REDEFINING CORPORATE (SOCIAL) RESPONSIBILITY: THE INDONESIAN PERSPECTIVE IN INDONESIA 2023
By Setyawati Fitrianggraeni, Fildza Nabila Avianti, Sri Purnama 
In today’s interconnected world, the vital role of Corporate Social Responsibility (CSR) in shaping business practices can scarcely be overemphasized. As a crucial element of contemporary business ethics, CSR enables corporations to align their operations with broader societal and environmental goals. This convergence of business activity with broader societal concerns is further shaped by the rise of Environmental, Social, and Governance (ESG) considerations, which increasingly inform investment decisions and business strategy.
In Indonesia, a unique landscape for CSR has emerged, distinctively molded by its legislative and societal context. Among Asian nations, Indonesia was at the forefront, legislating CSR obligations for companies engaged in natural resources as part of Law Number 40 of 2007 concerning Limited Liability Company (Company Law). However, this focus on natural resource-related companies does beget certain ambiguities, particularly concerning the clarity on which industries fall within the purview of this mandate.
At its core, this issue is not solely about the confinement of CSR to sectors related to natural resources. It further questions the government’s interpretation of “natural resources”. As every industry, in one way or another, is dependent on natural resources, especially in the supply chain of a product, it prompts the question: Does the government interpret “natural resources” in a conventional sense, encompassing the commonly accepted sectors, such as extractive industries and palm oil, for instance, or in a holistic manner? Thus, this article seeks to interrogate this vagueness, offering a comprehensive understanding of the affected sectors.
This bold legal mandate has sparked a nuanced discourse around the role of corporations in contributing towards societal well-being and environmental sustainability, even as debates persist over its implementation and scope. Specifically, whether Micro, Small, and Medium Enterprises (MSMEs) are bound by the same obligations warrants attention. Thus, we aim to shed light on this query and offer concrete guidance on the responsibilities of MSMEs within the CSR context.
However, as we delve into the complex matrix of CSR in Indonesia, it becomes increasingly clear that there are significant gaps and missed opportunities. With a focus primarily confined to natural resource companies, the current CSR framework omits a vast swathe of the landscape. Recognizing that some non-extractive sectors companies have voluntarily adopted and reported on CSR practices is essential. This trend, driven by stringent international laws or heightened consumer demand for transparency, does offer promising signs of a broader commitment to CSR. But even then, it is worth noting that CSR reporting by non-extractive companies is still on a voluntary basis. Can this practice be considered enough or should the obligation on CSR reporting and initiatives aim higher to contribute better to sustainable development in Indonesia?
Against this backdrop, this article, drawing on critical references such as the Constitutional Court Decision Number 53/PUU-VI/2008 and pertinent articles that underline the ambiguity of the term “natural resources”, advocates for a redefined understanding of CSR that extends its obligations to all types of businesses in Indonesia. We aim to build a case for universally mandatory CSR through a rigorous exploration of the current CSR landscape and a critical analysis of the prevailing legislation. In doing so, we can inspire a more inclusive, sustainable, and resilient Indonesian business sector, responsive to our planet’s and its people’s evolving needs.
THE EVOLUTION OF CORPORATE RESPONSIBILITY IN INDONESIA
The genesis of CSR in Indonesia can be traced back to the latter part of the 20th century amidst a burgeoning global consciousness surrounding sustainable development and ethical business practices. However, it was not until the dawn of the 21st century that CSR began to be formalized within Indonesia’s legal framework.
In 2007, the passing of Indonesia’s Company Law marked a pivotal moment in the trajectory of CSR in Indonesia. This legislation emerged as a watershed, enshrining the principle of CSR within the Indonesian legal system for the first time. It established a legal obligation for companies in the natural resources sector to allocate a portion of their profits to CSR activities, setting a groundbreaking precedent within Indonesia and across Asia.
Article 74 of this Law outlines the parameters for these CSR obligations, mandating that companies in the natural resources sector must implement what has been termed Corporate Social and Environmental Responsibility (Tanggung Jawab Sosial dan Lingkungan, TJSL). The mandate for TJSL arose from recognizing the potentially significant environmental and social impacts inherent to the activities of natural resource companies.
It is crucial to note the distinction between TJSL and the Analisis Mengenai Dampak Lingkungan (AMDAL) or Environmental Impact Assessment. Whilst both are geared towards addressing environmental impacts, the TJSL encompasses a broader scope, including social and environmental responsibilities. On the other hand, business activities that have a significant adverse impact on the environment will have to obtain AMDAL. Moreover, the TJSL is an embedded component of a company’s operational costs, reinforcing its integrality to its functioning, whilst the AMDAL is often viewed as a standalone procedure and part of the overall environmental approval regime in Indonesia.
The TJSL is further clarified in the Company Law. It has been conceptualized as an embodiment of a corporation’s commitment to sustainable economic development, which enhances the quality of life and the environment for both the corporation and society at large. The implementation of TJSL, as stated in Article 66 paragraph (2) of the Company Law, is mandatory and should be included in annual reports, reinforcing the commitment to and accountability in sustainable business practices.
However, this mandate has not necessarily been translated into consistent practice across all corporations. According to the data gathered by the Foundation for International Human Rights Reporting Standards (FIHRRST) and Moores Rowland Indonesia, there are only 16% of public companies in Indonesia published sustainability reports in 2020, including material reporting such as GHG emissions and their practice in respecting human rights. In the Real Estate sector, although voluntary, almost 9% of companies listed on the Indonesia Stock Exchange (IDX) have published sustainability reports. Though the number of sustainability reporting trends in Indonesia increases from year to year, but the number does spark the question of compliance by public companies with such CSR reporting obligations.
Indonesia’s Company Law and its elaboration of the TJSL concept underscore the nation’s progressive legislative approach to CSR. Nevertheless, as we shall discuss, this groundbreaking legislation whilst marking an important step towards formalizing CSR in Indonesia, also presents several challenges and areas for further development.
ANALYSING CURRENT CSR AND TJSL IMPLEMENTATION
One critical aspect shaping the current implementation of CSR in Indonesia lies in its confinement to natural resource-related corporations. Under the Company Law, the obligation for TJSL is exclusively assigned to this sector, as detailed in Article 74. Whilst this stipulation acknowledges the environmental and social impacts inherently associated with natural resource industries, it inadvertently excludes a significant segment of the Indonesian business landscape from mandated CSR responsibilities.
This restrictive scope has implications for the broader integration of CSR within Indonesian businesses. Critics argue that this limitation overlooks the role of other sectors in contributing to environmental and social challenges and offering potential solutions. TJSL should be universally applied to all corporations with adequate resources. After all, CSR obligations are financed from net profits after tax, suggesting that the responsibility for sustainability could feasibly be shared more broadly.
However, such an approach would necessitate thoughtful consideration of potential exceptions, particularly for micro, small, and medium enterprises (MSMEs), which may lack the resources to contribute significantly to CSR initiatives without jeopardizing their viability. In the following sections, we further explore these themes and suggest potential pathways for enhancing the inclusivity and impact of CSR in Indonesia.
THE CASE FOR UNIVERSALLY MANDATORY CSR
As we pivot towards a greener, more inclusive economic future, reimagining the scope and nature of CSR becomes imperative. This discussion unfolds within the current Indonesian CSR legislation, which mandates CSR obligations exclusively for corporations operating in or associated with the natural resources sector. This limitation, critics argue, narrows the potential breadth and impact of CSR initiatives in Indonesia, a concern that deserves closer examination.
In an era of escalating environmental and social challenges, from climate change to income inequality, the notion of CSR as a universal obligation for all corporations, regardless of industry or size, becomes compelling. By broadening the mandate of CSR, corporations across diverse sectors would be motivated to consider and address their operations’ environmental and social implications. This inclusive approach could trigger innovation, stimulate the development of sustainable business models, and generate competitive advantages.
Moreover, making CSR universally mandatory would align with the principle of equity. Given that all businesses benefit from operating within Indonesia’s social and economic context, it is only fair that they contribute towards addressing the country’s challenges. This shift could significantly augment resources directed toward environmental protection, social equity, and community well-being, thereby enhancing the sustainability and resilience of Indonesia’s economy and society.
Even with these compelling arguments, making CSR universally mandatory also raises valid concerns. One salient issue pertains to the potential burden placed on MSMEs which may lack the financial resources or institutional capacity to implement substantive CSR initiatives. The imposition of additional financial obligations, such as mandatory CSR contributions, may exacerbate their challenges, potentially threatening their viability.
A more nuanced and adaptive approach to CSR could be considered to address this concern. For instance, the government could introduce a sliding scale for CSR contributions, where the percentage of net profits allocated to CSR is proportionate to the company’s size or profit margins. Specific exceptions or support mechanisms could also be designed for MSMEs to ensure sustainable participation in the country’s CSR landscape.
Furthermore, the government could explore incentives to encourage voluntary CSR engagement amongst MSMEs, such as recognition schemes, capacity-building programs, or facilitated access to finance for businesses that demonstrate exceptional commitment to social and environmental responsibility. The government could also encourage collaborations between large companies and MSMEs, promoting knowledge transfer and resource sharing for CSR implementation.
Expanding the mandate of CSR to include all corporations, when approached with a balance of aspiration and pragmatism, could catalyze a more inclusive, resilient, and sustainable economy in Indonesia. As we move forward, careful consideration, consultation, and adaptation will be required to ensure that this progressive shift in CSR policy delivers tangible and lasting benefits for Indonesia and its diverse stakeholders.
NEED FOR IMPROVED REGULATION AND ENFORCEMENT
The inconsistencies and lack of clarity within the current Indonesian CSR legislative framework and inadequate enforcement significantly undermine the effective realisation of CSR goals. This is a subject that merits urgent attention.
The vagueness within the Company Law, particularly around the precise proportion of profits to be dedicated to CSR and the specific activities qualifying as CSR, creates considerable room for interpretation. This, in turn, can result in a fragmented CSR landscape, where corporations’ CSR contributions vary substantially in scale and substance. Uniform, well-articulated regulations specifying the criteria for CSR activities and the percentage of profits to be allocated would enhance the clarity and consistency of CSR implementation across Indonesian corporations.
Moreover, enforcing CSR regulations is another area where significant improvement is needed. The prevailing enforcement mechanisms are subject to regional variations and lack robustness. For example, whilst Bogor Regency’s Regional Regulation Number 6 of 2013 prescribes sanctions ranging from written warnings to revocation of business operation licenses for CSR non-compliance, other regional regulations, like Tangerang Regency’s Regulation Number 15 of 2011, provide scant detail on the exact nature of administrative sanctions.
Addressing these enforcement challenges necessitates the establishment of a national regulatory body overseeing CSR implementation and enforcement. This body could monitor CSR contributions, ensure compliance with regulations, and impose sanctions for non-compliance. By streamlining the enforcement process, such an entity would promote fairness, transparency, and consistency in CSR practices across Indonesia.
Furthermore, enacting clearer, more comprehensive regulations would be significantly bolstered by regular training programs for corporations. Such initiatives would ensure that corporations understand the spirit and letter of the legislation, thus promoting better adherence to CSR commitments.
These measures — enhancing regulatory clarity and consistency, bolstering enforcement, and providing comprehensive training — could significantly improve the implementation and impact of CSR in Indonesia, thereby advancing the country’s broader sustainability and development objectives.
In closing, this article has navigated the intricate landscape of CSR in Indonesia, tracing its evolution and assessing its current implementation. We have argued for a progressive move towards universally mandatory CSR, irrespective of a company’s sector or size. Crucially, this pivotal change could catalyze Indonesia’s journey towards sustainable development.
The potential impact of such a shift is profound. By ensuring all corporations contribute to societal and environmental betterment, we can create a cohesive, collaborative business environment that aligns economic growth with sustainable practices. We have acknowledged concerns regarding the burden on small and medium-sized enterprises and recommend considering potential exceptions for these businesses.
Simultaneously, we have underlined the need for improved regulation and enforcement. Current inconsistencies and disparities in Company Law and regional regulations hinder effective CSR implementation. Enhanced guidelines and stricter enforcement are necessary to ensure a uniform, comprehensive adherence to CSR principles across Indonesia.
Moreover, we have advocated for an expanded concept of CSR, one that fully embraces the preservation of cultural heritage, both tangible and intangible. It is a step forward in recognizing corporations’ role in sustaining the socio-cultural vitality of communities, consequently enriching the Indonesian socio-economic fabric.
In light of these discussions, our goal remains steadfast: to urge policymakers to redefine and broaden the scope of CSR in Indonesia. By doing so, we can ensure that businesses contribute effectively to creating a sustainable, inclusive, and culturally vibrant nation. We invite all stakeholders – corporations, policymakers, and communities – to join us on this mission. Together, we can shape a future where ‘Planet, People, and Profits’ coalesce into a powerful synergy, propelling Indonesia towards a sustainable, prosperous future.
 Setyawati Fitrianggraeni holds the position of Managing Partner at Anggraeni and Partners in Indonesia. She also serves as an Assistant Professor at the Faculty of Law, University of Indonesia, and is currently pursuing a PhD at the World Maritime University in Malmo, Sweden. Additionally, Fildza Nabila Avianti is a Senior Research Associate in the Ocean-Climate Research Group and Sri Purnama is a Junior Legal Research Analyst at Anggraeni and Partners. The writers express their gratitude to Dr. Hary Elias for generously dedicating his time to provide valuable feedback on their article.
 Sheehy, B., “Defining CSR: Problems and Solutions.” (2015), 131, J. Bus. Ethics, 625–648.
 Rabin Ibnu Zainal, “Analysis of CSR Legislation in Indonesia: Mandate to Business” (2019), 9(3), Business and Economic Research, 165-181.
 Article 1 Number 9 Law Number 32 of 2009 concerning on Environmental Protection and Management states “Natural Resources is environmental elements consisting of biological and non-biological resources wholly forming a totality of ecosystem.”
 Hamdani, “Corporate Social Responsibility for Micro, Small, and Medium Enterprise as a Form of Economic Justice in Banten Province” (2017), 2(2), 1-10.
 Ratih Probosiwi, “Corporate Social Responsibility in Public Welfare Enhancement” (2016) 13(2), Socio Jurnal Ilmu-ilmu Sosial, 30-40.
 Natural resources are “the greatest prosperity of the people”, and the mechanism provided is through control and regulation by the state, it is implied in Article 33 of the 1945 Constitution Republic of Indonesia that contains the objectives and mechanisms for managing natural resources in Indonesia. See, Lilis Mulyani, “Pengelolaan Sumber Daya Alam di Mata Mahkamah Konstitusi: Analitis Kritis atas Putusan Mahkamah Konstitusi tentang Sumber Daya Alam” (2008), 10(2), Jurnal Masyarakat & Budaya, 65-87.
 Bayu Tri Cahya, “Transformasi Konsep Corporate Social Resposibility (CSR)” (2014), 7(2), Iqtishadia, 203-222.
 Indra Prasetyo et.al., “Corporate Social Responsibility Practices in Islamic Studies in Indonesia” (2021), 4(1), Journal of Legal, Ethical, and Regulatory Issues, 1-15.
 Article 74 of Company Law states that “(1) A Corporation that conducts its business activities in the field and/or related to natural resources is obliged to implement Tanggung Jawab Sosial dan Lingkungan; (2) The Tanggung Jawab Sosial dan Lingkungan as referred to in paragraph (1) is an obligation of the Corporation that is budgeted and accounted for as a company expense, with its implementation carried out considering appropriateness and fairness; (3) Corporations that do not fulfil the obligation as referred to in paragraph (1) shall be subject to sanctions in accordance with the provisions of statutory regulations; (4) Further provisions regarding Tanggung Jawab Sosial dan Lingkungan are regulated by government regulation.”
 Article 1 number 3 of the Company Law states that “Tanggung Jawab Sosial dan Lingkungan is a commitment of the Corporation to participate in sustainable economic development to improve the quality of life and the environment that is beneficial, both for the Corporation itself, the local community, and society in general.”
 Article 1 number 11 of the Environmental Law states that “the Analisis Mengenai Dampak Lingkungan, subsequently referred to as AMDAL, is a study on the significant impact of a business and/or activity planned on the environment, necessary for the decision-making process regarding the conduct of the business and/or activity.”
 Businesses and activities that have a significant impact on the environment are obligated to possess an AMDAL as mandated by Article 22 of the Environmental Law. Such significant impacts are determined by several criteria, including the size of the affected population, the scope of the impact, and its intensity and duration, among others. Article 23 of the Environmental Law elaborates on the types of business and activities necessitating an Amdal, which include land alteration, natural resource exploitation, activities potentially causing pollution or environmental degradation, and high-risk activities that could influence national defense, to name a few. Additionally, introducing certain species, the application of particular technologies, and actions influencing conservation areas and cultural heritage sites also come under this mandate.
 See Article 74 of Company Law.
 Nur Arifudin, “Corporate Social Responsibility (CSR) Under Perspective of Law Number 40 of 2007 Concerning on Limited Liabilities Company” (2008), 4(2), Risalah Hukum Fakultas Hukum Unmul, 128-134.
 Foundation for International Human Rights Reporting Standards, ‘Studi Laporan Keberlanjutan Tahun 2020’, (2020). https://drive.google.com/file/d/1dOEVmvnyXtRu83Og9loylEtEd9kmqzqm/view accessed 24 Aug 2023.
 Felisitas Anastasia, ‘Sustainability Report in Indonesia Real Estate Sector’, (November 2022). https://www.sustainahaus.com/articles/sustainabilityreport accessed 24 Aug 2023.
 BINUS University – School of Accounting, “The Evolution of Sustainability Reporting Practices in Indonesia’, (August 2022). https://accounting.binus.ac.id/2022/08/31/the-evolution-of-sustainability-reporting-practices-in-indonesia/ accessed 24 Aug 2023.
 I Made Arjaya and others, “Deviation Concept of CSR Regulation in Indonesia” (2014), 23, Journal of Law, Policy and Globalization, 1-7.
 Article 3 paragraph (1) of Government Regulation Number 47 of 2012 concerning Corporate Social Responsibility stated “The social and environmental responsibility as referred to in Article 2 becomes an obligation for the Company who exercises its business activities in the field and/or relating to natural resources under the Act”. See, Muhammad Dahlan Moga, “The Obligation for Corporate Social Responsibility (CSR) Toward the Corporation Implicated Corruption” (2019), 3(2), Holrev, 1-15.
 I Made Arjaya and others, loc.cit.
 Rabin Ibnu Zainal, Ibid.
 Lord Tim Clement and others, “Corporate Social Responsibility – bottom-line issue or public relations exercise?” (2005) <http://www.untag-smd.ac.id/files/Perpustakaan_Digital_1/CORPORATE%20SOCIAL%20RESPONSIBILITY%20Investing%20in%20Corporate%20Social%20Responsibility.pdf> accessed 31 August 2023.
 Dadek Nandemar and Amiruddin, “Corporate Social Responsibility (CSR) Berkeadilan Sosial” (2020), 2(2), Accounting Profession Journal (ApaJi), 56-71.
 MSMEs in implementing CSR are based on Law Number 40 off 2007, Government Regulation Number 47 of 2012, and Minister of Social Affairs Regulation Number 13 of 2012. See, Risna Trsinawati and others, “Implementasi Corporate Social Responsibility pada UMKM Percetakan dan Penerbitan Al-Qur’an Ma’sum Press” (2021), 2(2), Abdi Psikonomi, 116-123.
 Suparnyo and others, “Model Pemberdayaan Usaha Mikro Kecil Dan Menengah (Umkm) Melalui Program Corporate Social Responsibility (CSR) Pada Industri Rokok Di Kudus” (2013), 6(2), Jurnal Sosial dan Budaya, 29-39.
 Rabin Ibnu Zainal, Ibid.
 This voluntary model is often referred to as the Western model which refers to voluntary corporate actions and self-regulation. Until now there are still many experts and the public who are of the view that the working mechanism of CSR is based on volunteerism. See, Sefriani and Sri Wartini, “Model Kebijakan Hukum Tanggung Jawab Sosial Perusahaan di Indonesia” (2017), 24(1), Jurnal Hukum IUS QUIA IUSTUM, 1-28.
 Anis Nur Nadhiroh, “Batas Tanggung Jawab Perusahaan Dalam Corporate Social Responbility (CSR)’, (2020), 18(2), Era Hukum Jurnal Ilmiah Ilmu Hukum, 43-72.
Anis Nur Nadhiroh, “Batas Tanggung Jawab Perusahaan Dalam Corporate Social Responbility (CSR)’, (2020), 18(2), Era Hukum Jurnal Ilmiah Ilmu Hukum, 43-72.
Bayu Tri Cahya, “Transformasi Konsep Corporate Social Resposibility (CSR)” (2014), 7(2), Iqtishadia, 203-222.
Dadek Nandemar and Amiruddin, “Corporate Social Responsibility (CSR) Berkeadilan Sosial” (2020), 2(2), Accounting Profession Journal (ApaJi), 56-71.
Hamdani, “Corporate Social Responsibility for Micro, Small, and Medium Enterprise as a Form of Economic Justice in Banten Province” (2017), 2(2), 1-10.
I Made Arjaya and others, “Deviation Concept of CSR Regulation in Indonesia” (2014), 23, Journal of Law, Policy and Globalization, 1-7.
Indra Prasetyo et.al., “Corporate Social Responsibility Practices in Islamic Studies in Indonesia” (2021), 4(1), Journal of Legal, Ethical, and Regulatory Issues, 1-15.
Lilis Mulyani, “Pengelolaan Sumber Daya Alam di Mata Mahkamah Konstitusi: Analitis Kritis atas Putusan Mahkamah Konstitusi tentang Sumber Daya Alam” (2008), 10(2), Jurnal Masyarakat & Budaya, 65-87.
Muhammad Dahlan Moga, “The Obligation for Corporate Social Responsibility (CSR) Toward the Corporation Implicated Corruption” (2019), 3(2), Holrev, 1-15.
Nur Arifudin, “Corporate Social Responsibility (CSR) Under Perspective of Law Number 40 of 2007 Concerning on Limited Liabilities Company” (2008), 4(2), Risalah Hukum Fakultas Hukum Unmul, 128-134.
Rabin Ibnu Zainal, “Analysis of CSR Legislation in Indonesia: Mandate to Business” (2019), 9(3), Macrothink Institute, 165-181.
Ratih Probosiwi, “Corporate Social Responsibility in Public Welfare Enhancement” (2016) 13(2), Socio Jurnal Ilmu-ilmu Sosial, 30-40.
Risna Trsinawati and others, “Implementasi Corporate Social Responsibility pada UMKM Percetakan dan Penerbitan Al-Qur’an Ma’sum Press” (2021), 2(2), Abdi Psikonomi, 116-123.
Sefriani and Sri Wartini, “Model Kebijakan Hukum Tanggung Jawab Sosial Perusahaan di Indonesia” (2017), 24(1), Jurnal Hukum IUS QUIA IUSTUM, 1-28.
Sheehy, B., “Defining CSR: Problems and Solutions.” (2015), 131, J. Bus. Ethics, 625–648.
Suparnyo and others, “Model Pemberdayaan Usaha Mikro Kecil Dan Menengah (Umkm) Melalui Program Corporate Social Responsibility (CSR) Pada Industri Rokok Di Kudus” (2013), 6(2), Jurnal Sosial dan Budaya, 29-39.
BINUS University – School of Accounting, “The Evolution of Sustainability Reporting Practices in Indonesia’, (August 2022). <https://accounting.binus.ac.id/2022/08/31/the-evolution-of-sustainability-reporting-practices-in-indonesia/> accessed 24 August 2023.
Felisitas Anastasia, ‘Sustainability Report in Indonesia Real Estate Sector’, (November 2022). <https://www.sustainahaus.com/articles/sustainabilityreport> accessed 24 August 2023.
Foundation for International Human Rights Reporting Standards, ‘Studi Laporan Keberlanjutan Tahun 2020’, (2020). <https://drive.google.com/file/d/1dOEVmvnyXtRu83Og9loylEtEd9kmqzqm/view> accessed 24 August 2023.
Lord Tim Clement and others, “Corporate Social Responsibility – bottom-line issue or public relations exercise?” (2005) <http://www.untag-smd.ac.id/files/Perpustakaan_Digital_1/CORPORATE%20SOCIAL%20RESPONSIBILITY%20Investing%20in%20Corporate%20Social%20Responsibility.pdf> accessed 31 August 2023.
The 1945 Constitution Republic of Indonesia.
Law Number 40 of 2007 concerning on Limited Liabilities Company.
Law Number 32 of 2009 concerning on Environmental Protection and Management.
Government Regulation Number 47 of 2012 concerning Corporate Social Responsibility.
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