Social Responsibility and Accountability in Extracting Natural Resources:
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Presented in PWYP Asia Pacific Regional Meeting, Jakarta, 8-9 August 2018
Jalal
Co-founder – A+ CSR Indonesia
Chairperson of Advisory Board – Social Investment Indonesia
According to ISO 26000 International Guidance on Social Responsibility (2010), social responsibility means “The responsibility of an organisation for the impacts of its decision and activities on society and the environment, through transparency and ethical behavior that: Contribute to sustainable development, including health and welfare of society; Takes into account the expectation of stakeholders; Is in compliance with applicable law and consistent with international norms of behavior; and, Is integrated throughout the organisation and practices in its relationship.”
For an organisation to be socially responsible it must adhere to the 7 principles, namely Accountability, being answerable for decisions and activities and their impacts on society, the economy and the environment; Transparency, being open about decisions and activities that impact on society and the environment; Ethical behavior, in accordance with accepted principles of right or good conduct; Respect for stakeholder interest; Respect for rule of law; Respect for international norms of behavior; and Respect for human rights.
ISO 26000 addresses 7 core subjects: Organisational Governance; Human Rights; Labor Practices; The Environment; Fair Operating Practices, Consumer Issues, as well as Community Involvement and Development. All core subjects must be managed by any responsible organisation. Within those 7 core subjects there are 36 issues. However, not all issues is to be managed, only those proven to be material one are to be managed in accordance with expectations of the standard.
Accountability is the state of acknowledging, assuming responsibility for being transparent about the impacts of an organisation’s policies, decisions, actions, products, services and associated performance. When an organisation holds itself fully accountable, it seeks to involve stakeholders in identifying, understanding and responding to material sustainability topics and concerns, and to communicate with and be responsive to stakeholders regarding one’s decisions, actions, and performance. Accountability comprises the way in which an organisation sets strategy, governs and manages performance. That’s the definition according to AA1000 Accountability Principles (2018).
Accountability principles, according to the AA1000AP, are: inclusivity, materiality, responsiveness, and impact. Inclusivity meaning people should have a say in the decisions that impact them. Materiality means decision makers should identify and be clear about the sustainability topics that matter. Responsiveness means that organisations should act transparently on material sustainability topics and their related impact. Lastly, impact means organisations should monitor, measure, and be accountable for how their actions affect their broader ecosystems.
So, if responsibility is the idea of being completely in charge of something, that the organisation which is responsible for something is the one behind whether that thing succeeds or fails; being accountable means whatever the results of an organisation’s decisions and actions, that organisation must be able to give an answer of not just what happened, but also why and how it happened.
Sometimes, responsibility comes without accountability–see, for example, discussion in Hobolt and Tilley, 2014, for the case of European Union. But since ISO 26000 clearly mention that accountability is one out of seven principles of social responsibility, that is not the case for social responsibility. CSR, therefore, accept accountability of corporations regarding their sustainability performances.
How’s the practices of CSR and social accountability of EI sector? Share best practices and or bad practices, if any.
Many of the practices carried out by companies in the extractive industry sector in Indonesia are mostly not in accordance with the principles and expectations of the core subjects of ISO 26000. Most extractive companies in Indonesia still understand CSR as mere donation, or farthest as community development, so other core subjects do not get adequate attention.
Regarding the community development core subject, most of them have not shown the results they should have, namely improving welfare and self reliance. Self-reliance is difficult to ascertain mostly because very few companies actually measure it. Meanwhile, there are many cases that show that increasing welfare are not followed by an increase in self-reliance; contrary to the goal of community development, many communities are even more dependent upon resources from extractive companies.
Up to now, the majority of extractive companies are still too focus on donations, and think that they are successful if the entire budget runs out towards the end of the year. Successful measurements that use approaches such as the Social Return on Investment (SROI) or the Sustainable Livelihoods Approach (SLA) are only carried out by the most progressive extractive companies, whose numbers are too small when compared to all extractive companies in Indonesia.
Because most of the companies are too concerned about donation, accountability for the social and environmental impacts has become marginal. If we seriously examine what is stated as an obligation in an environmental impact assessment (AMDAL) document, most of them are not adequately fulfilled. And we know that most AMDAL documents here are not gold standard for EIA. This, for example, is also reflected in the very few extractive companies in Indonesia that received Green and Gold PROPER ratings from the Ministry of Environment and Forestry. At the two highest ranks, both environmental and social aspects are important concerns.
If three other accountability principles as stated in the AA1000AP document (2018) are used to assess the practice of extractive companies in Indonesia, the results will appear even worse. Most extractive companies do not have inclusive practices, they often exclude certain groups of people from decision-making process. Extractive companies also do not manage material issues, even most do not know what issues should be considered as material. If they do not do inclusive management and manage all material issues, then they also cannot be considered as responsive companies.
Some companies that often get high ratings from PROPER, for example, are Star Energy Geothermal, ANTAM’s gold processing business unit in Pongkor West Java, PT Bukit Asam coal mine, and several Pertamina subsidiaries. They are considered by many as companies with good CSR performance. However, it is important to note here that coal and oil mining in Indonesia can get a high PROPER rating because carbon dioxide emissions have not been declared as pollutants. If carbon dioxide emissions are declared as pollutants, most mining and oil and gas companies will also not be able to get high PROPER ratings.
How’s the eagerness of extractive companies in Indonesia to comply with International standard?
Extractive companies in Indonesia may be among the first to use various international standards to improve their environmental and social management practices in the late 1990s. However, the use of international standards has been very limited until now, only by those who have funding sources from abroad or whose products are exported. Without pressure from foreign investors or buyers, extractive companies in Indonesia tend to only use national regulations.
If ISO 26000 (2010) – which becomes the national standard SNI ISO 26000 (2013) – and AA1000AP (2018) are not sufficiently used by extractive companies here, the case are the same for other standards. The best standard on how companies can manage their relationships with stakeholders is AA1000 Stakeholder Engagement Standard (2015). This standard is also not used by many companies in Indonesia. Quite a number of companies try to create a map of their stakeholders, but do not use stakeholder attributes and the process of testing the issues materiality as suggested by the standard.
Related to stakeholder engagement, it is also very important to mention important documents issued by the International Council on Mining and Metals (ICMM), the Stakeholder Research Toolkit (2015). The document is in a very good quality, and if used widely among mining companies around the world, they will be able to compare social and environmental performance in the eyes of their stakeholders. However, it seems that no mining company in Indonesia has used the document consistently.
Other important standards, related to performance measurement and financing decisions, are the Equator Principles and the IFC Performance Standards on Environmental and Social Sustainability. Some projects that seek funding from abroad usually use these standards. However, most extractive companies in Indonesia utilize funding from national banks that have not adopted such investment screening requirements. In 2017 there is a Financial Services Authority Regulation on Sustainable Finance which will be implemented starting in 2019, with responsible investment as one of its principles. However, the practice still has to be awaited.
Finally, the sustainability reporting standard of the Global Reporting Initiative (GRI) is also widely adopted by companies in Indonesia. At first, extractive companies were the ones who made the most, maybe until five years ago. However, now its dominance has changed. The growth in the number of extractive companies that make sustainable reports is stopped. Although, in the annual sustainability report awards such as The Indonesia Sustainability Reporting Awards (ISRA), sustainability reports from ANTAM, Bukit Asam and Vale still often become champions.
How’s community involved in the CSR implementation? Whether their voice accommodate on the CSR process? Whether the community benefited from the CSR?
Most extractive companies in Indonesia involve the community in their CSR planning and implementation. However, most still do the practice with elite bias. If the principle of accountability stress that all members of the potentially affected communities are to be involved in decision-making by the company, in practice only a very small number are invited to participate. Most of the community members are only become participants in ‘socialization’ activities that are very unidirectional.
Another type of implementation that involves many communities is through the mechanism of submitting proposals for community development programs. Certain groups, again dominated by the elite among the communities, can write project proposals to be approved by the company. This mechanism, until now, is the most popular in community development programs by extractive companies in Indonesia. As a result, in addition to those who can write proposals significantly get more fund, most community development programs are short term in nature.
Especially for mining companies, in 2018 the Ministry of Energy and Mineral Resources issued a regulation that requires companies to make a participatory planning process with community groups living in the vicinity of the company’s operations. However, because the implementation guidelines are not detailed enough, including in defining which community groups must be included in program decision making, the possibility is that the regulation will not make many changes. The regulation, unlike AA1000AP standard (2018), does not require inclusivity.
However, some progressive companies do have more participatory community development program within their decision-making procedures. They even enter into village development planning meetings, known as Musrenbangdes, together with the community to determine development priorities that can be assisted by the extractive companies. Now there is draft being discussed by National Development Planning Board (Bappenas) about partnerships in achieving Sustainable Development Goals, which among others explain how companies can contribute through certain mechanisms with communities and local governments.
Regarding the benefits of CSR for the community, it seems that there are not many companies that have taken systematic measurements with a robust methodology. Because most extractive companies are still make donations for short-term activities, the likelihood is that if they are measured then the result will show limited benefits of CSR. Several studies conducted by independent parties prove that when extractive companies no longer provide assistance, or have finished their operations, the conditions of many communities are back to decline. This shows that the benefits of the project provided by the companies are tend to be unsustainable.
How is CSR and social accountability could improve the policy both in the company and regulator sides? What is the main challenge would be?
The first thing to be done by extractive companies and the government is to accept that CSR is the company’s responsibility for the impact resulting from its decisions and actions. CSR objective must also be emphasized, namely sustainable development, which has now been formulated comprehensively as Sustainable Development Goals (SDGs). And, that in CSR also includes the principle of accountability. These things are very important to ensure that extractive industries and stakeholders are freed from the trap of narrow understanding that CSR is tantamount to company donation.
International standards, as described above, have provided adequate guidance on what should be done in social responsibility, including accountability. Thus, both the government and extractive companies should no longer seek further, since very clear meaning of CSR, its purpose and procedures are there.
The biggest challenge is that both some people within government institutions and extractive companies who are still want to preserve a very narrow understanding of CSR, that CSR is a matter of financial donations out of corporate pocket. Of course, this is because on both sides there are people who want to steal some money from misunderstood CSR. Therefore, those who want real CSR to be enforced in the extractive industry in Indonesia, need to work hand-in-hand with anti-corruption activists, including the Corruption Eradication Commission.
