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SOCIAL CRITIQUE OF CORPORATE SOCIAL RESPONSIBILITY CONCEPT

AND CORPORATE ENVIRONMENT IN INDONESIAN MINING

CORPORATE LAW

Purweni Widhianningrum

Amelia Ika Pratiwi

University of Brawijaya, Indonesia

weni.widhi@gmail.com

Abstract

The concept of Corporate Social Responsibility (CSR) and Environmental

Responsibility in Corporate Law No. 40/2007 was wrong. The concept of Corporate

Social Responsibility (CSR) for ISO 26000 gives more wider meaning and direction.

CSR is not only about the issue of hiring local residents or building roads and

establishing schools, but also how companies handle consumer.

This documentary is a study of a social critique of the concept of Corporate

Social Responsibility and Environmental Responsibility in Corporate Law. By using the

social contract theory, this paper criticized several mining companies in Indonesia that

erred in applying the concept of Corporate Social Responsibility as set forth in Law

No.40/2007 on Limited Company.

The annual report made by a company deemed unable to describe clearly the

concept of Corporate Social Responsibility. Companies report should showed

sustainability report of corporate actions in economic, social, and environmental.

Government, as the regulator need to change the concept and definition of Limited

Company Act is adjusted to the concept of Corporate Social Responsibility with ISO

26000. The concept of guidance standard on social responsibility in ISO 26000 has

become the reference concept and implementation of Corporate Social Responsibility at

the international level and introduced before the Limited Company Act was passed.

Keywords: Corporate Social Responsibility, Limited Corporate Law, ISO 2600.

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INTRODUCTION

Corporate Social Responsibility (CSR) involves a commitment by a company to

manage its various roles in society, as producer, employer, customer and citizen in a

responsible manner. How a company meets its corporate responsibility goals is

influenced by its history, vision of the founder, culture, experience, philosophy and

business laws and regulations. The emerging perspective on Corporate Social

Responsibility focuses on responsibility towards stakeholders rather than maximisation

of profits (Save the Children Sweden, 2007).

To date, the concept of Corporate Social Responsibility has grown to be an

unconscious practice not entirely under the regulations of any official laws or

legal bodies but more as a custom that an organisation should practice and obey (Abd

Rahim, 2011). Conflicts between the legitimate goal of shareholder wealth

maximization and the interests of other stakeholders of the firm may lead to business

decisions that are not socially responsible. In addition, some managers may be tempted

to act opportunistically, in disregard of one or more stakeholder groups. Regulatory,

civil, and criminal law governing business increases the likelihood of socially

responsible business practices and serves as a constraint on opportunism. However,

while laws and regulations require conformity with many important societal

expectations of business, they are insufficient as mechanisms for ensuring ethical

conduct and social responsibility (Smith, 2000).

Corporate Social Responsibility from the business perspective is a means to

respond to sustainability challenges. Sustainability challenges for companies such as

climate change, poverty reduction and equal opportunities, translate into a range of

more specific issues (e.g. transport emissions, micro lending, equal pay for men and

women). These issues represent areas of current or expected future stakeholder interest,

and for which responsible corporate behaviour is or might be requested (RARE, 2005).

In Indonesia, quite a number of multinational and domestic companies face

various challenges of external environment, which are often difficult or dilemmatic to

response. The issue of Corporate Social Responsibility is important in the natural

resource industry, because the economy today depends to a very great extent on natural

resources from energy and mining industries.

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Businesses, especially mining companies have been known to move from

regions with strict and high regulations to regions with flexible business regulations. In

Papua New Guinea (PNG) and Indonesia for instance, almost all projects were allowed

to operate under special conditions that impose minimal or no regulation and

widespread contamination of the environment, and in some cases major social and

human rights impacts. The non-observance of international standards by companies in

the development of energy and mining projects, and the difficulty of imposing sanctions

on erring companies by governments in emerging markets, arise from the trade-off

between weak regulations (in some cases absence of regulation) and foreign investment

(Nwete, 2005).

Carroll (1991) in Abd Rahim (2011) suggested that Corporate Social

Responsibility should be divided into four levels: economic, legal, ethical and

philanthropic responsibilities. Economic responsibility refers to the profitability of the

organisation, while legal responsibility is complying with laws and regulation. As for

the ethical perspective, the organisations' operation should go beyond the laws to

do the right thing in fair and just ways. Philanthropic responsibility refers to

voluntary giving and service to the society.

There is a close relationship between Corporate Social Responsibility and the

law. The main instrument governments use to address a firms social, environmental

and economic impacts is the law. Many countries have a wide range of laws, whether at

the national, state or local levels of government, relating to consumers, workers, health

and safety, human rights and envi-ronmental protection, bribery and corruption,

corporate governance and taxation. A firms Corporate Social Responsibility approach

should begin by ensuring full compliance with those laws already in place. No matter

how good a Corporate Social Responsibility policy may be, failure to observe the law

will undermine other good efforts. Looking ahead, the Corporate Social Responsibility

activities of firms can be seen as a proactive method of addressing potentially

problematic conduct before it attracts legal attention (International Institute for

Sustainable Development, 2007).

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CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY

Definition of Corporate Social Responsibility based on World Business Council for

Sustainable Development:

Corporate social responsibility is the continuing commitment by business to

behave ethically and contribute to economic development while improving the

quality of life of the workforce and their families as well as of the local

community and society at large.

Definition operational of Corporate Social Responsibility by The Indonesian Ministry

of Environment:

The actions that exceed obedience to all laws and regulations relating to corporate

business sectors,for :

1. Committed to ethical business behavior to improve the quality of life of the

stakeholders.

2. Contribute to the sustainability of the economic, environmental, and social as

part of the process of sustainable development.

Definition of Corporate Social Responsibility by Indonesian Business Link:

Corporate Social Responsibility is a way of doing business or strategy that not

only emphasizes economic profit (profit) per se, but ensuring the sustainability

of business growth by balancing out the role of enterprise in community welfare

(people) and environmental protection (planet) is based on the principles of

ethical business.

Definition of Corporate Social Responsibility by Brian Goldner, President and Chief

Executive Officer HASBRO:

"Corporate social responsibility is the responsibility that we, as a global

corporation, have to the people that develop, manufacture and sell our products,

the children and families that use our products, and the communities and

environment we live and work in. Corporate social responsibility is not simply

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words on our website, but an integral part of how we conduct our business, make

decisions and set our priorities."

Definition of Corporate Social Responsibility By Corporate Social Responsibility

Europe:

Corporate Social Responsibility is the way in which a company manages and

improves its social and environmental impact to generate value for both its

shareholders and its stakeholders by innovating its strategy, organisation and

operations.

Definition of Corporate Social Responsibility by Organisation for Economic Co-

operation and Development (OECD):

Corporate Responsibility involves the fit businesses develop with the

societies in which they operate. [] The function of business in society is to

yield adequate returns to owners of capital by identifying and developing

promising investment opportunities and, in the process, to provide jobs and to

produce goods and services that consumers want to buy. However, corporate

responsibility goes beyond this core function. Businesses are expected to obey

the various laws which are applicable to them and often have to respond to

societal expectations that are not written down as formal law.

Definition of Corporate Social Responsibility by Limited Company Law No.40 in 2007:

The obligation of the Company and calculated as the cost of the Company's

implementation is done with regard to the appropriateness and reasonableness.

Definition of Corporate Social Responsibility based on ISO 26000 is:

Responsibility of an organization for the impacts of its decisions and

activities on society and the environment, through transparent and ethical behaviour

that contributes to sustainable development, health and the welfare of society; takes

into account the expectations of stakeholders; is in compliance with applicable law and

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consistent with international norms of behaviour; and is integrated throughout the

organization and practiced in its relationships.

CORPORATE SOCIAL RESPONSIBILITY PRACTICES IN INDONESIA

Implementation of Corporate Social Responsibility in Indonesia can be viewed

from two different perspectives. First, the implementation of Corporate Social

Responsibility is a discretionary business practices means that the implementation of

Corporate Social Responsibility initiatives more come from the company and is not an

activity that is required to be done by the company laws in force in the Republic of

Indonesia. Second, the implementation of Corporate Social Responsibility is set by

statute (mandatory) (Solihin, 2009).

Businesses can report on their environmental impact in two contexts. For

voluntary reporting, a business can disclose environmental information (such as

greenhouse gas emissions, waste generation, energy consumption, use of transport for

business travel) in the context of corporate social responsibility. For mandatory

reporting, businesses in industrialized countries are required to report their greenhouse

gas emissions; this is mainly to help the government understand the total industry

situation and to use the information as the basis for policies related to controlling the

emissions. Both types of reporting improve the transparency of corporate activities and

their impact towards reducing environmental impacts.

Companies that use or linked to natural resources, a company is required to

implement the draft Corporate Social Responsibility report. This is done as a

precautionary measure against the negative impact caused by the company on the

environment and society at large. Indonesia is a region that has a rich abundance of

natural resources and biodiversity of the most diverse in the world, but with wide of

1.91 million km2 that scattered over 17,508 islands, indonesia has potential

enviromentaly sensitive and pollution hot spot.

Among the available natural resources in Indonesia, mining and mining

activities are given high priority in the scale of investment. Activities in the mining

industry was rated by the government as a vital and strategic objects, so that the state

has full authority to control mineral resources, including in determining management of

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these resources. As a vital object, then the implications of state and corporate (mining

tenure granted by the state, namely the mining industry) also has full control and

authority for "securing" the mining areas of activity deemed to interfere with mining

operations (ICSD, 2007)

Mining concession area in the forest to reach 2 million hectares. If the area of

forest land that is not managed properly, not revegetated after completion of mining

operations, the mining company will not only worsen and expand critical land in

Indonesia but also will curse future generations of children and grandchildren. Mining

activities is the potential to cause environmental damage, including the destruction of

forest land (Jauhari, 2007).

Picture 1 : The level of vulnerability to natural disasters

Source: UNDP Indonesia, 2007

The Indonesia Enviroment Monitor (2003) conclude that although mining

accounts for about 13 percent of Indonesia's GDP and 14 percent of Indonesia's export

revenues, it is a source of largely uncontrolled pollution. River and oceanic fish stocks,

land, coral reefs, etc. have been adversely effected by disposal of tailings, including

toxic materials :

1. Pollution from the dumping of mining sediments and tailings into rivers and seas

has been occurring for decades.

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2. Environmental mismanagement is most severe for medium-scale mines and artisanal

and small-scale mines, in which the use of mercury poses significant environ-mental

and health hazards.

3. More responsible mining and better mitiga-tion needed.

4. Closer governmental monitoring and enforcement as well as a better information

base and greater public awareness are required, especially for small and often illegal

mines.

SOCIAL CRITIQUE

Government efforts in order to realize the welfare of the community through the

national economy based on the principles of solidarity, justice efficiency, sustainability,

environment, and independence as set out in the Law of the Republic of Indonesia No..

40 in 2007 on Limited Companies need to be studied in depth. Of course that should be

examined is the government's commitment to prevent and cope with environmental

pollution in Indonesia. Sustainable development can not be created by an individual for

a particular party, but is shared by all parties in the region (the industrialists, customers,

communities and government).

Implementation of Social and Environmental Responsibility has indeed been

regulated in the Law of the Republic of Indonesia No.. 40 in 2007, but in fact some of

the facts shows that the destruction of the environment by economic actors are still high

even intensified. Illegal mining, deforestation, toxic waste disposal, as well as large-

scale burning of coal, oil and wood result in environmental pollution and lead to climate

change, ironically, recent natural disasters often occur in Indonesia. This phenomenon

indicates that the rules are made and implemented by the government on its not

effective.

Implementation of Corporate Social Responsibility for limited company in Indonesia, as

elaborated in the Law of Republic of Indonesia No. 40 In 2007 Section 74, provides:

1) The Company is conducting its business activities in the field and / or related to the

natural resources required to implement the Social and Environmental

Responsibility.

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2) Social and Environmental Responsibility as referred to in paragraph (1) an

obligation of the Company and calculated as the cost of the Company's

implementation is done with regard to the appropriateness and reasonableness.

3) The Company did not carry out the obligations referred to in paragraph (1) be

sanctioned in accordance with the provisions of the legislation.

4) Further provisions on Social and Environmental Responsibility set by government

regulation.

On the basis of the above clauses will be analyzed in this section, whether the item

in the article 74 is relevant applied in practice Corporate Social Responsibility in

Indonesia today.

Clause (1), only requires the implementation of social responsibility is limited to

companies whose main business is in the field of Management and Utilization of natural

resources and / or companies whose main business is not directly related to the

Management and Utilization of natural resources, but the impact the sustainability of the

resource. Referred to as "the Company who operate in the field of natural resources" is a

company whose business is managing and utilizing natural resources. While "The

Company is conducting its business activities related to natural resources" is a company

that does not manage and utilize natural resources, but its activities have an impact on

the function of the ability of natural resources including environmental conservation. In

fact, there are many companies in other industries, such as: services, manufacturing and

finance also play a role in the destruction of the environment and poison people and

other beings, either directly or indirectly as a result of household waste through the

consumption of products and services that are not environmentally friendly.

Clause (2), the minimum size of the budget (in nominal and percentage) that

need to be taken into account as the Company's costs in Implementing Social and

Environmental Responsibility has not been clearly defined, just pay attention to decency

and fairness. The definition of "decency and fairness" according to Regulation No 47 in

2012 is the Company's policy, which is tailored to the financial capacity of the

Company, and the potential risks that lead to social and environmental responsibility

that must be borne by the Company in accordance with its business activities do not

diminish the obligations that provisions set out in the legislation related to the

Company's business activities. If the budget is taken into account only to the extent the

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company's financial ability, then this allows the company to avoid the cost of social and

environmental responsibility in various ways. The company's main objective is to

maximize profit with principles of corporate survival. So the company paradigm in

addressing environmental issues is still limited to the costs to be incurred by the

Vendor, and tend to be avoided however if the company realizes that the environmental

and social responsibility as an asset, then the company will make it a top priority.

Indonesia's national development aimed at improving the quality of life both

economically and socially should be offset by an increase in the quality of the

environment, in order to create harmony between economic and ecological conditions.

Clause (3), the determination of what sanction would be acceptable for the

company which does not carry out the obligations of Social and Environmental

Responsibility unclear. This vagueness allows the industry a potential cause of

environmental destruction are free from the law. Referred to as the "subject to sanctions

in accordance with the provisions of the legislation" according to Regulation No 47 in

2012 is subject to any form of sanctions provided for in the legislation concerned.

Hereinafter referred to as "under the Act" is a law and its regulations implementing the

law on natural resources or related to natural resources, as well as the ethics of running

the company, among other things: legislation in the field of industry, forestry, oil and

gas, state-owned enterprises, businesses geothermal, water resources, mineral and coal

mining, electricity, environmental protection and management, bans monopolistic

practices and unfair business competition, human rights, labor, and consumer protection

.

Several cases of environmental destruction in Indonesia involving the

industrialists in recent years show an increasing trend which is quite high. Examples of

cases of environmental destruction disetimbulkan by "hot-mud" Lapindo Brantas,

Newmont and Freeport-Papua unresolved legal sanctions. Supposed the company or

economic actors as a good citizen in all respects to comply with applicable regulations

and ethics and do not expect privileged position in public policy.

According to Environment Minister Baltasar Kambuya

(www.suaramerdeka.com), cases of environmental destruction in Indonesia is still high,

and has increased from year to year. In 2012 there were 300 cases of environmental

destruction caused ecosystem pollution, exploitation of natural forests by burning.

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These conditions, he added, largely due to economic factors. The low income makes

them look for other sources of income, although unlawful. Income levels are still low,

so they rely on to supplement their environment.

Clause (4), Regulation on the implementation of Social and Environmental

Responsibility are still weak and benefit certain parties. Weak law enforcement is

related to the implementation of regional autonomy where each region seeks to increase

local revenue that permits the management of natural resources is too easily removed

without carefully considering the environmental impact and environmental

sustainability norms. What's more, the natural resources that exist in this world is

limited and availability need to be maintained in the future for the next generation. It is

expected that government regulation can actually be implemented strictly by all

government or law enforcement officials as a control function that handles

environmental issues so that the rules that have been made in its implementation may be

effective.

CONCLUSION AND SOLUTION

Mining companies should not only seek economic aspects, but also take into

account environmental and social aspects. The third aspect is a main pillar in

environmentally sustainable development should be a concern is balanced by mining

entrepreneurs (Jauhari, 2007).

Sustainable development as development that in addition to linking the needs of

the present with the future generations, as well as a comprehensive approach between

individual, local community, and the environment in the management of resources. This

concept became the basis, in particular in addressing environmental management

backwardness and low institutional capacity development for this set. In the concept of

sustainable development, there are three elements that mutually support the economic

sustainability, environmental sustainability, and social sustainability, which involves the

management of the government, private sector and civil society as stakeholders (ICSD,

2007).

Corporate Social Responsibility may be considered as a tool and way of doing

business towards sustainable development. Corporate Social Responsibility is a good

way of doing business strategically & profitably. The ISO 26000 is based on 7

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principles, 7 Core subjects or requirements, total comprising of total 36 identified

significant Issues or potential area to work by organization. The organization needs to

identify which issues are relevant and significant for them to address in prioritized

manner, through its own consideration and through dialogue with stakeholders (TV

Rheinland,2012).

Indonesia's natural wealth is very abundant and it is appropriate that we keep

and save them for the benefit of generations in the future. Hoped with the

implementation of ISO 2600, the principles of Corporate Social Responsibility can

change from charity to sustainable development.

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