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Case Study of CSR in the PT Sinar Mas Forestry Group in Giam Siak Kecil–Bukit Batu Biosphere Reserve
Umi Karomah Yaumidin, Diah Setiari Suhodo Economic Research Center – Indonesian Institute of Sciences
Jl. Jend. Gatot Subroto 10, Jakarta, Indonesia [email protected]; [email protected]
Abstract
This study explores the implementation of Corporate Social Responsibility (CSR) to the management of a biosphere reserve. It takes for a case study, a set of companies under a holding company, the Sinar Mas Forestry Group, which has operations in the Giam Siak Kecil–Bukit Batu Biosphere Reserve. Data were collected from 30 CSR managers and staff from eight sub- sidiaries companies by using closed questionnaires. This study found that companies’ strategies in the management of CSR were to ‘hold and maintain’. However, CSR programs tend to be more oriented to charity than to boost productivity. The CSR program covered core, buffer and transition zones of the GSK–BB Biosphere Reserve but it seems to be a temporary program in the transition zone. Therefore, the companies should improve their strategies to make CSR more beneficial for preserving the biosphere reserve as well as for their reputations.
Keywords: Corporate Social Responsibility (CSR), SWOT Analysis, Biosphere Reserve JEL Classification: M14, M31, Q57
INTRODUCTION
The concept of Corporate Social Re- sponsibility (CSR) in Western countries first appeared early in the 20th century.
It was to thrive in the years between 1970 and 1980 when companies were faced with the problem of how to build and assure their reputations with their stakeholders. However, every company has its own definition of CSR and how it should be implemented but they have the same considerations in
implementing it. The growing tendency of companies to invest in and to report their CSR activities is forcing changes in their corporate strategies; from being organisations that are primarily oriented to profitability to organisa- tions that pay attention to social and environmental aspects of their activi- ties (Sleeper et al., 2006; Quaak et al., 2007; Ubius, 2009).
Over time and with experience, the paradigms for the implementation
of CSR have shifted from charitable activities to those more generating income for the stakeholders. Managing the social and environmental aspects of a company’s commercial activities in order to maintain or improve its reputation has generally been accepted as a cost of doing business. Moreover, if a company has started to move from a CSR strategy based on ensuring stakeholder satisfaction to one that is more committed to the community and the environment then it should have a reset strategy to enable this change of direction.
Mohr et al. (2001) distinguish two strategies of CSR; the first is to discuss the relations between the CSR program and stakeholders; the second is to discuss the CSR program in rela- tion to social marketing. In support of the second strategy, Seelos and Mair (2005) in their study concluded that the association of social entrepreneurship with efforts to implement CSR could be a promising model for realising the objectives of the Millennium Develop- ment Goals. Austin and Reficco (2009) advise businesses to apply the concept of corporate social entrepreneurship in the management of their CSR funding and program.
The practice of CSR was intro- duced to Indonesia in the early 2000s after the global financial crisis of 1997–1998. It became the first stage, for multinational companies in par- ticular, to further contribute to the im- provement of community development and environmental conservation. Until the promulgation of Law 40 of 2007
(to do with limited liability companies) that requires all companies that exploit natural resources in Indonesia to be socially responsible. The International Standards Organization (ISO) pro- duced standard 26000, which became a guide that is often quoted by academics and practitioners of corporate social responsibility. However, ISO 26000 is just a strategic guide that requires concrete steps, in the short and long term, to be taken by any company that intends to implement policies and practices for social responsibility.
Thus, to date, the form and pat- tern of the implementation of social responsibility by companies has varied, although the Indonesian Ministry of State-Owned Enterprises has tried to create a benchmark program, Program Kemitraan dan Bina Lingkungan (PKBL) that should be followed by state-owned companies (SOE) in In- donesia. This program requires every Indonesian SOE to spend around 1 to 2 per cent of their net profit to support small and medium enterprises, and to maintain and improve social and envi- ronmental conditions in their produc- tive activities. However, this program is neither compulsory for private domestic nor for foreign companies.
This paper will explain how one private company, which is engaged in the processing of forest products, has initiated programs for environmental conservation and community empow- erment through the preservation of a biosphere reserve. The Sinar Mas For- estry Group is one of the companies belonging to the Asia Pulp and Paper
Company and has a strong commit- ment, together with their partners in the group, to preserve forests in the area of their operations. Obviously, this CSR program has added to the high costs of production; extra costs associ- ated with the work of inviting central and local governments, academics (re- searchers, lecturers), non-government organisation and communities to participate in and engage with this program.
This effort led to the listing by UNESCO in 2009 of Giam Siak Ke- cil–Bukit Batu Biosphere Reserve as one of the world’s conservation areas.
Furthermore, PT Arara Abadi received an award from the Texas Community in 2012, an award for the company’s work to ensure that CSR benefits the local community by assuring the maintenance of the culture and way of life of the Sakai tribe (an indigenous people in Riau) and by opening roads to remote communities; all of which resulted from the practical applica- tion of the company’s CSR policies.
Such awards will, indirectly, add to the company’s reputation in the eyes of consumers and ensure the sustainability of its business although it realises that these awards are not the only factor that have allowed the company to re- main in the competitive pulp and paper business in Asia.
This paper starts by explaining the shifting paradigm of the CSR concept; from charitable activities to those more productive, particularly for environmental conservation and com- munity empowerment. A theoretical
framework of CSR will be outlined to provide a deeper understanding of its terminology and concepts and to provide a foundation for a discus- sion of the costs and benefits borne by companies that subscribe to CSR policies. Next will be a discussion of the research methods described in this paper that outlines the form of our qualitative SWOT analysis. In addition, this section of the paper will also anal- yse the strengths and weaknesses of strategies, opportunities and challenges for the company in implementing its social responsibilities. The paper con- cludes with a discussion of the findings and suggestions for further studies.
LITERATURE REVIEW The Basic Concept of
CSR and ISO 26000
From a reading of pertinent literature, it can be understood that implement- ing CSR in developing countries generally focuses on: (1) Boosting high economic growth, which, it is believed, makes it easier for companies to enter global business markets; (2) Social and environmental crises that result from rapid economic development are of special worldwide concern such that many multinational companies that operate in developing countries tend to take some responsibility for solving any social and environmental problem in their production environ- ment; (3) The influence of social and environmental changes that result from globalisation, economic growth, investment and business activities; (4)
The agenda and challenges of CSR in developing countries that differ from those in developed countries. Thus, the key to the success of CSR programs
and practices in developing countries is that they take into account cultural traditions, socio-economic priorities, and activities of stakeholders.
Source: Daniri (2011)
Figure 1. Triple Bottom Line Integration and CSR Basic Principles based on ISO 26000 The treatment of CSR in the
literature in part deals with the devel- opment of managerial competency to understand what is required for corporate social awareness and how to enable firms to meet social changes taking place in society (Wartick and Co- chran, 1985, p. 758). Carroll (1979) was the first to discuss comprehensively the concept of corporate social per- formance; a concept that has evolved rapidly from the concept of the triple bottom line described in ISO 26000 to the measurement of the effects of CSR on the profitability and well-being of a firm.
The essence of the CSR evolution in related to ISO 26000, from an idea to integrate the three main concepts of ISO 26000 (the triple bottom line), widened to include demands about the rights and obligations of each element of a participating organisation and the need for strong commitment to be implanted if the ideals of CSR were to be realised. Figure 1 depicts how the idea of the triple bottom line is integrated with the basic principles of ISO 26000.1
1 We only go to the short case of CSR evolution for Indonesia case, from the implementation of triple bottom line through ISO 26000.
The neo-classical mainstream argued that CSR strategies would increase costs to companies, thus leading to a competitive disadvantage with competitors who would be able to sell their goods at lower prices because their production costs would not include costs associated with CSR activities (Friedman, 1970; Aupperle et al., 1985; McWilliams and Siegel, 1997;
Jensen, 2002). From the perspective of agency theory (Jensen and Meckling, 1976) some results from other studies indicate that using company resources for corporate social activities as a strategy will result in significant mana- gerial advantages beyond contributing to the financial returns to shareholders (Brammer and Millington, 2008).
Furthermore, many scholars believe that improving social perfor- mance will generate more sources of income and more efficient production for a company (Cochran and Wood, 1984; Waddock and Graves, 1997).
The benefits of CSR can be classified as tangible and intangible (Branco and Rodrigues, 2006). Tangible benefits can be viewed directly as financial gains; intangible benefits are more difficult to specify or to quantify.
External benefits are obtained by cre- ating reputable companies, reducing business risks, increasing loyalty and customer satisfaction. Internal benefits, by contrast, are always associated with better in-house training, higher quality employees, more congenial workplaces, stronger motivation and employee morale, greater employee loyalty, and more cooperative organisational behaviour. These variables are very
difficult to quantify because they are associated with behaviour, perception and dynamic human preferences in time and place.
In addition, they also argue that intangible benefits of CSR activity are also able to sustain the competi- tive advantage of the company such as reputation, culture, or employees’
knowledge, and capabilities, because they are very difficult to imitate and substitute. (Branco and Rodrigues, 2006, p. 112)
A study by Perez (2009) also sup- ports previous findings. Their study mentions that the implementation of CSR encouraged consumers to have a higher regard for a company’s products and will increase consumer demand for their goods. It is common knowledge that every company tries to create a positive brand image for their products.
However, empirical evidence suggests that the image of a company depends on many other factors. Two important such factors are ‘corporate social and commercial responsibilities’ (Brown and Dacin, 1997; Berens et al., 2005;
Sen and Bhattacharya, 2001). Fur- thermore, it has been suggested that a positive social reputation can reduce the error rate in production (Konar and Cohen, 2001; Porter and van der Linde, 1995).
Various publications on the benefits of CSR for companies do not touch directly on the positive contribution to company financial well- being. According to the observations recorded in Bogh’s study (2010) on the benefits of CSR, these benefits are as follows:
1. Quality: publications emphasising the advantages of CSR in terms of quality do not specify the financial benefits.
2. Ex-post quantity: publications in this category aim at showing a positive relation between CSR activities and the financial perfor- mance of yesteryear.
3. Framework for quantitative prediction: publications in this category do not intend to prove a link between CSR and financial performance but rather to propose or test a framework to enable financial predictions based on the CSR activities of the business taking into account any special situations of the company.
SWOT Analysis
SWOT (Strength, Weakness, Oppor- tunity and Threat) analyses became one of the strategic planning methods used to evaluate the strengths, weak- nesses, opportunities and threats in the businesses. Such analyses involve determining the specific objectives of the business venture or project and identifying the internal and external factors that support or do not support achieving that goal.
In general, a SWOT analysis enables a company to overcome com- petition, from similar products or from substitute products whose develop- ment is growing rapidly as the use of technology increases. Associated with the strategic planning of the company, Arnold et al. (1998) explained that the strategy of the company started from:
1. Consumer satisfaction, because customer satisfaction is an end for a business organisation.
2. Planning for long-term viability;
companies need to plan and invest in ways that ensure that they can be confident of customer satisfaction well into the future.
3. Continuing to be competitive, in contrast with its competitors, in order to give customers a clear choice and to build a pattern of repeat purchases. Essentially, the company’s strategy is to create and sustain a competitive advantage arising from within the organisa- tion.
SWOT analysis, in this context, is the basic framework for the formula- tion of strategies to manage social responsibility that is committed to the interests of society and the preserva- tion of the environment in the Giam Siak Kecil–Bukit Batu Biosphere Reserve. According to Kurtz (2008), SWOT analyses have two parts (see Figure 2); one part is to do with the internal environment of a company (strengths and weaknesses) and the other part with the external environ- ment (opportunities and threats). The variables in the SWOT analysis can become interdependent; they may not each stand alone as a single factor.
This means that a variable denoting a weakness on one side of an equation might be countered by strength on the other side. For example, the wider and strategic location of enterprise could be a leading strength, but if the management is inefficient and causes
high economic costs, then this variable will be weaknesses for the company because it does not advance its produc- tive capacity.
METHODS Data
Primary data were collected using closed and structured question- naires that were answered by 30 CSR managers from eight companies. To complement information from these questionnaires, the researchers also conducted focus-group discussions on 27 September 2013 at the office of the Sinar Mas Forestry Group in Bengkalis Regency.
Secondary data, published and un- published, were obtained from various agencies. Such data, which relate to the territory and local governments, were from BAPPEDA of Bengkalis and Siak Regencies and from Statistics Indonesia (BPS). All data related to the activities
of the CSR Communication Forum come from each member of the forum as well as from its board members.
Specific data, that is, internal informa- tion on the company’s operations were obtained from the sustainability reports and financial statements of the compa- nies, which are publicly available.
Methods of Analysis
We conducted SWOT analysis into several steps that are:
1. We identify the SWOT factors and break down into several questions.
This questions then we verify by conducting focus group discus- sion with expertise such as NGO, government, academician, and CSR practitioners.
2. We distributed the questionnaire to 30 CSR managers and staffs of eight subsidiaries companies. We rank and weight of each factors in SWOT and categorised into internal and external factors. This step allows us Source: Kurtz (2008)
Figure 2. Stages of a SWOT Analysis
to identify the next strategy called TOWS analysis.
3. We do analyses on Internal-External Matrix Analysis in order to put the company position in managing CSR fund. In the last part, we tried to give potential solution for company to adjust the weaknesses and threats become the strengths and opportu- nities strategy.
RESULTS AND DISCUSSION Overview of Bengkalis Regency The area studied for this research includes the Siak and Bengkalis regen- cies where the biosphere reserve is.
These two regencies are endowed with an abundance of natural resources, in particular, oil and gas. Therefore, the predominant source of the regencies’
revenues derives from petroleum. Any funding from the central government budget is allocated through Dana Alo- kasi Umum (DAU [General Allocation Funds]) and Dana Alokasi Khusus (DAK [Special Allocation Funds]) is likely to be very small and does not contribute significantly to local revenue. To illus- trate; in 2006, the contribution through the DAU and the DAK was nil. The allocation from these two sources is less than 0.1 per cent of the local government budget.2
The economic, commercial and domestic well-being of the people of Bengkalis Regency depends, too, on ag- riculture, forestry and plantation crops.
2 For other districts in Indonesia that have fewer natural resources, the allocations from DAU and DAK can be higher than 30 per cent.
In addition, local governments tend to be reliant on income from the central government because the licensing and management of big companies that operate in Bengkalis is not managed locally but in Jakarta.
There were 251 listed companies operating in Bengkalis Regency in the period 2004 to 2012 and, of those companies, 65 per cent were engaged in the oil and gas sector. Only 29 per cent of all companies were engaged in activities other than oil and gas, in particular, oil palm plantations, forestry and other agriculture. However, only 6 per cent or 17 companies contributed to a CSR forum that was promoted by the local development planning agency, BAPPEDA Bengkalis, and by the chamber of commerce. This forum was launched on 27 October 2011 at the Grand Zuri Hotel, Mandau sub- district.
The establishment of the CSR forum was intended to coordinate CSR programs by member companies to avoid duplicating activities. It was commonly known that duplication in CSR programs were inefficient, less focussed and had fewer benefits for stakeholders. Membership of this fo- rum comprises a Bengkalis government representative appointed by the Regent and Regional Representatives Council, the general manager of PT Chevron Pacific Indonesia, the CSR manager of PT Arara Abadi and representatives from companies subscribing to the organisation. The members of the CSR forum are predominantly from com- panies engaged in oil palm plantations
and forestry rather than oil and gas. In addition, local state-owned enterprises (BUMD) participate in the forum.
Other stakeholders, such as NGOs, community leaders and academics, are not on the CSR Forum board. Theoretically, they also contrib- ute to the success of CSR programs but their involvement is limited to the implementation but not the formation of the CSR program. It follows that one of the obstacles preventing the forum building strategic partnerships after the signing of the formal agree-
ment is that CSR activities still give the interests of the companies priority, they do not reflect the interests of all members of the partnership. This power of CSR, believed to be able to solve any social problems, is more comprehensive and integrated in Beng- kalis Regency.
The realisation of CSR activities that have been carried out by compa- nies under the umbrella of PT Sinar Mas Forestry, from 2010 to 2012, are presented in Table 2. It can be seen that the companies have their CSR Table 1. Member Companies Incorporated in the Bengkalis CSR Forum
No. Companies Sector
1 PT Adei Plantations dan Industri Oil palm plantation
2 PT Arara Abadi Forest plantation and wood processing 3 PT Bukit Batu Hutani Alam Forest plantation and wood processing 4 PT Chevron Pasific Indonesia Mining
5 PT Marita Makmur Jaya Oil palm plantation
6 PT Mass Oil palm plantation
7 PT Meskom Agro Sarimas Oil palm plantation
8 PT Murini Wood Indah Industri Forest plantation and wood processing
9 PT Priatama Riau Oil palm plantation
10 PT Riau Abadi Lestari Oil palm plantation
11 PT Rimba Rokan Lestari Forest plantation and wood processing 12 PT Satria Perkasa Agung Forest plantation and wood processing 13 PT Sekato Pratama Makmur Forest plantation and wood processing 14 PT Sumatera Riang Lestari Oil palm plantation
15 PT Surya Dumai Agrindo Oil palm plantation 16 PT Pertamina UP II SEI. Pakning Mining
17 PT Bumi Laksamana Jaya (BUMD) Agriculture Source: Bengkalis CSR Forum (2013)
programs oriented to the short rather than to the long term. More than IDR 200 million has been spent by each company for funding cash and in-kind programs over the period from 2010 to 2012. Those funded programs were claimed as CSR programs.3
This funding is used for discon- tinuous events: celebrations of reli- gious significance; Independence Day;
3 Each village usually receives IDR50,000,000 per year.
provision of books and scholarships for education; mass circumcisions;
supplies of goods for the Pembinaan Kesejahteraan Keluarga (a family wel- fare organisation); food assistance for poor people; and for office equipment and other village needs. The funding is a charity program but for improving community welfare. However, such ac- tivities have been criticised in that they can lead to a reliance on the company to meet needs.
3 Each village usually receives IDR50,000,000 per year.
PT Sakato Makmur
(IDR)
PT Arara Abadi (IDR)
PT Satria Perkasa Agung
(IDR)
PT Bukit Batu Hutani Alam
(IDR)
Year Form
2010 In kind 69,110,000 25,860,000 23,902,000 91,964,488
Cash 193,000,000 4,250,000 1,500,000 193,000,000
2011 In kind 15,160,000 38,690,000 32,956,000 13,590,000
Cash 255,000,000 5,000,000 2,000,000 204,000,000
2012 In kind - 41,101,300 45,601,000 3,000,000
Cash 293,800,000 1,000,000 2,000,000 210,800,000
Location Bengkalis Bengkalis and
Siak
Bengkalis Bengkalis
Table 2. CSR programs of the Sinar Mas Forestry Group companies, Bengkalis Regency
Source: Sinar Mas Forestry Group (2013, unpublished) It should be noted that some
funds have been used for some socially beneficial activities to help encourage the independence of deprived groups of people to enable them to get a job and be more productive. Other projects were cooperative management training,
taxation law, durian cultivation, plant- ing acacia seedlings for greenery at the Sepahat village, procuring poles and street lights for Sepahat village, and community development assistance for the economic unit that is managed by the village. These programs exem- plify companies’ engagement with the essential needs of their stakeholders.
Nevertheless, the amount of money
that is given for productive activities is less than that for charity programs.
These and similar programs just de- scribed accounted for only 30 per cent of the total cost of CSR per year.
Overview of the CSR programs of PT Sinar Mas Forestry Group Sinar Mas Forestry is a holding com- pany that coordinates the supply of wood pulp to PT Indah Kiat in Per- awang and to PT Lontar Papyrus Pulp Integrated paper mill in Sumatra. The company manages the activities of four major companies and 32 partner com- panies that have permits for planting in forest areas. The four major forestry companies are PT Arara Abadi and PT Satria Perkasa Agung in Riau Province, PT Wirakarya Way in Jambi Province, and PT Finantara Intiga in West Kali- mantan.
The operations of the partner firms cover soil preparation, planting, maintenance, harvesting and delivery of wood to the mills. The wood is produced from a selection of fast- growing trees that have been planted in areas that have been determined by the Indonesian government for industrial forestry. In December 2009, Asia Pulp and Paper, a supplier of wood pulp that operates under the umbrella of the Sinar Mas Forestry Group was granted a valid license to develop about 2.5 mil- lion hectares of forest concessions in Indonesia. Approximately 40 per cent of the area is designated a conserva- tion area and its development will give opportunities for farming communities
in particular to participate in infrastruc- ture projects.
In Riau Province, for instance, the operations of PT Arara Abadi have stimulated the local population by creating new jobs, which have raised their standard of living and improved their access to education and health.
On infrastructure development, PT Arara Abadi has spent at least USD 808,000 over the period 2008–2009 (APP, 2009). The company has also initiated the development of small- holder agriculture: rubber plantations, horticulture, fish farming, orchards, planting acacias; all of which have helped increase the prosperity of local communities. At least 30 hectares of land for a rubber plantation in Tanjung Leban village involved about 200 mem- bers of the local community.
Acacia management is coordinated with the Bunut Abadi cooperative, which has 80 farmer members, and PT Arara Abadi provides free seeds for farmers, members of the coop- erative or not. About 140 people from Temiang and Sei Limau villages have participated in this program. Both vil- lages are in the conservation area of the Giam Siak Kecil–Bukit Batu Bio- sphere Reserve. This cooperative has and continues to perform well, so well that it won a prestigious award from the Indonesian Ministry of Small and Medium Enterprises and Cooperatives for being the best cooperative in 2009.
As reported in the company’s sustainability report, PT Arara Abadi invested around IDR 1.23 billion to enable greater access to education
for households in Riau Province for the period 2008–2009. The company provided scholarships for 516 students and paid 164 teachers’ fees, financed approximately 1660 school students, distributed textbooks to more than 11,500 students, and, jointly with the local education department, built a public senior high school in Muara Basung.
The company also invested more than IDR 10 billion for improving the quality and availability of health facili- ties for villagers in the neighbourhood of the company and the plantations.
The company provides services for free medical care, for the treatment of 800 patients, arranges health counsel- ling sessions and works for a cleaner environment for the 300 villagers; this last service in cooperation with village officials through health centres and paramedics from the Eka hospital.
For infrastructure development, the company invested about IDR 1.6 trillion throughout 2008–2009. Infra- structure development is intended to facilitate access for the local population to the plantation areas. This fund was used to build roads, village admin- istrative offices, mosques, schools, a football field and to improve the social amenities of local communities. To foster a sense of ownership, the com- pany invited the communities to work together in the construction of public facilities that have been funded by the company. Communities are involved from preparing the land to finishing the project.
Main Program: Conservation of Giam Siak Kecil–Bukit Batu Biosphere Reserve
One of the remaining peat forests (of close to 85,000 hectares) in Riau that is still in its natural state is the Giam Siak Kecil wildlife refuge and this area is joined to the Bukit Batu conservation area of about 21,500 hectares. In May 2009, UNESCO declared these regions a biosphere reserve. This intact natural forest area comprises a core area, a buffer zone and a transition zone (BAPPEDA, 2011).
The main purpose of the creation of the Giam Siak Kecil–Bukit Batu Biosphere Reserve is to enable sustain- able development of the peat-swamp forests, lakes and waters systems, and of the peatland that has been convert- ed to forest plantations, agriculture and for residential use (MAB-Indonesia, 2011).
In addition to the intensive management of the core zone, the three key stakeholders, members of the Giam Siak Kecil–Bukit Batu Biosphere Reserve management, also manage the buffer zone. The core area is 222,426 hectares, the buffer zone area is 178,222 hectares and surrounds the main area of forest industry plants, so that it forms a barrier between the conservation areas and the areas of community development. More than 2000 Bukit Batu villagers were involved in regeneration activities in the buffer zone of GSK–BB in 2009.
One of the principles UNESCO applies in the development of bio- sphere reserves is to determine the
core and buffer zones, which also re- quires the development of a transition zone. This transition zone includes a variety of activities by various stake- holders, who range from members of local communities that use the agricultural land to academics, NGOs, indigenous groups and local govern- ments. All work together to protect the environment and manage sustainable natural resources.
SWOT Analysis: CSR Performance of Sinar Mas Forestry Holding Based on the results of the companies’
self-assessments that are provided in their sustainability reports, the negative and positive effects of the activities of APP and its suppliers on the local com- munity are presented in Table 3.
Table 3. Positive and Negative Effects of Asia Pulp and Paper’s CSR Activities
Jobcreation Partnership with
local employers Economicactivity
stimulation Public service
activities Increasing land value Greater op-
portunity for vocational skills and train- ing (+)
Improve local peo- ple’s understand- ing of converting waste into valuable goods.
Develop public infrastructure, such as schools, mosques and roads.
Improve public facilities, such as electricity and clean water.
Increase people’s so- cial mobility.
Improved social interac- tion (+)
Improved sanita- tion to prevent the spread of dengue fever.
Increased access to adequate health facilities.
Providing scholar- ships to increase access to educa- tion.
Contributes to regional develop- ment through taxes and royalties.
Increased dust from the transport of wood (-)
Increased noise
during production. Traffic conges-
tion. Industrial activity;
loading, unload- ing goods etc.
Intense haze during the dry season.
Source: APP (2012)
From our observations, the implementation of CSR related to community development in the transi- tion zone tends to be temporary and depends on demand from community and local organisations. CSR activities in the transition zone are not well in- tegrated: there has been a CSR forum formed in Bengkalis, whose purpose is to minimise reduplication and overlap-
ping of elements of CSR programs.4 One reason for this poor coordination is limited understanding by members of the forum of how to build effective communication between the members.
Therefore, members of the forum have to meet and confer to formulate com- prehensive strategies for their short
4 Our field observations are from 2013–2014.
and long-term planning. A planning document that presents an analytical description that reconciles the interests of all parties working together could become a reference for on-going CSR integrative synergy.
Therefore, we need to look closely at detailed information on CSR man- agers’ perceptions as a whole of their CSR program implementation and, in particular, at the GSK–BB Biosphere Reserve. SWOT analyses will give information on the strengths, weak- nesses, challenges and opportunities of the implementation of CSR programs from an internal point of view. On 27 September 2013, we arranged a confer-
ence with 30 CSR managers from eight APP partner companies that operate in the Bengkalis and Siak regencies. Table 4 and 5 show the results of the analysis of aggregate internal and external fac- tors that affect the CSR of companies incorporated in the holding company, Sinar Mas Forestry.
The CSR managers for the com- panies consider that good governance and systematic CSR have become ma- jor factors that must be implemented by their companies. Assuming that a company’s CSR activities comply with national and local government laws and regulations, with international law and human rights, most managers feel com- Table 4. Internal Factor Analysis of CSR Activities, Sinar Mas Forestry
Source: Author calculation from primary data (2013)
Description Ranking Weighting Value
Strengths
A Good governance and systematic CSR 4 0.10598 0.4062
B CSR funds availability 4 0.09865 0.3782
C Relations with stakeholders 3 0.09214 0.3174
D Professional CSR management 4 0.08591 0.3150
E Support and commitment of the manage-
ment 4 0.09429 0.3562
F Company affordability 3 0.09735 0.3083
Total 0.57431 2.0812
Weaknesses
G Program discontinuity 2 0.0813 0.1626
H CSR management strategy 2 0.0872 0.1986
I Scarcity of Professionals 2 0.0863 0.2014
J Employee engagement 2 0.0884 0.1916
K CSR database support 2 0.0824 0.1832
Total 0.4256 0.9374
fortable with their CSR governance but most still find difficulties in its ap- plication. The availability of funds and support from senior management is an important factor in the implementation of CSR. This perception, that funds and support are too little, is not refer- ring to the actual conditions but to the ideal conditions that were expected by the CSR managers. If it is explored fur- ther, the weaknesses lie in the scarcity of professionals, in CSR management strategies, and in employee involve- ment; all important elements in the good governance of CSR. Thus, the
total of the calculated value of com- panies’ strengths (2.08) is much larger than the value for weaknesses (0.93), which is not necessarily evidence that the company has is a dominant force in the implementation of CSR. This bias result needs to be re-verified and amended. After discussion in the focus group, it was agreed that a company should have a guide to plan, manage, monitor and evaluate the program in accordance with the applicable rules.
This finding confirms that the com- pany has the commitment and good faith to improve CSR governance.
Description Ranking Weighting Value
Opportunities
A Company’s business prospects 4 0.0906 0.3172
B Government support 3 0.0953 0.2859
C Strategic partnerships with stakeholders 3 0.0873 0.2473
D Strategic location 3 0.0893 0.2283
E CSR as part of an integrated management
system 3 0.0945 0.2836
F Guidelines and best practice are replicable 3 0.0920 0.2504
Total 0.5490 1.6126
Threats
G Community participation 3 0.0900 0.2449
H Security area 3 0.0935 0.2649
I Stakeholders disagreement about CSR 3 0.0924 0.2413
J Turbulence in the global economy 3 0.0908 0.2471
K Changes in government regulation 2 0.0844 0.2015
Total 0.4510 1.1997
Table 5. External Factor Analysis of CSR Activities, Sinar Mas Forestry
Source: Author calculation from primary data (2013)
Table 5 shows the external as- sessment of CSR. The CSR managers’
perceptions of their company’s busi- ness prospects are bright and this is supported by the increasing acceptance of CSR as part of an integrated man- agement system, and by government support for the implementation of CSR. It is an opportunity to improve the quality of CSR management. As for the security of the area around the company’s operations, global economic turbulence and community participation are challenges that must be anticipated and addressed. Overall, opportunities and challenges have a total range of values that are not too far apart, that is, 1.61 and 1.19. Thus, the opportunities and challenges are not too significant an influence on
decision-making and implementing CSR.
Therefore, as shown in an IFE–
EFE matrix (Figure 3), the position of the company is in quadrant IV. It is derived from the total value of 3.0186 IFE being greater than the total value EFE that is only 2.8123. To that end, the company in the implementation of CSR is in the position of ‘hold and maintain’, meaning that the efforts that have been made up to this time continue to be preserved and main- tained. Improving the performance of CSR should be done, especially by integrating the management planning system. By transforming weaknesses into strengths and turning the chal- lenges into opportunities for business success, CSR affects the sustainability of the company.
Sources: Author calculation from primary data (2013)
Figure 3. Internal–External Matrix SWOT Analyses of CSR in PT Sinar Mas Forestry
Table 6 presents some policy choices for companies that might be expected to improve the performance of management of CSR. This TOWS matrix is based on the analysis of
Table 6. TOWS of CSR, PT Sinar Mas Forestry Group
internal and external factors before- hand, so that what is presented in the table are the recommendations of the researchers, and are not on behalf of the company.
Strengths(S)
• Good governance and sys- tematic CSR
• CSR funds availability
• Relations with stakeholders
• Professional CSR manage-
• Support and commitment of ment the management
• Company affordability
Weaknesses(W)
• Program discontinuity
• CSR management strategies
• Scarcity of Professionals
• Employee engagement
• CSR database support
Opportunities(O)
• Company business prospects
• Government support
• Strategic partnerships with stakeholders
• Strategic location
• CSR as part of an inte- grated management system
• Guidelines and best practice are replicable
Strategies(SO)–
• Integration of CSR gover- nance and a company’s management, from planning to implementation
• Improving a company’s commitment to good CSR practices
• Improving relations with stakeholders, especially indigenous peoples
• Improving human resource management
• Expanding the influence of the company
• Planning a document that reconciles a company’s vision and mission with community needs
Strategies(WO)
• The company’s busi- ness prospects become the basis for program sustainability
• Improving government support for databases related to community needs, especially in stra- tegic locations
• Improving the qual- ity of CSR professio- nals through intensiv e training
Threats(T)
• Community participa-
• Security areation
• Stakeholders’ disagree- ment about CSR
• Turbulence in the global economy
• Changes in government regulations
Strategies(ST)–
• Involving commu- nity organisations and indigenous figures to pro- tect the CSR activities zone
• Conducting intensive formal and informal discussion to avoid conflict
• Improving the quality of management to anticipate any changes in government regulations, and economic turmoil
Strategies(WT)
• Optimising CSR manage- ment strategies with the cooperation of employ- ees and community
• Self-reliance should be the goal of the CSR acti
vity to generate program sustainability
On 5 February 2013, Asia Pulp and Paper announced its Forest Conservation Policy as part of its commitment to stopping the clearing of natural forests by supply-chain com- panies. This was two years sooner than planned in the sustainability roadmap, Vision 2020 (APP, 2012). According to this report, an assessment will be made of high carbon stock forests, and APP will adopt the best practices for engagement with indigenous peoples, as well as for the management of peat- lands (The Forest Trust, 2013). This policy has to accommodate several CSR policies for better management in particular and for general corporate sustainability.
1. Management of peatlands
The HCVF assessment team leader is to have a team of national and international peat experts to support the HCVF assessment. The team will develop a protocol, methods and will monitor the entire job. The team will also provide an explanation for the recommendations and corrective action plans to implement forest protection and the management of peatlands. The team was to start work in April 2013.
2. Social and community involvement
To avoid or resolve social conflicts in the supply chain, APP will actively solicit advice and input from various stakeholders, including NGOs, in ap- plying the principles of Free, Prior and Informed Consent (FPIC) in dealings with the indigenous peoples and local communities, and to respect human rights.
CONCLUSION
The company’s commitments to sus- tainability and to forest conservation have been realised in various ways.
Nevertheless, there is no perfect strat- egy for all eventualities and CSR is not a panacea. There will be shortcomings here and there, especially related to the concept of sustainable forestry and for buffer and transition zone develop- ment. To that end, the company has involved all stakeholders in contribut- ing to the preservation of the forest environment, preservation of which is to ensure the sustainability of their business and other interests.
Achievements by the company, especially in implementing CSR, should be maintained and improved. The results of the SWOT analysis show that the company’s position is in quadrant IV (see Figure 3), which means, from the perceptions of the CSR managers, there is much still to be achieved before they reap the benefits of their hard work. The measurement of success of CSR programs should no longer be inferred from awards from various institutions. More than prizes and awards, the measurement of success in implementing CSR is the acceptance of the company by society.
The greater the power and influence of the company, the more is the added value that can be used for the welfare of society.
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