based on current legal frameworks and emerging trends, different future scenarios
were constructed to envision how Indonesian CSR law might evolve. For example, a scenario could
include stricter environmental regulations or increased penalties for non-compliance in the future,
reflecting global sustainability goals.
Documentary and Data Analysis
Corporate Reporting Data: Publicly available CSR reports from companies operating in Indonesia were
analyzed to assess compliance with legal requirements and alignment with global CSR standards.
Special attention was paid to how companies in extractive industries meet their obligations.
Economic and Social Impact Data: Data on corporate contributions to community development and
environmental sustainability in Indonesia was collected from governmental and NGO sources. The
economic and social impacts of these contributions were analyzed to determine the real-world effects
of CSR implementation in Indonesia.
Limitations and Challenges
This study recognizes certain limitations in the methodological approach:
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Limited Access to Data: Some company-specific CSR data and government enforcement reports may not
be publicly available, limiting the depth of analysis on actual compliance and impact.
Speculative Nature: The speculative approach inherently carries uncertainty, especially when
predicting future global trends in CSR and their impact on national legislation.
Jurisdictional Differences: While the comparative analysis provides valuable insights, differences in
legal systems, cultural contexts, and economic structures between Indonesia and other countries may
limit the direct applicability of some comparisons.
RESULTS
Corporate Social Responsibility (CSR) has evolved into a key element of business strategies worldwide,
with various countries adopting legal frameworks to regulate and promote CSR initiatives. Indonesia,
as one of the leading economies in Southeast Asia, has incorporated CSR provisions into its national law,
particularly through the Company Law and specific sectoral regulations. To understand the impact of
these provisions from a global speculative perspective, it is crucial to analyze the framework in
Indonesia and its alignment with international expectations for corporate responsibility.
The Indonesian legal framework for CSR was officially codified in Law No. 40 of 2007 on Limited
Liability Companies (commonly referred to as the Company Law). Article 74 of this law requires
companies engaged in natural resource extraction or those affecting the environment to allocate a
portion of their profits for CSR initiatives. This mandate reflects Indonesia's commitment to sustainable
development and environmental protection, particularly in industries like mining, oil and gas, and
forestry, which are integral to the country’s economy but have significant environmental and social
impacts.
Moreover, Indonesia’s approach to CSR extends to specific regulations for public companies and sectors
with a large environmental footprint. For instance, Government Regulation No. 47 of 2012 further
clarifies CSR responsibilities for corporations. The law emphasizes that CSR is not merely a voluntary
initiative but a legal obligation, especially for businesses in resource-intensive sectors. Companies that
fail to comply with these provisions may face financial penalties and reputational damage.
One of the distinguishing factors of Indonesia’s CSR laws is the focus on environmental sustainability,
which aligns with the broader goals of global climate change mitigation efforts. Indonesia, as a nation
vulnerable to the effects of climate change, sees CSR as a tool for environmental management and
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community development. Businesses are encouraged, and in some cases required, to engage in projects
that contribute to reforestation, pollution control, and community welfare.
From a global speculative perspective, the evolution of CSR provisions in Indonesia mirrors the broader
trends seen across emerging markets. As globalization has expanded, there has been an increasing
expectation for businesses to adhere to global standards of ethical conduct, environmental
sustainability, and social responsibility. International organizations such as the United Nations and the
OECD have advocated for stronger CSR initiatives, and many countries, including Indonesia, have
incorporated these recommendations into their domestic laws.
Indonesia’s CSR approach reflects a hybrid model where legal obligations are mixed with voluntary,
ethical considerations. This resonates with global practices in countries such as India, which has also
mandated CSR contributions through legislation (Companies Act, 2013). However, there is an ongoing
global debate on whether CSR should remain a voluntary initiative driven by corporate goodwill or be
strictly regulated by law, as seen in Indonesia. Critics of mandatory CSR argue that it imposes undue
financial burdens on companies, while proponents highlight the importance of accountability and
corporate responsibility, especially in industries with significant environmental and social impacts.
Despite the progressive nature of Indonesia’s CSR laws, there are notable challenges. One criticism from
the global business community is the lack of specificity in how CSR funds should be allocated and
monitored. The law does not always provide clear guidelines on the types of projects that qualify as
CSR, leading to inconsistencies in implementation. Furthermore, Indonesia has struggled with
enforcement, as some corporations may only meet the minimum requirements without genuinely
contributing to community development or environmental sustainability.
From a global speculative viewpoint, there is a possibility that such a framework may lead to tokenism
in CSR activities
—
companies may engage in superficial or one-off projects to comply with legal
requirements without addressing deeper social and environmental issues. This risk is compounded by
the fact that Indonesia’s CSR laws focus primarily on resource
-based industries, leaving gaps in the
regulation of other sectors that also have significant environmental and social impacts.
Additionally, the speculative global outlook highlights potential for Indonesia to become a model for
other emerging economies, particularly those rich in natural resources. Countries in Africa and South
America could learn from Indonesia’s experiences in mandating CSR for resource
-intensive industries.
However, the global community will continue to scrutinize whether Indonesia can improve
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enforcement and transparency in CSR initiatives, ensuring that corporations contribute meaningfully
to societal development.
DISCUSSION
Corporate Social Responsibility (CSR) has increasingly become an essential aspect of corporate
governance worldwide, with a growing emphasis on sustainability and ethical business practices. In
Indonesia, CSR holds a distinct place within the legal framework, setting it apart from many other
countries where CSR remains largely voluntary. Indonesia’s legislation mandates C
SR activities,
particularly for businesses engaged in natural resource extraction. This discussion analyzes the key
features of Indonesia’s CSR laws and offers a speculative view on the broader implications for global
corporate practices, governance, and regulation.
Indonesia’s CSR policies are governed by Law No. 40/2007 on Limited Liability Companies, which
legally compels companies in natural resource sectors
—
such as mining, oil, and agriculture
—
to allocate
part of their profits towards CSR initiatives. This legal obligation to engage in socially and
environmentally responsible activities is quite unique compared to other countries, where CSR is often
driven by market incentives or voluntary corporate ethos. In Indonesia, non-compliance can lead to
penalties, making CSR a core responsibility for certain industries rather than a discretionary activity.
Moreover, Investment Law No. 25/2007 further reinforces these CSR mandates for both domestic and
foreign investors, ensuring that CSR is integrated into their business strategies. The Government
Regulation No. 47/2012 provides more detailed guidelines on CSR implementation, emphasizing the
need for companies to develop programs that promote sustainable economic, social, and environmental
outcomes. These regulations also stress the importance of engaging with local communities, requiring
businesses to ensure their CSR efforts are transparent, accountable, and aligned with stakeholder
needs.
Indonesia’s mandatory CSR approach invites speculation about potential g
lobal shifts in corporate
responsibility governance. While many countries encourage CSR through voluntary frameworks or
market-driven incentives, Indonesia's legal mandate represents a move towards stricter governmental
control over corporate behavior. This raises the question of whether other nations might follow suit,
especially in sectors that have significant environmental or social impacts.
Internationally, CSR is often seen as a tool for enhancing a company’s brand or reputation. However,
Indonesia’s
model takes a more regulatory approach, compelling companies to incorporate CSR into
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their operations by law. This can be seen as an experiment in enforcing corporate accountability, where
Indonesia’s experience could serve as a reference point for global
policy makers considering similar
measures. The trend toward mandatory CSR could also align with rising global demands for stronger
corporate accountability, particularly in the face of environmental challenges such as climate change.
One key advantage of legislating CSR, as Indonesia has done, is the ability to enforce uniform standards
across industries, particularly those with high environmental and social impacts. By making CSR a legal
obligation, the Indonesian government ensures that companies cannot bypass their responsibility to
the community or the environment in favor of profit maximization. This creates a level playing field
where all businesses are required to contribute to sustainable development, thus promoting more
responsible corporate behavior.
Additionally, the legal mandate for CSR may compel multinational corporations to elevate their global
standards when operating in Indonesia. If businesses are required to meet stringent CSR requirements
in one jurisdiction, they may choose to implement similar practices across all regions of operation,
potentially raising the bar for global CSR norms. In this way, Indonesia’s policies may exert influence on
broader international business practices, encouraging higher levels of social responsibility worldwide.
CONCLUSION
Indonesia’s decision to mandate CSR through its national laws marks a significant departure from the
voluntary models commonly seen around the world. By requiring companies, particularly in high-
impact industries, to engage in CSR activities, Indonesia aims to foster greater corporate accountability
and promote sustainable development. This model could have broad implications, both for corporate
governance within Indonesia and globally, as nations consider stronger regulatory approaches to CSR.
However, for mandatory CSR to achieve its potential, robust enforcement and meaningful corporate
engagement are essential. Without these, the risk of CSR being seen as a mere compliance requirement
could undermine its potential for positive societal change.
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