Disasters, Sticks and Carrots. The Evolution of Corporate Social Responsibility (CSR) in Indonesia
December 26th 2004 was a defining moment in Indonesian history. The tsunami left 250,000 dead and 650,000 homeless. It was probably the largest ever effort by Indonesians to help each other. The poor, the rich, government, army and companies all did their bit to help the victims. Most of the people involved put their personal gain aside and helped by volunteering their time and donating goods and money.
The aftermath of the tsunami disaster inspired the creation of new organizations to help those in need. Some large companies created a not-for-profit foundation, like the Putera Sampoerna Foundation. Koperasi like Koperasi Mitra Dhuafa (Komida) got started. First collecting money to help the Tsunami victims. Then inspired by the Grameen women’s group lending model, Komida set up savings and lending programme for women.
This collective effort and the Muslim charity principle of Zakat was a fertile ground for the creation of the Indonesian CSR (corporate social responsibility) laws in 2007. CSR laws were enacted for investments, No.27, and company law, No.40. Indonesia became the first country to enforce CSR through law. State owned enterprises and companies in the natural resource sectors are obliged to contribute to charity. The implementation and enforcement of this law has unfortunately been missing, which diluted the impact of this law.
Indonesia is not alone, internationally CSR has followed a similar evolution from disaster to regulation. Not only countries but companies have also had their ‘disaster’ moments. Like Union Carbide’s chemical factory explosion in Bhopal India, killing over 10,000 and wounding over half a million people. Less damaging but more prevalent are the many fashion brands have repeatedly been found to be exploiting labourers in factories in Indonesia, Cambodia, India and Bangladesh. These scandals lead to the creation of the Fair Wear label for ethical clothes manufacturing practices. ABN Amro Bank’s wake up call was a petition in 1999 by the bank’s clients to stop financing the Freeport mine in Papua, Indonesia which was hampered by violence and pollution. This lead to the creation of the Equator Principles for ethical banking practices.
CSR often starts with a disaster, like the tsunami. It evolves with a stick, often regulation. Companies then sign to abide by these regulations. Most often CSR then stops evolving and remains a donation driven model for companies to help local communities. Examples of this are Garuda Cares or the donations done by the Pertamina Foundation’s Sobat Bumi programme.
A smaller group of companies do manage to evolve further. They realize that CSR can add value to a company, for example to attract and retain employees. The Jakarta based marketing firm ‘We are Percolate’ has done everything it can to improve its working environment. For this it has received a “B-Corp” certification https://www.bcorporation.net.
Others go even further and fully integrate CSR into their products as well. It means that every product sold improves the quality of life of those involved. Indosole, a slipper manufacturer in Bali, not only does it’s best for its employees, its products are fully recycled from old rubber tyres. Indosole is the second Indonesian company to get the B-Corp certification. B-Corp is the international certification for companies using CSR as a proactive strategy. Danone, the manufacturer of Aqua in Indonesia, is also applying for this certification.
These companies who have gone further than CSR as a form of donation see CSR as a carrot. For these companies there is then no longer a contradiction between the well-being of a company’s stakeholders and the wellbeing of its shareholders. CSR evolves from a defensive strategy: disaster and stick. To a proactive business strategy: carrot.
In Indonesia most companies still are at the defensive stage, where CSR is seen as a charitable activity, an expense. The charitable donations create goodwill, a bit like advertising does. The time is now right to jump to CSR that not only benefits shareholders, but also benefits a company’s employees, community and consumers.
Putera Sampoerna and I see CSR more like a form of Corporate Social Entrepreneurship – we seek a proactive strategy at Mekar which benefits all the stakeholders in our value chain.
Mekar, PT Sampoerna Wirausaha, is a hybrid company. It is a for profit company, with a social mission. It is owned by a foundation, the Yayasan Putera Sampoerna. Its customers are extremely rich and extremely poor, we connect the two. The rich can lend their money to the poorest of women entrepreneurs. We try to share the revenues in our supply chain fairly. Let me explain.
Mekar finds wealthy Indonesian citizens and corporations that want to earn money on their savings, but they also want to do good. They help the poor. Yes it is possible to combine helping the poor and earning money. Mohammed Yunus, the Nobel Peace Prize laureate showed the world how he does this in Bangladesh. In Indonesia Koperasi Komida and Mekar together have made it easy for a wealthy Indonesians with savings to lend money via their smartphone or laptop to a woman running a small business in Aceh or Papua. Komida finds the poor, Mekar finds the wealthy. Together they create a smartphone connection for the rich to finance the poor. Everyone’s well-being increases.
For companies Mekar has now gone a step further. It now makes it possible for Indonesian companies and organizations to place their funds into a revolving Social Investment Account. The company can tell us what their funding preferences are. Women or men; shops or farms; Java or Nusa Tenggara Timur; long or short term; etc. Their funds, Rp 1 billion for example, are placed in the Social Investment Account. The funds are only invested in micro businesses that fit the preferences. As money is repaid, it is automatically reinvested, like a revolving fund or a time deposit with a compounding interest rate. In 12 months it generates 10%. The invested money is guaranteed. And when the time comes that the company wants the money back, it can tell Mekar to stop investing. The repayments then flow directly back to the funder.
More adventurous companies can also involve their employees. Employees can choose to invest their bonuses in micro-entrepreneurs. The company can then match the investments by its staff, doubling the funds. Employees can jointly decide with their employer how their money is invested. Employees can visit the entrepreneurs, or the entrepreneur can visit the funding company. This way money becomes a means to connect the wealthy and the poor. It improves everyone’s well-being for company, employees, borrowers and shareholders. CSR is now a tasty carrot, rather than bland regulation.
Maybe Ramadan is the right time to try a new way to help the poor?
Join us at https://mekar.id
Thierry Sanders, CEO
Mekar, PT Sampoerna Wirausaha