1. Indonesian Mining Conference and Exhibition, November 2007
CORPORATE SOCIAL RESPONSIBILITY
AND THE INDONESIAN MINING INDUSTRY
NOKE KIROYAN
Managing Partner, Kiroyan Kuhon Partners
Abstract
Corporate Social Responsibility as a concept in business ethics emerged after World War II, but only after the Earth
Summit in Rio de Janeiro in 1992 has it become inextricably linked to sustainable development, in fact CSR is
nowadays understood as the contribution of business toward sustainable development. John Elkington introduced the
Triple Bottom Line as shorthand for sustainable development, and now all three are inter-related and have joined the
mainstream. Because of the nature of the business itself that brings it in close contact with the communities and the
change it causes to the earth’s topography, mining is particularly called upon to be engaged in CSR. The extent of the
susceptibility of the industry to external pressures and the drivers of CSR need to be thoroughly understood as well for
mining companies to formulate strategic policies for their own sustainability and that of the surrounding communities.
A Brief History of CSR fundamental ethical assumption that it is morally
wrong to use resources in ways that may jeopardize
During the last decade the term Corporate the legitimate interest of future generations.
Social Responsibility or its abbreviation “CSR” has Sustainability comprises three components:
become the rage among companies and development environmental, economic and social (Matten, 2006:
agencies, and correspondingly the number of books, 25-7). In a similar vein John Elkington coined the term
articles and scientific discourses on the subject has ‘Triple Bottom Line’ to describe the three components
proliferated. Although it only recently gained currency, of sustainability, the interrelationship of which he
theories on CSR actually have been around for a few described as follows: ”Society depends on the
decades already, having emerged as a coherent economy – and the economy depends on the global
position shortly after World War II in the work of ecosystem, whose health represents the ultimate
Howard R. Bowen, an economics professor at bottom line. The three bottom lines are not stable; they
Williams College in Massachusetts. According to him, are in a constant flux, due to social political, economic
in order to survive in the free enterprise system and environmental pressures, cycles and conflicts. So
businesses must produce social goods such as higher the sustainability challenge is tougher than any of the
standards of living, widespread economic progress and other challenges in isolation.” He clearly views the
security, order, justice and freedom and development triple bottom line from a dynamic perspective,
of individual persons (May et al, 2007: 5). William C. likening the interplay between the three components
Frederick also holds the view that although the seed of as continental plates that move independently from
what would eventually become known as CSR have each other and occasionally causing “shear zones” that
been planted earlier, it is only after World War II that produce the social, economic and ecological
the concept blossomed, and he credited Frank Abrams, equivalents of tremors and earthquakes (Elkington,
then chairman of the board of directors of Standard 1998: 70-4).
Oil of Jersey (now ExxonMobil) with advocating the The mainstream concept of CSR
idea in an article in the Harvard Business Review in encompassing current thoughts on sustainable
1951. In Abrams’ view, because firms are man-made development and stakeholder engagement is
instruments of society, management should be good succinctly described in a definition formulated by the
citizens who act in “socially responsible ways.” He World Bank as quoted below:
goes on to say that “business managers can more
effectively contribute to the solution of the many “Corporate responsibility is the commitment
complex social problem of our time. There is no of businesses to behave ethically and to
higher responsibility, there is no higher duty of contribute to sustainable economic
professional management.” (Frederick, 2006: 7-8). development by working with all relevant
A convergence of the many individual stakeholders to improve their lives in ways
thoughts about the role of business in society, a few that are good for business, the sustainable
examples mentioned above, began to emerge in the development agenda, and society at large.”
early nineties. After the Earth Summit at Rio de (World Bank, 2007)
Janeiro in 1992, sustainability, or more specifically
sustainable development as defined by the World A very astute observation on the disparity in
Commission on Environment and Development interpreting CSR in different parts of the world was
(Brundtland Commission) in 1987 is seen as providing made by William B. Werther, Jr. and David Chandler.
the framework for CSR. The concept is based on the They maintained that companies require a CSR
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2. Indonesian Mining Conference and Exhibition, November 2007
perspective to maintain their social legitimacy. In an earlier work on the relationship
Because societies differ, so do their norms on what is between mining and CSR, Professor Alyson Warhurst
considered acceptable, and two dimensions of the International Centre for the Environment,
consistently influence the role of CSR in any society: Mining and Environment Research Network that is
democracy and economics. Wealthy societies have part of the School of Management of the University of
access to greater resources and they tend to have more Bath, argues that multinational mining companies
demanding expectations as wealth opens up more must undergo a paradigm shift from a self-centered
options. On the other hand, in poor democracies the preoccupation with their ‘legal rights’ to a broader
sense of general social well-being is associated with sense of ‘social responsibility’ particularly in
the basic necessities, such as food, shelter, developing countries where disparities in power and
transportation, education, medicine, social order and information exist. The crucial issue is whether the
jobs. The dynamics generated by economic profit-making nature and rights protected by national
development cause a constant redefinition and and international law frees MNCs moral obligation
evolution of societal expectations and the CSR and social responsibility. Corporate Social
response on the part of the companies evolve in line Responsibility implies compliance plus the active
with these developments (Werther & Chandler, 2006: development and implementation of mainstream
13). The emphasis on basic necessities in developing business strategy, supported by technological and
countries like Indonesia explains why Corporate organizational innovation to prevent negative social
Social Responsibility programs are focused on impacts and optimize social benefits from the outset.
community development, so much so that Community Part of the implementation of CSR in developing
Development is sometimes regarded as synonymous countries by large state mining enterprises and MNCs
with CSR, because indeed most CSR programs are provide social welfare for the surrounding
geared toward poverty reduction of communities, communities in the form of providing education,
which is actually only one of the three bottom lines. healthcare, leisure facilities and subsidized basic foods.
(Warhurst, 1998: 4-5). These items are currently
Mining and CSR understood as constituting part of community
development as commonly practiced by mining
The practice of CSR appears to be prevalent companies.
in the extractive industries, mining companies in Currently, much of what Prof. Warhurst
particular. In her book “Corporate Social advocated in her paper almost a decade ago has
Responsibility for Mining Companies” Natalia become part of standard practice among most mining
Yakovleva explains that “CSR is particularly relevant companies in Indonesia. To name a few examples, in a
to the mining industries, because they cause study conducted in Indonesia by the non-governmental
significant effects upon economic, social and organization PIRAC, the example of the mining
environmental dimensions, and are particularly viewed company Rio Tinto that operated in East Kalimantan
amongst the most damaging and dangerous industrial was included as representing the mining sector among
sectors.” She described the following reasons why the the four case studies conducted in 2004-2005. The
mining industry must consider CSR as an important three areas the company concentrated on through the
business issue: Rio Tinto Foundation were agriculture, healthcare and
preservation of local culture (Ibrahim, 2005: 91-4). On
Generally negative public opinion of the the island of Sumbawa, the copper-and-gold mine
mining sector, mostly due to environmental Newmont Nusa Tenggara concentrates on four areas:
and social concerns infrastructure, community health, agriculture and
Environmental, community and indigenous education. Similar activities can be observed at any
pressure groups that have consistently major mining operation in Indonesia these days
targeted the mining sector at local and because of the need for a ‘local license to operate’
international levels, with large international without which operations will not be sustainable
NGOs specifically targeting the mining despite the mining company being in possession of all
industry the official permits and licenses required by the laws
The constant challenge of maintaining ‘the of the country.
social license to operate’ in the face of A more recent study by Heledd Jenkins and
resistance from many social organizations Louise Obara of the ESRC Centre for Business
based on accusations of lack of community Relationships, Accountability, Sustainability and
engagement, impact on agricultural land use, Society (BRASS), Cardiff University cites a number
pollution and related health impact and of business reasons aside from external pressure for
migration of labor from other areas mining companies to invest in communities through
Mining companies often operate in remote CSR programs as follows:
areas that are economically underdeveloped
and lack social welfare services (Yakovleva, To gain competitive advantage because
2005: 19-20) companies that are perceived to be socially
responsible are more favored in getting
concessions
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3. Indonesian Mining Conference and Exhibition, November 2007
To maintain a stable working environment of the Indonesian Institute for Science (MOST-LIPI)
because of acceptance by the communities to conduct a comprehensive review in 2003. Each
To manage external perceptions and program was analyzed and recommendations
maintain a good reputation (CSR used for submitted as to its improvement, but among its most
PR purposes) important findings is that large-scale economic
To keep employees happy because the staff activities tend to attract people from other areas, so
feel more positive about the company and that the indigenous people become marginalized. The
effective CSR measures can help in Kutai region was one of the target areas of extensive
retaining and recruiting the best people logging activities in the early seventies, followed by
KPC in the late eighties. By the beginning of the 21st
However, Jenkins and Obara also warn that century indigenous communities (Dayaks and
CSR programs may create a ‘dependency mentality’ Kutainese) comprise 40% of the whole population of
whereby communities look to companies to the East Kutai Regency (Kabupaten Kutai Timur), and
compensate them for social and environmental in the areas directly bordering the mine site, the sub-
damage, and the company would then be seen as districts of Sangatta and Bengalon they make up only
responsible for anything that goes wrong. The 14% of total population (MOST-LIPI, 2003: 12-5).
community development programs are not even Similar conditions can be assumed to prevail around
regarded as charity but as compensation for the use of other large-scale mining activities, and the potential
the environment and the resources, and instead of for social conflict needs to be addressed in the
creating good relations with the community, a community development programs.
situation like this harbors potential volatility and the The former Director General of Mines,
more damaging aspect that it is not readily apparent is, Surna T. Djajadiningrat pointed out that many
that communities concentrate on extracting Environmental Impact Assessment (AMDAL) studies
compensation instead of developing longer term draw the conclusion that community development
capabilities during the lifetime of the mine. CSR programs are not required because there are no
programs that are not well-designed and poorly communities in the area that will be impacted. He said
executed may fail to address the needs of communities that these studies seem to imply that ‘communities’
and therefore be unsustainable or even worse, are social units that may provide services to the
exacerbate the problem of dependency. The following industry to be established, be it in the form of
factors may contribute to failure of CSR programs: accommodation, provision of goods and labor.
Economically less-developed human settlements are
• Country/context specific issues like not included in this definition (Rudito et al, 2003: 28-
corruption, conflict and bureaucracy, for 30). As the example of KPC has shown, scattered
example conflict between large-scale mining human settlements totaling around 2,000 people can
companies and illegal miners that may develop into a major town of 60,000 within a decade.
impact the company’s perception of the
community and how they develop their CSR in Indonesian Law
community involvement initiatives
• Failure to involve the beneficiaries in the With the passing of Law No. 40/2007 on
community development projects, the August 16, 2007 Indonesia became the first country in
communities become recipients of top-down the world to include the obligation to conduct CSR in
gifts from the company Corporation Law. A salient feature of this new piece
• Lack of human resources who have the of legislation is that companies in the extractive
appropriate skills – most mining company industries are specifically mentioned as those required
employees have a technical or engineering by law to conduct this obligation on pain of sanctions,
background that does not prepare them to although Chapter I Article 1 Paragraph 3) of the law is
deal with complex social issues more general in nature, as it explains that “Social and
• Mining companies often have a micro-level environmental responsibility is the commitment of
perspective whereas a macro-level view is corporations to participate in sustainable economic
needed to integrate CSR initiatives into a development to improve quality of life and the
larger sustainable development plan environment in ways that are good for the corporation,
• Consultation with communities are usually the local communities as well as society at large.”
superficial and inadequate, being confined to However, Chapter V Article 74 on Social and
the most influential community members Environmental Responsibility stipulates the following:
only (Jenkins & Obara, 2006: 1-9)
1) Limited liability companies in the sector of
Not many studies have been undertaken and natural resources and/or related thereto are
published specifically about community development required to implement Social and
programs conducted by mining companies in Environmental Responsibility.
Indonesia. In an attempt to evaluate the effectiveness 2) Social and Environmental Responsibility as
of its community development programs, KPC stipulated under Paragraph 1) above is an
commissioned Management of Social Transformation obligation of the corporation that is
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4. Indonesian Mining Conference and Exhibition, November 2007
budgeted and included under company
expenses and its implementation will be Environment Division. 2000. Investing in people:
subject to the principles of appropriateness sustaining Communities through Improved
and reasonableness. Business Practice. A Community Development
3) Corporations that are in breach of the Resource Guide for Companies. Washington,
requirement as stipulated under Paragraph 1) DC: International Finance Corporation.
will be sanctioned under prevailing
legislation. Frederik, William C. 2006. Corporation, be good: The
4) Further stipulations on Social and story of corporate social responsibility.
Environmental Responsibility will be Indianapolis: Dogear Publishing.
formulated in Government Regulations.
Hennigfeld, Judith et al (Eds.) 2006. The ICCA
Currently the Department of Justice and handbook on corporate social responsibility.
Human Rights representing the Indonesian Chichester: John Wiley & Sons, Ltd.
government is collecting input from all stakeholders,
including representatives of business associations and Ibrahim, Rustam. 2005. Bukan sekadar berbisnis:
NGOs prior to issuing the Government Regulations to keterlibatan perusahaan dalam pemberdayaan
implement Article 74 of Law No. 40/2007. masyarakat. Studi kasus Bogasari Flour Mills,
Coca Cola Indonesia, Riau Andalan Pulp and
Concluding Remarks Paper dan Rio Tinto. Jakarta: Piramedia.
1) Corporate Social Responsibility has evolved Jenkins, Heledd & Louise Obara. 2006. Corporate
from a concept predominantly in the realm Social Responsibility (CSR) in the mining
of business ethics into norms companies are industry – the risk of community dependency.
expected to live by in order to obtain a ‘local Cardiff University
license to operate’.
Malhotra, Deepak (Ed.) 2001. Politics of mining:
2) The mining industry is under close scrutiny
What they don’t teach you in school. Littleton:
of the communities and non-governmental
Society for Mining, Metallurgy, and
organizations and this ‘local license to
Exploration, Inc.
operate’ often determines whether the
operation is viable or not, irrespective of the
McMahon, Gary & Felix Remy (Eds.) 2001. Large
legal status protected under the laws of the
mines and the community: Socioeconomic and
country.
environmental effects in Latin America,
3) It is therefore incumbent upon mining
Canada and Spain. Otawa: International
companies to develop the expertise in
Development Research Centre and New York:
various aspects of CSR, including
The World Bank.
community development, to decrease the
risk of doing business. Many have done so May, Steve et al. (Eds.) 2007. The Debate over
already on a voluntary basis, precisely Corporate Social Responsibility. New York:
because the strategic importance of CSR is Oxford University Press.
properly understood.
4) Indonesia has introduced a trail-blazing Prabowo (coord.) 2003. Kajian program community
stipulation in its newly enforced Law No. development di kawasan pengusahaan PT
40/2007 on Corporations that require Kaltim Prima Coal Kabupaten Kutai Timur,
companies in the extractive industries to Provinsi Kalimantan Timur. MOST-LIPI.
conduct CSR programs. The implementing
regulations have not been issued yet, and Rudito, Bambang et al (Eds.) 2003. Akses peran serta
until then this stipulation remains inoperable. masyarakat: Lebih jauh memahami community
5) Most major mining companies operating in development. Jakarta: Pustaka Sinar Harapan.
Indonesia have developed a high-level of
competency in CSR and have therefore Warhurst, Alyson. 1998. Corporate social
nothing to fear from Law No. 40/2007. responsibility and the mining industry:
Presentation to Euromines. University of Bath.
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