Breadcrumb

Indonesia

The role of CSR

Even before the adoption of the country’s new corporate law, the German Embassy had noted increasing interest in the subject of corporate social responsibility (CSR) in the media and at public events.  The new corporate law enacted on July 20, 2007 requires most companies outside the financial sector to undertake CSR activities. Article 74 requires all companies that impact the environment – not only raw materials and plantations – to implement CSR programs. The costs are tax-deductible. Regulatory stipulations are still to be enacted.

Legislators hope the CSR regulations within the new corporate law will increase awareness of CSR among Indonesian businesses – which up to now had been minimal. Critics point out that responsibility for the environment is regulated in other laws, such as in the environmental law.

The national Indonesian Chamber of Commerce and Industry (KADIN) and other business associations have announced in a joint statement that the CSR requirements violate the principles of good government and are contrary to the voluntary approach of CSR.

The German-Indonesian Chamber of Commerce and Industry (EKONID) has worked extensively to promote CSR in Indonesia:

Efforts of the German Chamber Network (AHK) to support the CSR activities of its member businesses include reporting on such activities in its publications (SOROTAN, website), participation in ceremonial activities, and matching requests with possible sponsors.

The chamber also conducts its own CSR activities, such as the biannual Charity Gala (the last gala supported an NGO dedicated to helping street children in Jakarta). Prior to that, there was a fundraising campaign whose proceeds were used to renovate the buildings at two schools in the suburbs of Jakarta. There were also employee fundraising campaigns for the victims of the Yogya earthquake.

Because of positive experiences with INDOGERM-direct, the AHK has been approached by various companies asking if it would operate a kind of CSR department on behalf of the UN, which would tend to the implementation and processing of their CSR activities. INDOGERM involves about 30 different CSR projects with a volume of EUR 6,500,000, which were carried out during the past four years on behalf of companies such as BASF (EUR 1.5 million), BAYER (EUR 550,000), SIEMENS (EUR 500,000), MERCEDES BENZ (EUR 300,000), DEUTSCHE BANK (EUR 300,000), PORSCHE (EUR 400,000), SCHERING (EUR 365,000). Based on these positive experiences, and at the request of the companies, EKONID will continue to operate a CSR department. The federal government supports the EKONID project by (continuing) financing of the project manager through the Center for International Migration and Development (CIM).

Source: German Embassy, Jakarta

CSR understanding

The largely family-run and rural structure of business, along with the fact that development of industrial production was in the past marked by either state-owned or foreign companies, has resulted in the fact that no government security system has developed. All social responsibilities (pensions, health insurance, etc.) are transferred to families or industrial firms.

State-owned enterprises are characterized by their exploitation of resources (Pertamina) or a monopoly market situation in their production (Krakatau Steel) or services (state-owned PLN energy company). These companies have the ability and obligation to provide security for their employees and their families, to act responsibly within the communities around their companies and to establish such things as hospitals and schools.

Foreign businesses are either also involved in extracting resources (oil, gas and gold) or are considered “rich foreigners” who produce luxury goods (Mercedes) and can afford to – and must – assume responsibility, including financial responsibility.

Source: German Embassy, Jakarta

Expectations towards companies

Public policymakers and society view companies as being morally obligated to be involved in social matters.

Foreign companies are expected to tend to the social security of their employees, and also to be involved in protecting the environment. Indonesia’s self-image has not (yet) developed to the point where it wants to provide environmental protection. When a subject such as protecting the rainforests is promoted by international activists, these activists are also expected to handle the financing.

When it comes to education, foreign assistance is not necessarily expected, but is welcomed as long as it is not accompanied by a high degree of paternalism.
Assistance is also welcomed for reconstruction and regional development (such as for Aceh) as well as for disaster preparedness and humanitarian emergency aid.

Source: German Embassy, Jakarta

Basic conditions

Implementation of international regulations

Implementation of the four ILO core labor standards

1) Freedom of association and the effective recognition of the right to collective bargaining, 2) elimination of all forms of forced or compulsory labor, 3) effective abolition of child labor, 4) elimination of discrimination with respect to employment and occupation

Indonesia has ratified all of the International Labor Organization (ILO) conventions that relate to the four fundamental ILO core labor standards. Related national legislation and regulations were enacted in the past in Indonesia and now form the framework for implementing the labor laws.

The national action committee formed to eliminate the worst forms of child labor has prepared a national action plan (NAP) that formulates the goals for the next five years:

1. Increase public awareness

2. Document the current situation

3. Develop and implement a program to abolish the worst forms of child labor with five areas of priority:  Child trafficking for prostitution, the use of children in the production and trafficking of drugs and addictive substances, the use of children in offshore fishing and diving, in the area of mining and in the leather goods industry.

Indonesia’s course of action against the five worst forms of child labor as a form of exploitation in the workplace was included as a goal for the country by the ILO in its Decent Work Country Program 2006-2010.  In addition, the ILO is working with the Indonesian government and NGOs to ensure that former child laborers do not return to their former workplaces. The achievement of the Indonesian Millennium Development Goal of “education for all” and the National Strategic Education Plan for 2005-2009 serve as guidelines.

Initiatives of the business sector

GLOBAL COMPACT NETWORK

Local contacts
Indonesian Global Compact Network Coordinator
Mr. Y. W. Junardy
President
Indonesia Marketing Association
Mr. Jason Pronyk
Assistant Resident Representative
UNDP
E-mail: jason.pronyk (at) undp (dot) org
Tel: 62 21 314 1308, ext 430

Mr. Yogi Y. Adjie
Program Director
Indonesia Marketing Association
E-mail: yogi.adjie (at) gmail (dot) com
Tel: 62 21 5761 369, 5761 355

GC Office Country Coordinator
Nessa Whelan
E-mail: whelan (at) un (dot) org

Areas of activity

Poverty

Indonesia has made major advances in the fight against poverty through widespread growth and investment in the education and health sector. In March 2008 the proportion of the population living in absolute poverty (national definition is USD 1.55 per day = EUR 1.22) was at 15.4% (16.6% in March 2007). However, almost half of the population (49%, or about 110 million people) live on the edge of poverty and have less than USD 2 per day (= EUR 1.57) to spend. The high rate of inflation (11% in 2008) is due to rising food and fuel prices, and therefore particularly impacts poor households. There continue to be great differences between cities and rural areas and between regions, especially between central Java and the more far-flung islands such as Papua.

Basic information

  • Life expectancy: Total population: 70.46 years; male: 67.98 years; female: 73.07 years (2008 est.)
  • Infant mortality: Total: 31.04 deaths/1,000 births; male: 36.14 deaths/1,000 births; female: 25.68 deaths/1,000 births (2008 est.)
  • Malnutrition: 6% (2002/04)
  • Access to clean water: 77% (2004)
  • Access to sanitary facilities: 55% (2004)
  • Human Poverty Index: 47 of 108 (2007/2008)
  • Gini Index: 36.3 (2005)
  • Population under the poverty line: 17.8% (2006)

The employment and income of 88% of the Indonesian population depend on development of small and midsize enterprises. German companies as well as local and other international businesses can contribute to creating incomes and jobs and strengthening the productivity of local businesses. Areas of activity for German companies with regard to poverty are therefore: strengthening the competitiveness of local companies through the transfer of know-how and technology; contributing to the increase of employment of youth through training in business development and involvement in the area of career education (training, scholarships, work experience schemes); contributing to improvements in work conditions and to promoting environmental economic activity by supporting environmental and social standards; raising awareness of developmental policy topics and CSR within the Indonesian private sector; and contributing to improved supply of water and energy to poor areas.

Participants

Public-Private Partnership (PPP) as an instrument for implementing CSR: PPPs are formalized partnerships between the private sector (such as companies and banks) and the public sector (e.g. German Society for Technical Cooperation [GTZ]). The aim of a PPP is to contribute to a nation’s sustainable development. The projects are jointly planned, financed and implemented by the private and public partners. Involvement in a PPP does not fall within a company’s core business, but does serve its business interests (i.e., it is for-profit). Educational institutions, certification institutes and community facilities may also be partners.

Opportunities and risks related to poverty initiatives

Opportunities in helping in the fight against poverty particularly involve the development of new markets through partnership with local businesses or vocational education facilities and the retention of customers or improvement of the corporate image through involvement in CSR. German companies can meanwhile positively influence the quality of their supply structures through measures such as improvement of the basic conditions and production processes of local businesses (such as quality standards). Risks result primarily from not observing cultural values and norms during cooperation with local businesses and the high rate of corruption in Indonesia.

Company examples

TÜV Rheinland

Use of a web-based quality management instrument according to international standards to promote effective and customer-oriented quality management.

Allianz

In the area of microinsurance to improve and broaden access to private insurance. Primary target groups are impoverished population groups.

Siemens AG

Vocational education in automation, control systems and mechatronics. This primarily involves qualification of technical specialists within companies as well as trainers and instructors in public institutions.

Yayasan German Garment Training Centre (GGTC)

CSR WeltWeit case study (German): Ausbildung von unterprivilegierten Schülern

Randstad Deutschland GmbH & Co.KG

CSR WeltWeit case study (Englisch): VSO – Voluntary Service Overseas

Quelle: Deutsche Botschaft, Jakarta

Education

Glaring gaps continue to exist in the school system, which cannot be compensated for with the current budget allocations for education. For the 2009 budget a 20% share of budget allocations is now planned for education, which at least represents a step in the right direction. Tuition fees in Indonesia are particularly high, and given the current increase in the cost of living (especially in the prices of food and gas), this has meant that many students have been forced to leave school as their parents are no longer able to muster the cost of tuition. Teachers, meanwhile, are paid very poorly. It is sometimes customary for children to give their teachers money in return for receiving additional support.

Basic information

  • Public spending on education (share of GDP): 3.6% (2006)
  • Compulsory school attendance: ages 7 – 15
  • Rate of school enrollment: 94% of children who are required to attend school (2004)
  • Literacy (definition: = those over age 15 who can read and write): Total population:  90.4%. Male: 94%. Female: 86 8.% (2004 est.)
  • HDI Education Index: Ranking 107 out of 177: 0.830 (1 = max., 0 = no education)
  • Average years of education: Total population: 11 years. Male: 12 years. Female: 11 years (2005)

 

University tuition fees are also high, and good students often cannot afford to pay for a degree program. The government is currently vigorously promoting SMKs (vocational schools) as an alternative to university study.

The Swiss German University (SGU) is a successful Indonesian educational institution with good contacts to German universities and the German business community. Due to the high number of applicants, SGU relocated to a new, larger campus in early 2009. Plans also call for the course offerings to be expanded in order to be able to offer courses not yet available in Indonesia that are of particular interest to the business community, such as disaster management, airport management, and BA programs in flight and aeronautical management or geothermal energy. Partnership within a network of regional universities (not yet extant) is also possible within food sciences (life-science and agriculture), in the nationally important field of rice research. As part of its expansion, SGU is being converted into a new structure in which the Indonesian Sinar-Mas Group will contribute significant participation (this involvement will probably be tax deductible in accordance with the new Indonesian laws). The financing, meanwhile, is provided in full by Indonesians.

Participants

Cultural mediators (Goethe Institute, DAAD, Deutsche Internationale Schule Jakarta [DIS]), the Indonesian partner schools that are still to be named (the Foreign Office’s partner school initiative was enacted in 2008) and the Education Ministry.

Potential areas of activity for foreign companies in the field of education are:

  • Sponsoring of selected good (secondary) schools (such as partner schools, www.auswaertiges-amt.de/diplo/en/SchulenPartnerderZukunft)
  • Offering brief introductory internships to students
  • Supporting career training (such as vocational schools)
  • Sur place scholarships for language courses at the Goethe Institute, preparatory courses or universities
  • Issuing of prizes (similar to the German Olympics/Pedagogical Exchange Service)

Businesses hope to achieve a promotional effect through activities in the area of education and possibly to attract top graduates to their companies.

Company examples

The German business community is involved in the German International School (DIS) via such things as sponsorships and internship placement activities.

Examples of support from the business community include:

 

  • Induction of the photovoltaic plant (dena/sunset) in February 2008
  • Siemens information technology rooms
  • Periodic placement of interns within various companies, such as Schenker and Merck
  • Awarding of scholarships for needy students, financial support for sport facilities and school festivals

International Garment Training Center (IGTC): The German Garment Training Centre (GGTC) foundation operates the center that trains young Indonesians as qualified workers and specialists in the garment industry. One employee of the Center for International Migration and Development (CIM) is currently on staff at the IGTC. The main sponsors are the S.Oliver Group, Rottendorf and DEG, as well as 142 other sponsors (March 2005) from 13 countries.

Yayasan German Garment Training Centre (GGTC)

CSR WeltWeit case study (German): Ausbildung von unterprivilegierten Schülern

Merck KgAa / PT Merck Tbk

CSR WeltWeit case study (Englisch): Fight anemia, increase learning achievement!

PT Asuransi Allianz Indonesia

CSR WeltWeit case study (German): Wiederaufbau einer Schule in Tibang, Banda Aceh

Randstad Deutschland GmbH & Co.KG

CSR WeltWeit case study (Englisch): VSO – Voluntary Service Overseas

Source: German Embassy, Jakarta

 

 

 

Health

Government healthcare services are to some extent qualitatively and/or quantitatively deficient. The involvement of the business community can help to compensate for this in the private sector without straining the public system. Medical care for employees and their families can be secured by paying health insurance premiums, by providing basic care, preventative services and education, and through occupational health and work safety.  In this context, it is advisable to cooperate with health authorities, the state-owned insurer JAMSOSTEK and the structures of the Ministry of Manpower.

Basic information

  • Public health expenditures (share of GDP): 1.0% (2004)
  • Health care: 13 physicians per 100,000 residents (2000-2004)
  • Infant mortality: Total: 31.04 deaths/1,000 births; male: 36.14 deaths/1,000 births; female: 25.68 deaths/1,000 births (2008 est.)
  • Maternal mortality: 310 deaths/100,000 births (1990-2004)
  • Child malnutrition: 28% of those under 5 years old (1996-2005)
  • HIV/AIDS prevalence rate (>15 years): 0.1% (2003 est.)
  • HIV/AIDS cases: 110,000 cases (2003 est.)
  • HIV/AIDS deaths: 2,400 (2003 est.)
  • Life expectancy: Total population: 70.46 years; male: 67.98 years; female: 73.07 years (2008 est.)

Additional areas of activity in the area of health could include: 

  • Sponsorship of private supplementary health insurance for low- and medium-income workers.
  • Reinsurance for local social security systems
  • Support of healthcare staff

Participants

  • Association of public health physicians
  • The medical faculty of the School of Public Health at the University of Gadjah Mada in Yogyakarta. Professor Laksono Trisnanataro has performed numerous studies in the field and is involved in local trials
  • JAMSOSTEK public insurance for employees
  • Local governments and health authorities
  • Local employer associations
  • Unions

Opportunities and risks of involvement in the area of health

In the course of democratization and decentralization, unregulated private health services quickly develop. This results in an opportunity to supplement public services in helpful ways, and in some areas to even replace them with more efficient private management.
The risk lies in a functional separation of public and private services, which leads to unhealthy competition. This can be detrimental to the quality of the services and can significantly worsen the problem of inequality in coverage with services both in terms of geography and socioeconomics.

Company examples

MRK

The MRK company (a local startup by German ex-employees of Merck) is involved in a PPP in the area of hospital hygiene through the introduction of systematic inspections for contamination and advanced training of laboratory staff in more than 100 hospitals.

Siemens AG

CSR WeltWeit case study (German): Safe Water Kiosk – mobile Filteranlagen für eine nachhaltige Wasserversorgung

Merck KgAa / PT Merck Tbk

CSR WeltWeit case study (Englisch): Fight anemia, increase learning achievement!

Randstad Deutschland GmbH & Co.KG

CSR WeltWeit case study (Englisch): VSO – Voluntary Service Overseas

Source: German Embassy, Jakarta

Political involvement

Fighting corruption is of utmost importance.

Participants in this area include the corruption-fighting authority (KPK) and organizations such as Transparency International.

Basic information

  • Right to vote:  17 years. Universal for all married persons, regardless of age
  • Ranking of freedom of the press: 100 of 169 (2007)

Opportunities and risks for involvement in political partnerships

The opportunities offered by involvement in efforts to fight corruption are significantly greater than the risks. The Siemens scandal has caused a significant credibility problem at present, however.

Source: German Embassy, Jakarta

Environment

Basic information

  • Emissions of CO2: 1.3% of total world emissions (2004)
  • CO2 per capita: 1.7 t (2004)
  • Energy consumption: 108 million kWh (2006 est.)
  • Water consumption (households/industry/agriculture): Total: 82.78 km3/year (8%/1%/91%). Per capita: 372 m3/year (2000)
  • Hydropower, solar, wind, geothermal energy: 3.7 % of primary energy consumption (2005)

Climate protection in midsize cities, particularly in energy efficiency, renewable energies, local public transport, waste management, coast protection, reforestation, water management and sustainable development.

Opportunities and risks related to environmental initiatives

The opportunities for involvement primarily lie in the following areas:

 Bring problems to the attention of the local administration

  • Mobilize public participation (good examples and instruments exist)
  • EcoMinds project: promotion of environmental awareness and promotional effect

The only risk lies in the fact that national authorities show little interest in the subject.

Company examples

Bayer

CSR WeltWeit case study (German): Strategische Partnerschaft mit United Nations Environment Programme im Bereich Jugend und Umwelt

Siemens AG

CSR WeltWeit case study (German): Safe Water Kiosk – mobile Filteranlagen für eine nachhaltige Wasserversorgung

Merck KgAa / PT Merck Tbk

CSR WeltWeit case study (Englisch): Fight anemia, increase learning achievement!

Randstad Deutschland GmbH & Co.KG

CSR WeltWeit case study (Englisch): VSO – Voluntary Service Overseas

Weitere Informationen

Ongoing PPP activities

  • Development of guidelines for waste “co-processing” in the cement industry. In this integrated PPP, international guidelines that have been created in an international PPP project (GTZ Holcim), are being adapted to conditions in Indonesia. Company: PT Holcim & Pt Indocement. Duration: Nov. 1, 2006 – Dec. 31, 2008.
  • Installation of a measuring facility and development of the capacity of environmental agencies in central Java. These PPP activities support local Indonesian partners (in the provincial and regional environmental agencies) in implementing pilot projects for water quality analysis. Company: Hach-Lange GmbH. Term: Feb.-Dec. 2008
  • Capacity development for household and industrial waste disposal technologies. The goal of this PPP was to present adapted and cost-effective technologies for wastewater purification plants in central and east Java, in a form similar to a pilot project Company: Stengelin-Specker Kläranlagen GmbH. Duration: May 2, 2007 – Jan. 15, 2009

Completed PPP activities

  • Development of a clean development mechanism bundling project (CDM bundling) and the distribution of ecological efficiency in small and midsize enterprises (SMEs). The project supported capacity building and training in the instruments of CDM bundling and ecological efficiency and included a study to examine the utility of these instruments in tofu production in Indonesia. Company: Ecosecurites and South Pole. Duration: Jan. 1, 2007 – Dec. 12, 2007
  • Safe management of chemicals, biomaterials and other waste materials in Indonesia. Suitable training sought to raise awareness among Indonesian companies, laboratories and authorities of safe and environmentally sound methods for handling dangerous chemicals.  Company: PT Merck. Duration: Dec. 15, 2005 – July 14, 2008
  • Sustained monitoring of emissions from the Indonesian cement industry’s incineration plants. The goal of this project was to train employees of the Institute of Technology Bandung (ITB) and important decision makers within environmental agencies to be able to implement necessary measurements of emissions from the incineration of waste materials in cement kilns. Company: PT Indocement. Duration: Dec. 1, 2005 – March 31, 2008
  • Support of young researchers in the area of sustainable development. In partnership with the United Nations Environment Program (UNEP), Bayer staged the Eco-Minds 2007 youth environmental forum. As part of this program, a total of 138 young researchers from Indonesia submitted creative concepts for sustainable development. The top young researchers in the country qualified for the Eco-Minds Forum in Thailand from May 31-June 3, 2007, which Bayer offers every two years for students from Australia, New Zealand, China, Korea, India, Thailand, the Philippines, Indonesia and Singapore. In this program, young minds take an interdisciplinary approach to global environmental problems. Bayer hopes that their concepts make an impact in the interest of sustainable growth.

Source: German Embassy, Jakarta

Other

Immediate tsunami aid and reconstruction (see also www.indogerm-direct.org)
In reaction to the tsunami disaster in December 2004, roughly 50, primarily German, companies and individuals located in Indonesia joined to form the INDOGERM-direct initiative. The German-Indonesian Chamber of Commerce and Industry (EKONID/AHK) provide legal sponsorship and management. 

At the start, direct disaster aid was provided through measures such as donations of food and medicines, installation of water reprocessing plants, and provision of tent shelters. In the following main phase, about 30 reconstruction and self-help projects were planned and implemented in the areas of education, fishing, health, childcare and community development, with a total donation volume of EUR 6.5 million.

In general, other areas of activity include measures in disaster preparedness and humanitarian aid, whereby the major German aid organizations (German Red Cross, Malteser International, the Johanniter Aid Association, Diakonie, Workers’ Samaritan Federation) are already active in this area with a total project volume of approx. EUR 830,000 throughout Indonesia by 2008.

INDOGERM example of involvement:

Education: With a financing volume of approx. EUR 3.5 million, the main project in Banda Aceh is reconstruction and, in parallel, the new construction and furnishing of a large vocational school complex for approx. 3,700 students, as well as the construction and furnishing of a basic and advanced training center at the location of the former vocational school campus.

Childcare: Construction and furnishings for two orphanages in Lhoksumawe (64 children) and on the Island of Nias (200 children); restoration of 14 kindergartens; a trauma treatment program for children and, in particular, for parents impacted by the tsunami.
Fishing industry: Construction of a total of seven boats (15 and 25 meters) as well as an associated ice plant with water treatment plant and power supply at two locations (Biren and Meulabo).

Health care: Construction of a neighborhood clinic in Banda Aceh and training of 150 nurses. Donations: one ambulance, two mobile x-ray machines, laboratory equipment and 50 prosthetics.

Community development: Training center for cocoa farmers (organic farming and fair trade) in Sigli; solar power plants for 43 houses and street lighting; construction of water supply (solar pumps, reservoirs and pipeline system) in Lamreh and Muarabatu.

Participants in the area of disaster aid:

  • Approx. 50, mostly German companies located in Indonesia, such as BASF, BAYER, KfW, Deutsche Bank, DaimlerChrysler, SIEMENS, Schering, Henkel, MAN Ferrostahl, and more, as well as the “Business Community Helps” campaign of the Federation of German Industries (BDI) and Handelsblatt newspaper, and donated money that was collected by German schools
  • Sponsorship and implementation through the German-Indonesian Chamber of Commerce and Industry (EKONID/ AHK)

Opportunities and risks of involvement in disaster aid:

Opportunities are opened up for the people who have been helped to overcome the disaster and to develop through experiencing human compassion and assistance, as well as through material donations.

Today, three-and-a-half years later, it has become clear that the civil war in Aceh has been consumed by the tsunami and the subsequent wave of aid projects, and that the peace process has prevailed. The greatest overall risk is that violence could once again erupt and the people could face problems when all of the development projects are completed and the foreign and domestic aid organizations withdraw (keyword: market distortion).

Data & facts

Country: Republic of Indonesia
Capital: Jarkarta
Area: 2.02 million km²
Population: 230 million
Economic system: Market economy
Polity: Presidential republic
Unemployment rate: 9,6 % (2007 est.)
Inflation rate (CPIX): 6,4 % (2007 est.)
GDP: USD 432.9 billion (2007 est.) = EUR 341.56 billion
GDP/Head: USD 3,700 (PPP, 2007 est.) = EUR 2,919.36
Religions: 5 recognized religions: Muslim (ca. 88% of the population), Evangelical and Catholic Churches (together about 8%), Hinduism (2%); Buddhism (and Taoism, about 1%); natural religions (about 1%).
HDI: Rang 107 of 177 (2007/2008)
CPI: Rang 143 of 179 (2007)
BTI: Status Index: 48 of 125. Management Index: 53 of 125 (2008)

Further studies