In practice, many business actors assume that Corporate Social and Environmental Responsibility (CSR) applies only to companies operating in the natural resources sector, such as mining, forestry, or plantations.
This assumption is not entirely wrong, but it is also not entirely correct.
The confusion arises because CSR provisions under the Indonesian Company Law (UUPT) are drafted in brief and normative terms, which often leads to different interpretations between the statutory text and actual business practice.
Legal Basis: What Does the Company Law Actually Regulate?
The main legal basis for CSR in Indonesian company law is found in:
Article 74 of Law No. 40 of 2007 on Limited Liability Companies
This article clearly states that:
Companies whose business activities are in the field of and/or related to natural resources are required to implement Corporate Social and Environmental Responsibility.
From this provision, two key phrases frequently give rise to misunderstanding:
- “operating in the field of natural resources”, and
- “related to natural resources”.
Common Misunderstandings among Business Actors
1. “If We Are Not a Mining Company, CSR Does Not Apply to Us”
This is the most common misunderstanding.
From an academic and legal interpretation perspective, the phrase “related to natural resources” does not only cover companies that directly exploit natural resources. It also includes companies that:
- use natural resources significantly in their production process,
- have an environmental impact, or
- are part of a business chain that may affect the environment.
Examples include:
- manufacturing plants generating industrial waste,
- energy companies,
- large-scale property developers, and
- even certain logistics or supporting industries.
In other words, the focus is not solely on the business sector, but on the company’s impact and its connection to natural resources.
2. “CSR Is Voluntary, Not a Legal Obligation”
This view is no longer accurate since the enactment of the Company Law.
For companies that fall within the scope of Article 74, CSR is a legal obligation, not merely a voluntary or philanthropic activity.
However, it is important to note that the Company Law does not prescribe a uniform form of CSR.
CSR does not always mean:
- large donations,
- construction of public facilities, or
- extensive social programs.
CSR must be proportionate, reasonable, and aligned with the company’s business activities.
Academic Perspective: Why Is CSR Limited to Natural Resources?
From an academic corporate law perspective, the legislature intentionally did not impose CSR obligations on all companies.
The reasons include:
- not all business activities create significant social or environmental impact,
- CSR obligations should not undermine the business climate, and
- there must be a balance between economic interests and sustainability.
Accordingly, Article 74 of the Company Law was designed as a corrective instrument, not as a punitive one.
Practical Perspective: Where Does the Legal Risk Arise?
In corporate advisory practice, CSR-related risks typically arise in the form of:
- audit findings or BPK observations (for SOEs and regional SOEs),
- conflicts with surrounding communities,
- licensing and environmental approval (AMDAL) obstacles, or
- allegations of non-compliance with ESG principles.
The problem is often not the absence of CSR, but rather that CSR is:
- poorly documented,
- not linked to business risk assessment, or
- not integrated into corporate policy.
CSR Is Not a Program, but a Policy
Another common conceptual error is treating CSR as an annual program.
From a legal and governance standpoint, CSR should instead be positioned as:
- part of the company’s overall policy,
- reflected in board of directors’ decisions, and
- accountable at the corporate level.
In this context, CSR is directly connected to:
- directors’ fiduciary duty,
- the principle of prudence, and
- long-term business sustainability.
Closing: Clarifying the Confusion
CSR under the Indonesian Company Law is neither a legal trap nor an empty formality.
It is a contextual obligation, depending on:
- the nature of the business,
- its impact on natural resources, and
- the scale of the company’s operations.
For business actors, the better question is not “Are we required to implement CSR?”,
but rather “What form of social and environmental responsibility is relevant to our business?”
That is where law, business, and sustainability meet in a rational way.
Academic-Practical Note
This article is written from the perspective of a corporate law academic who is also actively involved in corporate advisory practice, with the aim of bridging statutory norms and real business realities. (ID)