Maritime Sector. CSR Netherlands. Mieke Bakker Sector Manager Maritime. Rowena Achterkamp Project Manager Maritime and Chemical Industry

Transcription

1 Country scan CSR in Indonesia Maritime Sector CSR Netherlands 15 August 2016 Mieke Bakker Sector Manager Maritime Rowena Achterkamp Project Manager Maritime and Chemical Industry 1

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3 1. Defining CSR CSR Netherlands 1 considers corporate social responsibility (CSR) to be an integral vision of sustainable business practices: it involves the responsibility of enterprises for their impact on society. 2 Companies that engage in socially responsible business consider the social and economic impact of all their decisions, while taking into account the interests of their stakeholders. These stakeholders include all surrounding interested parties: employees and clients, local residents, suppliers, government, investors, the entire (international) supply chain, and even society at large. 3 In general, CSR: creates value socially, ecologically and economically. This is referred to as the 3 Ps: People, Planet and Profit. 4 plays a role in all company processes, from purchasing to marketing and from production to Human Recourses Management. Social issues emerge in every aspect of enterprise. requires companies to weigh the interests of their different stakeholders, including the people involved and other companies and organizations. is different for every company. The measures implemented will depend on the company s size, sector, corporate culture and business strategy. is a process, not a final destination. Goals may change with time and the decisions a company makes along the way. 5 Figure 1: People, planet, profit 1 CSR Netherlands is the Centre of Excellence for Dutch companies that are striving towards corporate social responsibility. More than 2000 companies are affiliated with this networking organization. 2 Based on the definition of the European Commission of CSR, via: 3 CSR Netherlands, via: 4 United Nations World Commission on Environment and Development, Our common future (Oxford University Press 1987) 5 CSR Netherlands, via: 3

4 2. CSR in Indonesia: state of play 2.1. General developments Since the last two decades there has been a growing interest in CSR in Indonesia. Not only in the corporate society but also in the larger political economic landscape. The uptake of CSR practices can be observed in business as well as in government agencies and non-governmental organizations (NGOs). In the early 1990s this was hardly the case and practice on Health, Safety and Environment was mainly found in extractive industries. 6 In the mid-1990s the focus shifted from security to a social license to operate. Community development became the norm. This was even further enhanced by the resignation of Suharto in 1998 and due to rising pressure from NGOs and other CSOs. Most recently, law no. 40/2007 concerning limited liability companies made CSR mandatory for state-owned companies (limited companies). Despite the country being a frontrunner in making CSR mandatory by law, attention to CSR and sustainable development in general is currently mainly limited to international and large Indonesian enterprises. Some already implementing ISO guidelines. To a large extent this can be explained by the fact that enforcement by Indonesian authorities still represents a challenge. In addition, most Indonesian companies still consider CSR as a form of charity, as well as the government. 7 As such, CSR as a concept is still being contested and furthermore the country still faces several unresolved CSR challenges Key CSR issues in Indonesia During several interviews we observed that the first key CSR issues that mostly came to mind were corruption, the large scale destruction of biodiversity (including all kinds of iconic animals such as the orangutan, tiger, elephant and rhinoceros) and the Borneo forest fires of 2015 causing high levels of air pollution and affecting several countries in Southeast Asia. But there are more CSR key issues that keep Indonesia occupied. The 6 Wayne Visser and Nick Tolhurst, The World Guide to CSR: A Country-by-Country Analysis of Corporate Sustainability and Responsibility (Greenleaf 2010) p Irene Hofland, The relationship between CSR and competitiveness: the Indonesian case, project ordered by the Indonesian Netherlands Association (University of Twente 2012) 4

5 following paragraph provides an overview of the key issues as it has been outlined by those interviewed for this research. 8 People: labour conditions Indonesia has officially ratified the eight fundamental ILO conventions. 9 However, in practice a lot of decisionmaking regarding labour conditions is based on the Indonesian traditions and culture. For instance: child labour. The ILO considers child labour as employment that interferes with a child s childhood, deprives them of the ability to attend school, and is harmful or dangerous. However, in small agricultural communities it is common that children help their parents during planting and harvesting season. In the fishery communities, many parents don t have any other option but to push children in to labour, as they have too low an income to provide for education. The Dutch parties we interviewed in Indonesia do not consider child labour as CSR issue directly affecting their own company, for they apply strict regulations when hiring local staff directly or through their subcontractors. Minimum wages differ per sector. Working contracts are juridical correct but in practice people work long hours which is customary. Wages commonly average below minimum. There is a formal minimal wage per region, but (small) local companies do not necessarily adhere to this. The government does not exercise control in labour contracts. Compliance with health and safety is slightly getting better, especially in state-owned companies. It is being monitored and in case of non-compliance, employees will receive a warning or will even be dismissed. In maritime, awareness on health and safety is generally low. Western companies apply their own policies and safety procedures. Local employees comply simply because they have to, thereby inadvertently raising the standards. People: human rights & ethics According to the Ministry of Marine Affairs, involving the community is very important. Sustainable supply of fish(-products) to the lower income class, especially those on remote islands, is very important because of the shortage in supply of red meat for iron and proteins. Fish is the easiest replacement. The Ministry has made nutrition in low consumption areas its priority. For example, an awareness campaign targeted at pregnant women and children until 2 years of age. There is a traditional belief that they should not eat fish. In spite of it being widely available and being high in nutrition. Interviewees notice a heightened discussion on discrimination and human rights. There has been an increase of intolerance and a growing discrimination towards ethnic minorities. There is great tension between religions, e.g. Muslims and Christians. The Indonesian population in general has a strong hierarchical structure driven by status and wealth, causing a gap between rich and poor. Planet: land use Deforestation is one of the CSR issues generating the most discussion. Burning forests to create land for, amongst others, the palm oil industry causes smouldering peat and carbonized soil. Furthermore, it leads to air pollution. This has great impact on the health of neighbouring communities. Deforestation also causes friction 8 For a complete overview on key CSR issues in Indonesia, please consult 9 International Labour Organization, Ratifications for Indonesia, via: 5

6 with local communities. The sustainable use of rainforests is being implemented through UTZ Certified, but there is a local interpretation of the standards, creating a challenge for successful implementation. During the round table session a participant expressed the following quote in the discussion: If key issues such as biodiversity are not pressured by society, no one will care. We believe NGO s should take the lead in the creation of awareness. The government creates a policy but finds itself not mandatory to be responsible for implementation. There is no monitoring or maintenance of CSR programmes. The law regarding land use and property rights in Indonesia is interpreted differently in local areas. Land rights have no formal validity. Land ownership is passed on through each generation. Very little is being done about the rejuvenation of plantations. Planet: environment Indonesia is one of the world s richest countries in natural resources and biodiversity, but the growing population and economy is placing an increasing pressure on its natural resources. One of the main causes can be found in agriculture, mining and fishing. Flooding is a great risk in Jakarta. Currently, the ground level is sinking with at least 20cm per year. This is caused by pumping out groundwater. In some areas groundwater is supplied by installing individual pipelines per neighbourhood, because the government does not supply an infrastructure in all city areas. Groundwater is also used for agri-cultural purposes. An independent institute for applied research in the field of water and subsurface helps water managers through information and tools how to operate more economically. Indonesia has a huge waste problem. There is a lot of waste in the ocean (plastic soup) and the rivers causing water pollution and a decrease in flora and fauna. The waste problem is largely caused by a lack of awareness and a lack of infrastructure. There is no well-developed waste management infrastructure to cope with the high numbers of waste. Animal welfare is generally unpopular among the Indonesian population. In rural regions or city slums people experience a shortage in food. Animal welfare is therefore not a priority. The number of tigers and orang-utans is steadily decreasing. This is of great concern for especially the young Indonesian people. 10 Profit: corruption Corruption is a highly organized and widespread phenomenon in Indonesia. A special Corruption Eradication Commission 11 that was established in 2002 is now, especially under the administration of President Widodo, actively combating corruption in all levels of the government. Still it remains difficult to completely eradicate corruption as it is part of the culture. Compared to 20 years earlier some improvement has been made. It is now, for example, part of taxation targets. But the economic power remains in the hand of a few elite families, continuing to reinforce further corruption. The group of students that were interviewed, believe corruption is something from the past, from the older generation. They feel it is a matter of change in mindset. Dutch companies that were interviewed maintain a zero-tolerance policy for corruption Indonesian students, Netherlands Maritime University, during CSR Netherlands interview (Rotterdam, March 2016) 11 Komisi Pemberantasan Korupsi, established in

7 Profit: market disruption Compared to years before, according to the interviewed Indonesian parties, market disruption has become much less. Their Dutch counterparts don t always agree on this. There is still a lot of bureaucracy. The Indonesian market is tightly protected. There is a rule that within international companies for each foreign employee, 10 Indonesians must be employed as a counter balance. Market disruption and false competition generally occurs through price fixing. The Komisi Pengawas Parsaingan Usaha (KPPU), was installed as a supervisory body to control fair competition, but members of this body are the ones controlling the market. It is the perception of the interviewed Dutch companies that the KPPU only catches small fish. KPPU is now also subjected to discussions regarding corruption. Fair trade is generally an issue when European and American partners are involved. They are very strict and often audit their suppliers. Indonesian companies on the domestic market are less concerned with fair business regulations. There are a few social enterprises who provide trainings and better living conditions to their farmers instead of financial rewards. This will increase their knowledge and improve their livelihood. 7

8 3. CSR in the maritime sector ` Maritime by Holland (Nederland Maritiem Land), a joint initiative for companies powering the maritime sector in Holland, initiated an extensive research in 2015 to investigate business possibilities for the Dutch maritime sector in Indonesia. This research was conducted in order to help maritime stakeholders and key players face challenges when conducting business activities in Indonesia and to investigate improvement opportunities as to how the Dutch maritime industry can contribute to the development of Indonesia. The results were reported in Indonesia Maritime Hotspot 12 and serves as an extensive knowledge base for this paragraph. General outlook Indonesia has favourable geographic characteristics. It possesses an abundance of both renewable and unrenewable resources such as fisheries and offshore oil and gas. Moreover, Indonesia s strategic geographic location between two oceans and two continents creates high trading potential. As an archipelago consisting of more than 17,000 islands, a well-functioning shipping industry is a basic requirement. The Global Maritime Fulcrum program of the new government has motivated the central government to directly implore and invite foreign companies to invest in various Indonesian maritime sub sectors. 13 Increased trade likely to be brought by the ASEAN Economic Community will accelerate the need for investment in maritime infrastructure, as well as bring an influx of goods to and from Indonesian ports. It is for these reasons that Indonesia offers many investment opportunities for foreign investors in numerous maritime sub sectors. Nevertheless, there are certain challenges towards investing in Indonesia s maritime sector: Regulations and governance imposed challenges prohibit or limit foreign investments in certain sub sectors. Rules and regulations are frequently subject to change. Local bureaucracies, with numerous government institutions handling the same issues, are often complicated and tough to navigate, especially for foreign companies with limited experience and/or local connections. 12 Nederland Maritiem Land, Indonesia Maritime Hotspot Final Report (July 2015) p The other maritime sub-sectors Offshore oil and gas and Fishery are out of scope of this research. 8

9 Ports and terminals Ports infrastructure is the focus of Indonesia s maritime development. This focus becomes even more significant since most of the nation s over a 1000 ports are underperforming compared to its regional competitors. The current government s Global Maritime Fulcrum program has opened investment opportunities for foreign companies to participate in Indonesia s port constructions, operation, maintenance, rental of equipment, and parts supplies. The main challenges in port investment, however, lay in unclear regulations and the domination of Pelindo I to IV as port operators in Indonesia. The Rotterdam Port Authorities (RPA) have a Representative Office and a Branch office in Indonesia. They cooperate with the Pelindos. The RPA has its own high standards on CSR. The try to work together with the local parties using these standards, but sometimes this creates friction. RPA sometimes has to accept a lower standard, because this is the best they can get at that time and that place. Shipping The shipping industry holds a major role in Indonesia s trade, since 90% of Indonesia s export commodities are delivered via water transportation. The implementation of the Cabotage legislation 14, along with the Mediumterm National Development Plan , is likely to spur an increase in national flagged vessels. Shipping lines face operational issues such as port inefficiencies causing increased waiting and turnaround time, and risks of labour disputes. The shipping sector is dominated by local players, especially since the implementation of the Cabotage law. Business opportunities for foreign investors seem limited directly to shipping but there is obvious need for education (skill development), maintenance, spare parts, repair and refitting. A Dutch company is currently active in Indonesia with operational activities such as towing and developing a LNG terminal. Besides this, the company will set up a Joint Venture with a local party to enter the LNG market and tanker transport. The company implements its own Cultural Change Program for South East Asia, which includes CSR standards. Ship building The shipbuilding industry plays an important part in supporting the achievement of Indonesia s maritime objectives. The government has issued regulations that encouraged the growth of the industry, while at the same time hindering it from achieving maximum growth by imposing high tariffs and tax. The Global Maritime Fulcrum, however, has put the government into planning for reducing, or even abolishing, these tariffs altogether to encourage further growth of local players, as well as to entice foreign investors. Currently the local shipyards have limited capabilities to produce vessels with high capacity and higher cost efficiency, there is limited capability in maintenance and there is an absence of local suppliers for many components and equipment. The average age of the Indonesian fleet is old. Consequently there is an increasing need for maintenance and repair capabilities. The new building and maintenance of more 14 The Cabotage regulation (No 17, 2008) prohibits foreign vessels operating within Indonesia s waters. It was implemented to encourage the development of the local shipping and shipbuilding industry and prevent competition from numerous foreign vessels engaging in Indonesian water transportation. Activities relating to domestic sea transportation must be performed by an Indonesian company using Indonesian flagged vessels which are manned by Indonesian crews. Non-Indonesian flagged vessels are prohibited from carrying passengers and/or goods between islands and ports in Indonesian waters. In 2011 the Indonesian government further expanded the regulation to include activities of oil and gas companies. This was done to encourage Indonesia's shipbuilding industry to grow and protect members of companies of the Indonesian Ship-owners Association (INSA). Indonesia Maritime Hotspot, pg 17, Nederland Maritiem Land. 9

10 technologically advanced vessels and refitting jobs cannot be done at local shipyards. The Ministry of Maritime Affairs will develop a plan that the state-owned shipyards supply CSR-proof vessels to fishermen. Challenges in this sub sector lay in the risks of labour disputes, the lack of skilled labour and government regulations. Smaller companies would benefit from a collective/central approach to identify labour disputes and connect with the right partners to come to solutions. A Dutch company mainly builds dredging- and off shore vessels in Indonesia. They work from their regional office in Singapore and have an agent in Indonesia. This international operating company has high CSR standards. They hope the public opinion will help change the mind-set in Indonesia that CSR is a cost item. Maritime education There is expected growth in local maritime education, driven by the higher importance and priority placed on the capacity and capability of Indonesian maritime human resources. The education sub sector is one in which the Netherlands holds a strong link with Indonesia. The need for education is a recurring topic within all sub sectors of the maritime industry, regardless of whether it is related to operating ports, ships, natural resources or logistics. The lack of skilled labourers ranges from white to blue colour in every sub sector. Specifically repair, maintenance and refitting are areas which are largely impacted. There is also an unmet demand for local seafarers, especially for higher ranked officers with greater skill requirements. This poses an opportunity for Dutch companies and institutions to train these workers. The precedents set by various Dutch institutes would make it easier to establish more maritime education programs in joint effort with local institutes. Besides technical training, Dutch players will also be welcomed in investing in education facilities. The Dutch Embassy in Jakarta cooperates very often in educational and training projects with the STC Group 15. STC does a lot of projects in Indonesia with both public and private companies, like (water) building companies, port authorities, Ministry of Transport etc. Delta technology Delta technology consists amongst others of dredging, port construction, and land reclamations. It is a market with high potential for years to come, especially because dredging and land reclamation are the main supporting functions to the government s focus on coastal protection and ports development. Dutch players are currently still a strong force in the local delta technology sub sector, however, they are increasingly exposed to competition with e.g. Chinese companies. Furthermore, some competing foreign constructors enter the Indonesian market by offering their services below market prices and consequently buying themselves into the market. On top of technical assistance, advanced research and development, joint efforts as well as knowledge transfers to local stakeholders, are also likely to be welcomed, thus positioning the Netherlands as a niche technology player. While the Netherlands has an excellent name in delta technology and coastal engineering, it will benefit even more from presenting a joint effort not only as an industry, but also combined with financing constructions. 15 STC stands for the former name Shipping & Transport College. From the STC Group the STC BV division is active in Indonesia. Albert Bos, director of STC BV, was interviewed. 10

11 Building With Nature (EcoShape) has several projects in Indonesia. One of them is securing eroding delta coastlines in Indonesia with mangrove restoration. Deltares, Imares and Wageningen University will take the lead in the design, monitoring and implementation of interventions. Witteveen&Bos and Wetlands International will coordinate the implementation of measures in the field, while working together with local community groups. Indonesian governmental partners will facilitate institutional embedding of project activities, ensuring linkages to ongoing programs in the field. EcoShape is an organisation from Van Oord and Boskalis. Overall the project is not profitable, but expenses are covered by income streams from other projects. Positioning the concept of CSR In Indonesia very few companies and organisations have a holistic approach of CSR (e.g. based on the international concept). Most of them focus on single issues or certain elements of CSR. CSR is often seen as charity and a cost issue. Furthermore, CSR is mostly conducted by larger Indonesian companies with international markets. It is also important to realize that CSR implementation is largely dependent on the cultural context. Activities such as support of local communities that generally would be considered charity in Western countries, may have a clear business case in an Indonesian context. Support of local communities may help to avoid conflicts (e.g. about the use of land and water) or may help to attract a loyal and educated local workforce. In order for CSR to be further successfully implemented in Indonesia, it must become an integral part of the business case, directly linked to operational results. A CSR investment must be considered a mainstream investment. Investments in planet and people should be involved in the calculations of material benefits. In general, Indonesian companies need concrete solutions, not another conceptual CSR program or guideline. Indonesian companies want to be able to compare results when applying CSR. They need tangible evidence that CSR is beneficiary to their core business. Most Dutch companies in dredging, port construction and land reclamations already adhere to high Health, Safety, Quality and Environmental (HSQE) standards. Additionally, they consider CSR to be beyond HSQE. CSR is part of the job. As one of the interviewed Dutch companies stated: We build dikes to protect people. Because as an engineering company they provide technical solutions to societal problems. As such, the maritime sector can serve as an example in further enhancing CSR in Indonesia. This can be done by, firstly, describing the main CSR challenges and opportunities for the sector. What are the issues in sustainability in which Dutch maritime companies can assist in providing a solution? On the medium term, one should work towards the creation of a network of both Indonesian and Dutch companies in maritime, mainly consisting of the so-called CSR frontrunners. Also included in the networks should sector associations and other stakeholders throughout the value chain. Within the networks pilot projects need to be developed to further develop sustainable solutions for Indonesia in maritime. Developing sustainable solutions for Indonesia In March 2016 Indonesia and the Netherlands signed a MoU for the maritime sector followed in April by maritime workshops. Topics of the workshops: What is the impact of the maritime sector in Indonesia; Shipbuilding & Maintenance & Overhaul; Fishery. In April 2016 the President of Indonesia paid a visit to the Netherlands. The maritime sector was one of the main topics to discuss. In September 2016 a trade mission will be held to further explore business opportunities for the Dutch maritime sector in Indonesia. In what way can the Dutch maritime sector contribute to the sustainable development of Indonesia. The following recommendations have been made: 11

12 ` Implement pilot projects that generate and expand a sustainable footprint and bridgehead for the Dutch maritime industry (all sub sectors) in Indonesia. Three cases can be identified: 1) sparking off a maritime community, 2) realising a supply of fishing boats, and ensuring the provision of maintenance, cold storage facilities and training, 3) developing solutions for waste management at harbours and on the coast, since Indonesia is one of the world s largest contributors of plastic waste in the ocean. Carry out in depth studies to gain further insight into the fishing and ship building sub sectors. Compared to other sectors the Dutch representation in these sub sectors is not yet very strong. The political and economic need is urgent while at the same time the protective regulations seem to offer a positive incentive. The Dutch shipbuilding industry is very innovative and has good solutions on CSR issues. 12

13 Appendix 1: List of abbreviations Abbreviation CSR HSQE ILO IMF ISO KPPU NGO RPA RVO SMEs STC TU Delft UTZ certified Meaning Corporate Social Responsibility Health Safety Quality & Environmental International labour Organisation International Monetary Fund International guideline for implementation CSR in an organisation Supervisory body to control fair competition Non-Governmental Organisation Rotterdam Port Authorities Netherlands Enterprise Agency Small and Medium Enterprises Shipping & Transport College Technical University Delft Hallmark for coffee and other tropical products 13

14 Appendix 2: Bibliography ` Reports Nederland Maritiem Land, Indonesia Maritime Hotspot Final Report (July 2015) United Nations World Commission on Environment and Development, Our common future (Oxford University Press 1987) Websites CSR Netherlands: the centre of excellence for CSR Via: CSR Risk Check Via: European Commission: Corporate Social Responsibility Via: International Labour Organization, Ratifications for Indonesia Via: 14