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n the last 10 years, Corporate Social Responsibility (CSR) has been increasingly adopted by businesses in Indonesia, primarily driven by multinational companies, later inspiring local companies as it is seen as a good strategy for sustaining business.

When in 2007 the Corporate Law No. 40 included an article that mandated companies to take responsibility for social welfare and environmental protection with punitive sanctions for non compliance, debate ensued due to its ambiguity in terms of definition.

Various discussions revealed that the term quoted in the law is not the same as CSR terminology adopted internationally.

However, one thing that is widely accepted is that CSR is not merely translated as funds set aside from a percentage of corporate profit.

This definition is actually the definition of state owned companies’ obligations to conduct social welfare programs and sustain the environment. But the definition of CSR as adopted by the international business world is broader than that.

It comprises wider definition than just donations or a contribution toward community development. CSR encompasses respect for labor and environmental standards, combating bribe solicitation and extortion, as well as sustainable consumption.

A new update of the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises resulted in the 42 countries who are signatory governments upgrading their commitment to promoting high standards of responsible business conduct in a global context.

The 42 signatory countries comprise the 34 OECD member countries and eight non-member countries (Argentina, Brazil, Egypt, Latvia, Lithuania, Morocco, Peru, and Romania). Costa Rica, Colombia, Jordan, Serbia and Tunisia have also announced their intention to be signatories to the non-binding OECD Declaration on International Investment and Multinational Enterprises of which the guidelines are a major part.

The main achievement of the update includes the incorporation of a new chapter on human rights, with reference to the UN Guiding Principles on Business and Human Rights.

A new provision encourages enterprises to cooperate in promoting Internet freedom.

The guidelines are the first inter-governmental agreement in these areas. The update also includes new provisions on tax governance and tax compliance.

The global principle also pushes due diligence to avoid or mitigate negative impacts, with respect to the management of supply chains.

In the meantime, international agencies are supporting enterprises and other stakeholders to address emerging changes in the area of CSR. Now, the choice is left to the company.

Bad businesses will never disappear, but good businesses will succeed if they are not merely profit driven, but also address social issues or environmental conservation.

It is clear that CSR aspects include a deeper philosophy that what is envisioned under the law. In fact, businesses that are established from a genuine motivation to address social issues or improving social welfare are emerging as an inclusive market.

The size of the company is not an issue; even a small enterprise can flourish if it adopts socially responsible business principles.

This new approach of business in undertaking CSR by way of inclusion of underprivileged communities as a stakeholder is called inclusive business.

Companies that adopt CSR or the inclusive market model benefit from increased profits, innovative creation, expanded labor sources, and strengthened supply chains. From their side, they help poor communities with basic needs, increasing income through empowerment.

What does this all mean for Indonesia? The business climate in Indonesia is now adjusting to globalization, where the way companies operation is aligned toward value chain requirement.

Rules and procedures of CSR implementation have been reinforced with emerging local/sector-specific guidelines such as the guidelines for CSR in the environment sector, social welfare, and local governments.

Many good examples exist, and need to be promoted as best practices. During an international conference in Jakarta earlier this week, entitled “Accelerating Progress towards Millennium Development Goals through Inclusive Business”, several companies shared their practices.

Prominent Indonesian companies were represented in the conference including Express Taxi, Garuda Food, Martina Berto, Ranch Market, Uber Asia, and Unilever Indonesia. They conduct CSR activities not because they are required to by law, but because they know the benefits.

However, there are also a number of challenges faced by companies implementing the inclusive market model. Among the problems mentioned was the gap between the traditional and simple mind-sets of the grass root communities and the structured and systemized operation of the large companies. Changing mind-sets of the community does take a long-term commitment and perseverance.

There are also expectations from the private sector toward the government as facilitator and regulator, which include provision of subsidies or incentives for those who conduct CSR programs, as well as better
infrastructure.

The media and CSR organizations play an important role in promoting and spreading the message to the wider public. The media itself is a business entity, hence it should be profitable.

However, media enterprises are in a crucial position to educate the private sector that relies on advertisements. On one hand, voluntary but responsible business practices are more effective if they are beyond compliance.

On the other hand, many companies are involved in unethical business practices without remorse or fear of the law.

If this situation continues, Indonesia will become an unsuitable place for investment or doing business. It is, therefore, important to create a level playing field for businesses in Indonesia.

The writer is currently executive director of Indonesia Business Links. She can be reached at yanti.koestoer@ibl.or.id.