Bridging the Gap between Voluntary and Legal: Indonesia's New CSR Law

Indonesia has further muddied the waters regarding whether CSR is a legal or a purely voluntary initiative.  On July 20, the country incorporated a CSR requirement into its company law.  CSR Asia issued a critique of the law in its latest newsletter, and perhaps predictably, there are many concerns. 

The first concern is with coverage.  The requirement applies only to companies “involved in ‘the exploitation of natural resources,’” which evidently excludes the financial sector.  The author points out that this exclusion is problematic because the financial sector plays a pivotal role in facilitating CSR.  She suggests that this omission indicates the “law is not about CSR but is simply mandating philanthropy.” 

The second concern is functional.  The law is so general that it is unclear how it will be implemented.  For instance, the author says we will have to wait for further regulations before we know what definitions of CSR and natural resources the law espouses, how it will be implemented, and to whom it applies exactly.

The final concern the author refers to is the possibility that the measure will act as or be seen as a CSR tax that could deter foreign investment.  In other words, according to an Indonesian Business Links statement, “This is similar to additional tax… that is levied from the net profit of a limited liability company.” 

Has Indonesia got it right, the author asks?  She suggests that we won’t know until the regulations come out, but she thinks this law is “part of a global trend that governments are looking to legislate for CSR.”  I’m not sure I agree with her latter assertion.  The EU has said pretty firmly that CSR should remain a voluntary initiative, so there shouldn’t be any imminent EU legislation in this area. 

Second, although the U.S. proposed anti-sweatshop legislation, it does not appear remotely likely to pass, and if it did, it would serve protectionist purposes far more than CSR purposes.  So what might appear to be CSR legislation is sometimes, in effect, something completely different.

Finally, as the article points out, countries like France and Malaysia have CSR reporting legislation.  Moreover, the UK has ratified a corporate homicide bill that would make UK businesses more liable and accountable for accidents at work.  However, these pieces of legislation are limited to single legal issues, respectively, pensions law and criminal and tort law; they do not address CSR in general.  The Indonesian law seems to be more concept-based, targeting CSR as a whole.  If there is the kind of trend the author suggests, it is far more limited in scope than the Indonesian concept-based approach.

It will be interesting to see how the Indonesian CSR law pans out, but there are a lot of contextual and substantive reasons to be skeptical of its effect.  Perhaps it greatest contribution will be symbolic, closing the gap between legal and voluntary in the realm of CSR.