CHAPTER 1
INTRODUCTION
1.1 Background
As a rapidly emergence issue in the worldwide today, there is little agreement as to
what CSR really means. There is even a variety of terminologies used, which are
referring to the same or similar concept in relation to CSR such as corporate social
responsibility, corporate citizenship, business sustainability, and corporate
responsibility. (Making Sense of Corporate Social Responsibility, 2005:1) All of
these terms cover a broad range of social, environmental, and economic issues (the
triple bottom line) with differing levels of detail. (KPMG, 2005:6) For the purpose
of this thesis, all such activities and related matters are referred to a single term
namely Corporate Social Responsibility (CSR).
According to traditional view, a corporation is expected to have a primary, if not
solely, responsibility to its owner(s), or stockholders. However, in modern business
era, the concept of CSR has broadened a company’s view of its responsibilities. A
company is expected to not only be responsible of its stockholders, but also many
other related parties such as employees, suppliers, customers, local community,
federal governments, and so forth. These collections of various groups who affect,
and can be affected by, an organization’s actions are called stakeholders. (Barnett,
2006)
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Since the early 2000s, Indonesian corporate world has been aggravated by an
influential movement to give more concern to social and environmental issue. CSR
has amazingly emerged into such a hot issue in Indonesia after the happening of
many events which were caused by certain companies’ negligence. Such
monumental events namely are the case of PT Newmont Minahasa Raya which has
polluted the environment in Buyat, North Sulawesi; and PT Lapindo Brantas which
has caused the mudflow and unstoppable gas leak disaster in Sidoarjo, East Java.
Due to the corporations’ lack of responsibility in dealing with the events mentioned
above, one of the fractions in parliament proposed for CSR to be legislated.
However, despite heavy opposition from Indonesian Chamber of Commerce &
Industry (KADIN) and other representatives of business community, in July 2007
the House of Representatives passed the bill into law (Article 74) which requires
companies with an impact on natural resources to implement CSR. (Sarosa, 2007)
Hence, this made Indonesia as the first nation in the world to legislate CSR, making
it legally mandatory instead of voluntarily.
The controversy of the new company law (UU PT) regarding CSR has not ended yet.
Many questions could still be raised within its framework. For instance, the law
mandates ‘companies engaged in natural resources or those in business in
connection with natural resources’ to implement CSR which is then to be budgeted
for as a cost. However, it is not clearly defined what is covered by the term ‘natural
resources’, and which companies are actually affected. Furthermore, “there are also
concerns about how any ‘CSR fund’ will be administered, with many expressing
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fears that it will be a new avenue for corruption.” (Lyon 2007, p. 2) Moreover, the
requirement of how CSR programs should be budgeted as cost is vaguely stated
without further explanation of the accounting treatment.
In addition, the new company law still lacks of supporting regulations such as from
accounting sector. The rapid progress of CSR in Indonesia is not followed by the
improvement in PSAK (Indonesian’s statements of financial accounting standards)
which is supposed to provide clear guidelines regarding how a company should
disclose its CSR activities. Consequently, there is no uniformity in CSR disclosure
among companies. So far, a company could prepare a review of its CSR practice
within a stand-alone report (i.e. separate sustainability report) and/or through
disclosure in its annual report.
This situation inspired author to examine CSR practice and reporting of company in
Indonesia. CSR practice is proposed here as company’s actions that address both
its own interests and the interests of wider society. In this case, the subject contains
discussions over Indonesian company’s perception on CSR, motivations for CSR,
and CSR agenda/programs that Indonesian company has in place as well as benefits
obtained from implementing CSR. The study further investigates how company in
Indonesia published review of its CSR activities. The absence of eligible accounting
standards in Indonesia, which is essential to provide guidance on CSR reporting,
raises questions of how a company presents the reporting and to which guideline it
conforms to.
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For the study purpose, author has decided to take a sample company from consumer
goods industry in Indonesia. Companies within consumer goods industry are
preferred due to their business nature, which is closely related to the three
fundamental components of sustainability (economic, social, and environment).
Consumer goods companies exist to directly serve the purpose of satisfying endconsumers’ daily needs, whilst they also give livings for communities along their
supply chain (farmers, small and medium enterprises, i.e. local shops, kiosks, etc) as
well as create job opportunities for many local workers, in which all of these
contribute to social aspect. Meanwhile, from environmental feature, consumer
goods companies utilize natural resources to obtain raw materials required in their
productions process and constantly have to deal with waste management.
Throughout these arrays of activities, come along with every business is the desire
to attain the economic purpose of enhancing profits and providing financial
advantages to capital providers (shareholders and creditors). Thus, the three main
forces of sustainable development strongly lie within consumer goods companies.
On the other hand, consumers’ focus on quality brands offering good value is
sharper than ever. Hence, winning consumers’ heart is a smart move to preserve
one’s existence. Deloitte (2008) noted that in many parts of the world consumers are
becoming increasingly aware of, and concerned about, the impact that companies
have on society. This includes concern about the safety and health of workers who
produce goods, the impact on the physical environment of producing goods, and the
impact on the environment of consuming goods and disposing of waste. It is
inevitable that consumer goods companies are affected by the emergence of CSR.
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Thus, firms within the consumer goods industry are increasingly aware that being
proactive in promoting and conducting CSR can be good for their business. Many
companies in this industry have already measured their societal impact and have
appointed high-level executives to focus on social responsibility issues. This focus
is expected to grow in the future. (Deloitte, 2008:26)
Accordingly, the writer decided to take PT Unilever Indonesia Tbk (‘UI’ or ‘the
Company’) as the respective model for the case study. Unilever Indonesia is
preferred among other consumer goods company because it is one of the leaders in
its industry. In addition, the Company has committed to serve consumers’ needs and
satisfaction in this country for 75 years. Hence, it is undoubted that its lines of
brands are nationally renowned. As a matter of fact, Unilever’s survey in 2004
discovered that over 95% of Indonesians use Unilever’s products every year.
Moreover, the Company is listed in the Indonesian Stock Exchange (IDX) which
provides added value to the research data in terms of accountability, reliability, and
transparency.
Finally, along with the completion of this thesis titled CSR Practice and Reporting
in PT Unilever Indonesia Tbk, author hopes that the study could enrich the
collection of CSR research in Indonesia as well as be a useful source for other
parties.
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1.2 Scope
The study exclusively focuses on CSR practice and reporting of PT Unilever
Indonesia Tbk as one of the leading companies within consumer goods industry.
CSR practice is discussed through four key areas: concept, motivations, programs,
and benefits. In addition, the discussion of CSR disclosure is subjected to
company’s published report/disclosure regarding its CSR practice and which
guideline it conforms to in the making of the report/disclosure.
1.3 Aims and Benefits
The objectives of this study are to:
a. Understand how Unilever Indonesia perceives CSR;
b. Discover the respective company’s motivation in carrying out CSR activities;
c. Examine CSR agenda/programs within UI;
d. Identify any benefits obtained from conducting CSR activities; and
e. Learn how the Company discloses/reports its CSR activities in the annual and/or
separate sustainability report and to which guideline/framework it conforms to.
Furthermore, author expects for the study to be beneficial for:
a. Scholars
This study could provide as a reliable reference for both study and similar
research on CSR in the future.
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b. Indonesian corporate
This study could serve as a feedback for Indonesian corporate to improve their
CSR practice and disclosure.
c. Indonesian government and regulatory body
Hopefully, this study can be an inspiration to improve the existing CSR
regulations and to create clear guidelines for CSR reporting in Indonesia.
d. Finally, this study is intended for anyone who wishes to gain knowledge
regarding CSR.
1.4 Research Questions
The study is designed to answer the following questions:
a. How does Unilever Indonesia (UI) view CSR?
b. What drives CSR behavior in UI?
c. What are CSR agenda/programs that Unilever Indonesia has in place?
d. What are the benefits that UI has obtained so far from its CSR practice?
e. How does UI report/disclose its CSR activities within the annual and/or separate
report and to which guideline it complies with?
1.5 Research Methodology
This study is basically an applied research with the inclusion of basic research in
particular section of analysis and discussion.
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In general, the writer gathered all necessary information for this study through:
a. Literature study
The writer looked for references in journals, literatures, magazines, textbooks,
annual reports and sustainability reports of Unilever Indonesia.
b. Correspondence
The writer initiated several by-phone correspondences with Unilever Indonesia’s
spokesperson to inquire about their CSR-related matters.
Additionally, basic research is required to assess the compliance of Unilever
Indonesia’s CSR reporting with the existing guidelines for sustainability reporting
namely Global Reporting Initiative (GRI) G3 Guidelines. Using sentences as unit of
analysis, the author will perform content analysis on the reporting sentences that
reflect or describe or being associated with the economic, environment, and social
performance indicators of GRI Guidelines.
In this case, the necessary data are collected from both annual reports (2005-2007)
and separate sustainability reports (2004 & 2006) of Unilever Indonesia. The
Company first published a sustainability report in 2004, which then has been
regularly published once in every two year. For this reason, the assessment of both
annual and stand-alone reports should be separated in order to prevent bias on the
CSR reporting trend. Whilst, in the case of annual reports, three years (2005-2007)
are considered to be sufficient since the CSR reporting trend is not really the main
objective here. Author aims to emphasize more on the proportion of the reported
triple-bottom-line components (economic, social, and environmental).
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1.6 Thesis Structure
The structure of this thesis would be as follow:
Chapter 1: Introduction
This chapter contains the background, motivation, problem identification, scope,
aims and benefits, research questions, and research methodology of the study.
Chapter 2: Theoretical Foundation
This chapter consists of theoretical framework relevant to the topic including the
overview of consumer goods industry, CSR concept, drivers, benefits, and reporting
as well as condition of CSR practice in Indonesia.
Chapter 3: Company Profile – PT Unilever Indonesia Tbk
This chapter provides readers with Unilever Indonesia’s corporate background,
profile, history timeline, business activities, organization structure, and briefly about
the Company’s CSR activities.
Chapter 4: Findings and Discussion
This chapter provides identification of the study results as well as analysis and
discussion of the results.
Chapter 5: Conclusion, Recommendations, and Limitations
This chapter concludes the study, proposes several recommendations, exposes some
limitations during the writing period, and offers some suggestions for further indepth study.