CSR and CSRD Development in Southeast Asia Countries

Deeply influenced by culture and religion, the business community has a strong background of giving back to society in Southeast Asia. The classic philanthropy model, such as building hospitals, schools or cultural institutions has been rooted in some of these countries as a business necessity because of colonialism and war (Sharma, 2013). As a result, it is not unfamiliar that corporations contribute to nation building, in which constitutes CSR today. Many actors are integral to this process and further establishing a culture of CSR in the region. One of the most integral actors in promoting CSR in Southeast Asian countries are their respective governments. According to the study of Asia-Pacific Economic Cooperation (APEC, 2005), the capability of the state and the economic development stage defines the CSR practices in business communities, however, differs substantially based on socio-political context and vary from country to country. While some governments, such as Indonesia, Malaysia and Philippines, are more proactive in creating a regulative environment to ensure corporations consider its impact on the society and environment, other governments, such as Singapore, CSR is promoted through guidelines and principles alongside diverse public, private, industrial and NGO initiatives. For instance, Indonesia was the first country to mandate CSR for natural resources related business through the Article 74 of the Limited Liability Corporation law No.40 published in 2007. Philippines in 2011 officially institutionalised CSR for both domestic and foreign corporations through the Corporate Social Responsibility Act. By contrast, in Singapore, although the government does not present any clear involvement in promoting CSR, the government directs its CSR agenda through quasi-government entities and the use of tripartite model which includes the key stakeholders, such as business, unions and the government.

The role of government in CSR development, specifically in Southeast Asian countries, has increased in recent years with more countries considering mandatory CSR or some aspects of it. In terms of CSRD specifically, either through government laws or listing requirements on the stock exchanges, most countries considered in this study have some sort of mandatory disclosure (table 7). The two countries with earliest mandatory disclosure requirements in the region were Indonesia and Malaysia. While the mandatory disclosure of CSR information in Indonesia was implemented through Law No.40/2007, article 66, the requirement for Malaysian listed companies to disclose CSR information in annual reports was addressed through the listing requirement of Bursa

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Malaysia. In recent years, the other countries have also started mandating CSRD. Particularly, in their Corporate Social Responsibility Act (2011), the Philippines required all large tax payer corporations to submit a list of their CSR activities in their annual reports to the Securities and Exchange Commission (SEC). In the case of Thailand, from 2014, mandatory disclosure of CSR information on form 56-1, annual reports or standalone reports is applied for new firms listing. The latest country in the group with mandatory CSRD is Vietnam. In their recent Circular No. 155/2015/TT-BTC, all listed companies are asked to disclose activities related to environment, employees, local community and society more broadly. Among the six countries, CSRD is still voluntary in Singapore, however, the country plans to officially require mandatory CSRD for listed companies on the ‘comply or explain’ basis from 2017 or 2018 (GRI, 2016a).

In the Southeast Asia region, the presence of strong states has become important enablers for CSR development, as the governments significantly influence the economic identity of their countries. Many of the Southeast Asian countries, including Malaysia, Indonesia and Vietnam, still have high number of state-owned enterprises located in major sectors such as oil, mining, gas or energy. These enterprises, therefore, could play an important role in setting the benchmark towards sustainable practices (Herrera, Roman and Alarilla, 2011). Apart from government being the key enabler for CSR, the stock exchanges are also key institutions for CSR development in many of these countries. The stock exchange of Malaysia (Bursa Malaysia), for instance, has been actively promoting CSR through the launch of Business Sustainability programme, the environmental, social and corporate governance index, the CSR framework as well as the establishment of Institute of Corporate Responsibility Malaysia, to encourage listed firms to participate in CSR disclosure and reporting as well as integrating CSR into their strategies. These stock exchanges often play their role in promoting CSR through the release of CSR guidelines, frameworks or the launch of CSR awards.

In addition to the roles of the governments and stock exchanges, NGOs, national and international standards, as well as private initiatives or industrial associations are important enablers of CSR practices in Southeast Asian countries. These entities have introduced various standards, codes and guidelines to facilitate business practices, providing a learning platform or extending the understanding of CSR. However, the case differs in each country, especially the influence of NGOs. While the presence of NGOs is strong in some countries such as the Philippines, it is not

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significant in the others like Singapore. Regarding voluntary disclosure, CSR guidelines and frameworks, the presence of sustainability indexes, as well as the growing impact of international standards such as GRI and United Nations Global Compact (UNGC) have pressured and encouraged firms to become more involved in CSR reporting as well as CSRD.

Despite the existence of necessary forces, the development of CSR in some countries has been neglected, with challenges on all sides. Although some countries have the necessary legislation framework for CSR development, the enforcement mechanisms are often too weak to ensure compliance. The prominent level of corruption in some countries also makes it difficult to carry out these regulations effectively. Moreover, very often businesses in the region still consider CSR as a cost, and together with the low CSR awareness and consumer activism, corporations do not have strong incentives to implement CSR (Sharma, 2013). Finally, as the majority of companies in the region are micro, small and medium enterprises, they do not have sufficient financial and technical capacity to incorporate CSR in their activities (Hieu, 2011).

Indonesia

The CSR movement in Indonesia began in late 1990s with the fall of the Suharto’s authoritarian New Order government, following the process of democratisation which allowed opportunities for NGO activists to attack local and foreign companies on environmental and societal issues, as well as demanding tighter regulation of companies’ activities. In response to this movement, companies started to portray themselves with closer ties to society and environment, and later realising the usefulness of CSR in this aspect (Rosser and Edwin, 2010). Business associations such as Indonesia Business Links (IBL) were also established to promote CSR in Indonesia through media, workshops, conferences, and the provision of corporate services. Subsequently, NGO activists have increasingly focused on the issue of CSR in Indonesia. An example of such NGO is Business Watch Indonesia (BWI) which has close ties to Oxfam. The BWI has actively produced numerous publications and has pursued media involvement on the issues of CSR since its establishment in 2002. The activities of these organisations have helped to put the notion of CSR on public agenda and triggered the draft legislation that became mandatory law in 2007 (Rosser and Edwin, 2010). In 2007, Indonesia became the first country that gives CSR a mandatory nature with the adoption of Indonesia Corporate Law No.40 and the Investment Law No.25 (table 7). However, the implementing rule of this regulation has not been properly promulgated (Herrera et al., 2011).

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Prior the Corporate Law No.40, Indonesia already had mandatory and customary norms regarding issues such as environment protection, work safety, consumer protection, labour rights, and limited welfare, however, the implementation of these regulations and norms has been undermined by the country’s weak law enforcement mechanisms. Moreover, as a result of the conflicting interests between economic growth and protection of stakeholders, in order to attract foreign investment, the country often offers preferential treatments such as tax deduction or less strict environmental standards for companies (Waagstein, 2011).

The main CSR practitioners in Indonesia are often MNCs and large local corporations. Many of these firms are involved in philanthropy but there is lack of integration of these initiatives into business strategy (Herrera et al., 2011). The lack of knowledge and expertise to implement CSR is also a barrier to developing CSR at this country (Waagstein, 2011).

Malaysia

Although the evidence of CSR in Malaysia relates back to the 1980s, its development has only been significant in the past decade (Abdulrazak and Ahmad, 2014). Much of this development is largely attributed to the policies and initiatives of the government and its agencies (Sharma, 2013). The two important milestones for CSR development in Malaysia are the launch of the ‘Silver Book’ and the mandatory disclosure requirement of Bursa Malaysia. The launch of the Silver Book in 2005 provided CSR principles and guidelines for Government-linked companies to incorporate CSR in their business activities, while in 2006 Bursa Malays required all public listed companies to disclose their CSR information in annual reports (Yam, 2012). The Malaysian government is one of the earliest Southeast Asian countries to enact mandatory CSRD for public listed companies (The United Nations Children’s Fund [UNICEF], 2013). Together with the mandatory disclosure, Bursa Malaysia also introduced a CSR Framework to support public listed companies in disclosing and reporting CSR information. This initiative has played an important role in increasing the CSR awareness of companies in Malaysia (Rosnan and Aziz, 2012). Apart from these key regulations and frameworks, the government also incorporates several elements of CSR through legislation such as the Environmental Quality Act (1974), the Human Rights Commission of Malaysia Act (1999) (Lu and Castka, 2009) and the National Policy on the Environment (2002) (Zainal and Zainuddin, 2013).

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Moreover, to motivate companies to participate in CSR activities, the Malaysian government also provides tax incentives, as well as several awards for companies conducting CSR. For instance, companies that donate to registered organisations including foundations, associations, or trusts can receive automatic tax exemptions. Firms can also request special tax exemptions for a certain charitable and community projects (Lu, 2013). In terms of awards, the country has several different awards to recognise the contribution of local business, such as the ACCA Malaysia Sustainability Reporting Award, the Prime Minister’s CSR Award, and the StarBiz-ICR Malaysia Corporate Responsibility Award (Zainal and Zainuddin, 2013). Furthermore, the emergence of NGOs such as the UN Global Compact, the Federation of Malaysia Consumers Association, and the Consumer Association of Penang also contributes to the increased awareness and development of CSR in Malaysia (Rosnan and Aziz, 2012). Despite all these efforts, however, CSR in Malaysia still trails behind in comparison to international practice (Abdulrazal and Ahmad, 2014). The main practitioners of CSR in Malaysia are several MNCs and large organisations (Lu, 2013), whilst these CSR practices still overly focus on philanthropy (UNICEF, 2013).

Philippines

Philippines differs with other Southeast Asian countries in terms of culture and norms, which is heavily influenced by the Western Catholicism. The presence of the Catholic Church was vital to the CSR concept and value’s development (Herrera et al., 2011). The concept and practice of CSR in Philippines has been rooted in the Filipino values of ‘bayanihan’ which is known as the ‘cooperative spirit’ or the ‘spirit of volunteerism’, exist across kinship networks, church organisations and welfare agencies (Sharma, 2013). According to Roman and Herrera (2011), the development of CSR in Philippines can be classified into the five stages as follows. The first stage is the decade of donation (1960s) characterised by protest demonstrations as a result of social inequity and unrest. CSR in this stage was limited at companies’ donation by cash with fragmented and uncoordinated efforts. The second stage is the decade of organisation (1970s), representing the first step of establishing true CSR with the establishment of business associations and organisations. It sought to address the concerns of the poor and the reduced impact of philanthropy as a result of weak networks. This leads to the decade of involvement (1980s) in which many companies attempted to promote stable and peaceful business environment through assisting community relations, increasing community-related activities and services, as well as involving stakeholders in establishing CSR programmes. The fourth stage is the decade of institutionalisation

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(1990s) signalled by the emergence of corporate citizen, the change of organisations’ understanding to contribute to the well-being of society beyond the community relation and the start of strategy formulation. And finally, the decade of engagement (early 21st century) has broadened the scope of CSR beyond the concerns of family and immediate communities to incorporate resources, skills, values and goals between business, sectors as well as social organisations (Roman and Herrera, 2011). Even though these stages of development suggest substantial improvement, CSR in the Philippines still focuses strongly on philanthropy and involvement in social development with only a few samples of integrated and embedded CSR (Sharma, 2013).

Compared to other countries in the region, Philippines has strong presence of civil society due to the weakness of the state. Even though the country has diverse laws related to environment, consumer protection and corporate governance, which are sufficient in substance and form, the state does not have the ability to enforce these laws (Sharma, 2013). Examples of CSR-related laws in the Philippines include the Clean Air Act (1999), Ecological Solid Waste Management Act (2000), the Clean Water Act (2004), the Labour Code and Magna Carta for Disabled Persons, the Act of Prohibition of Discrimination against Women, and the Adopt-a-School Act. In 2011, the country officially regulated CSR through the release of the Corporate Social Responsibility Act (2011). Despite many regulations and the active advocate of civil society in the country, previous studies and reports have concluded the CSR practice in Philippines is not yet substantial (Chapple and Moon, 2005) and has only focused on the ‘front stage’ as a branding strategy and a crisis shield (Lorenzo-Molo, 2009). While strategic philanthropy is embedded, Filipino companies should consider other aspects of CSR, such as environment, human rights, sustainability and corporate governance (Sharma, 2013).

Singapore

Given the powerful economic status of Singapore, one would expect a high level of CSR that is comparable with Western countries. However, comparisons of CSR across different countries in both academically and anecdotally have proven that CSR falls short in Singapore (Sharma, 2013; Chapple and Moon, 2005). The reasons for this shortcoming can be explained by the government’s heavy investment in society which limits the need for CSR (Lee, Mak and Pang, 2012). However, the experience of Singapore cannot be generalised as many other countries with high tax bases and social support, such as the US and Japan, still have high level of CSR development. Moreover,

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even though the awareness of CSR is high among Singapore’s business and executives, it does not lead to similar level of CSR involvement. According to Tan (2013), considering the lack of institutionalisation in socio economic and political aspects, as well as understanding and perceptions of CSR in Singapore, this performance gap is unsurprising. In the early years of industrialisation of 1960s, the Singapore government have realised the need for sustainable growth and development, which results diverse regulations and policies to create a good environment for business, attract foreign investment and raise people’s living standards. Even though the country has not had any formal regulation on CSR, a comprehensive set of regulations in three main areas, labour rights, environmental protection and corporate governance, have been put in place to protect different stakeholders. Consequently, companies are required to meet diverse codes of practices and legislations regarding corporate governance, environment health requirements, safety standards and pollution control (Thomas, 2011). Unsurprisingly, businesses in Singapore perceive CSR as a compliance issue rather than a way of doing business.

The Singaporean approach to CSR development follows the hybrid model in which the government led the movement but the process has been conducted by a quasi-government organisation, the Singapore Compact for CSR with the presence of key stakeholders, employers, trade union and civil society. This cooperative partnership ensures the CSR movement to be neither over-regulated nor heavily-enforced (Sharma, 2013). Due to Singapore’s concentration on business-friendly environment, CSR is economic-driven and considered as a good marketing strategy, a way to enhance brand image and a means to avoid costs of non-compliance (Sharma, 2013). With civil society being a weak driver, pressures to be involved in CSR often come from international partners and the need to maintain export competitiveness through complying with global standards.

Thailand

As Thailand was never colonised, the business and stakeholder relationship is strongly influenced by Buddhism and the teachings of dharma. As a result, companies in Thailand see philanthropy as a way to give back to society (Herrera et al., 2011). The rapid industrialisation in Thailand in early 1990s resulted several social and environmental problems with the raise of industrial accidents as well as corporate scandals, such as wage discrimination, gender inequality, inadequate safety conditions and insufficient product quality guidelines. With the recognition of Thai industrialisation’s negative effects, the government introduced regulatory control, for example, the

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Environmental Act (1992) and the Labour Protection Act (1998) (Sharma, 2013). When the southern part of Thailand suffered from a Tsunami in 2004, as evidence of environmental destruction, the Stock Exchange of Thailand formed the Corporate Social Responsibility Institute (CSRI) in 2007 with the assertiveness that businesses’ operations should be linked with environment, society and community (Srisuphaolarn, 2013). In the same month, the working draft of ISO 26000 was published and guidelines for new industrial standards for CSR were discussed. These are examples of public sector’s efforts to introduce and force CSR towards implementation (Srisuphaolarn, 2013). More recently, the government passed the Product Responsibility Law in 2009 regarding the sales, manufacturer, and import of products that might cause injury.

Furthermore, in response to the environmental disasters and industrial scandals in developing countries, a more holistic approach to conduct business in Thailand was adopted by multinational companies from late 1990s to the mid-2000s. As a result, Thai companies and supply chains put forward relevant policies, not only for workers, and the environment but also the community. Thai supply chain manufacturers also started to comply with various international certifications, including environmental management (ISO 14001), health product quality management (ISO 9000), and safety at work (ISO 18000), to maintain their competitiveness.

To motivate business involvement in CSR, in 2006, the Stock Exchange of Thailand (SET) announced its CSR awards to honour companies with exceptional contribution to society. The SET also gave funding to six organisations to work in different social projects, including education development, urban development, rural development, library development, music and sport. Besides, tax reductions are applied for companies that have energy saving technology or donate to charities. The development of CSR in Thailand has improved significantly after the Royal Foundations, as one of the largest and strongest development foundations in Thailand, listed CSR as the new frontier in their programme. Following the tradition that businesses provide funding to the Royal Foundations for their development agenda, this movement has motivated the business community as well as civil society to initiate and support CSR efforts (Sharma, 2013).

Vietnam

The concept of CSR first introduced in Vietnam through the process of outsourcing of international