Corporate Social Responsibility and Sustainable Development

Social Capital and Corporate Development in Developing Economies

Risa Bhinekawati

• Publisher: Gower
• Year: 2016
• ISBN:
  9781315395449
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Many different companies can significantly contribute to the integrated goals and targets of the United Nations' sustainable development goals, such as poverty reduction by 2030. Poverty is not only about people living on less than $1.25 per day, but more fundamentally, it is their lack of capabilities and access to participate in productive economic activities. If companies can contribute in order to provide access and the necessary skills, then individuals will have the capabilities to achieve their aspirations, including earning a higher income.

Corporate Social Responsibility and Sustainable Development supports Sen's assertions that poverty can be alleviated if the capability of individuals is improved. Beyond that, this book shows that sustainable development goals can be achieved when the company's CSR programs and social capital development in improving people's capabilities are combined with necessary finance access and market access for the poor. The theoretical model developed from the journey of Astra International, one of the largest public-listed companies in Indonesia, is replicable for other companies aspiring to be sustainable in developing countries. The model shows a virtuous cycle between the corporate aim, CSR programs, social capital and corporate sustainability.

This volume is of great value to academics, practitioners and policy makers interested in the themes of CSR, social capital and sustainable development of developing countries. It also appeals to professionals in industry associations, development agencies and international organizations, as well as NGOs that are concerned with the achievement of sustainable development goals by 2030.

1 Introduction

Corporations and sustainable development goals

We would like Astra to grow and flourish like a shady tree that serves as a shelter for many during rain or shine. In a nutshell, Oom¹ would like Astra to become a company that generates benefits to society and the country, in line with Astra’s aim: to prosper with the nation.

William Soeryadjaya, Astra founder

The above statement was made by the founder of a major corporation in Indonesia and became the company’s corporate aim. Over time, the virtues and the vision of the founder have inspired the next generations of the company’s leaders to take actions in enabling many Indonesians to prosper through their business presence, because they believe that the company can only be prosperous if the nation is prosperous. Established in 1957 as a family business, PT Astra International Tbk (Astra) became one of Indonesia’s largest public listed companies employing 221,046 permanent employees across its 198 subsidiary companies in 2015 (Astra International, 2015). From 2009 to 2014, Astra has always been selected as a responsible and sustainable investment (Kehati, 2015). Through its corporate social responsibility (CSR) programs, Astra empowered 8,106 micro and small businesses by 2013 (Widjaja, 2014) and 7,297 palm oil farmers by 2011 (Astra Agro Lestari, 2011) to become its business partners to fully finance one of Indonesia’s best manufacturing polytechnics, develop curriculums of secondary vocational schools and train high school dropouts to overcome skilled labour scarcity. With the United Nations’ ambitious plan to eradicate extreme poverty and achieve other sustainable development goals by 2030 (UN, 2015) and the demands that companies contribute to these goals, are there any management lessons that we can learn from Astra? It is this question that sets the tone for the rest of this book. This book captures the two main lessons from the company. First, through its strategic CSR programs, the company contributes to sustainable development goals by building social capital such as social relationships, capability building for the poor, and collective actions along the company’s supply chain. Second, the company’s experience in undertaking CSR for more than 30 years in a developing country has shown that the concepts of sustainable development, CSR programs, social capital and corporate sustainability are actually interlinked.

Sustainable development will become the world’s main agenda by the next decade. Members of the United Nations (UN) pledged in their assembly on 25 September 2015 that they were determined to work collaboratively to implement the 17 sustainable development goals, which includes freeing the world from extreme poverty and hunger, and healing the world significantly by 2030. To do so, the UN calls for actions by the stakeholders to contribute in balancing the economic, social and environmental conditions of the world. Collaboration among stakeholders is fundamental to achieve such ambitious targets. But what kind of collaborations can make such impact? Experts argue that social capital or social relationships that generate trust and collective actions among stakeholders are the key to capability building and poverty eradication in developing countries. Theoretically, as has also been discussed, corporate social responsibility programs that can generate social capital can then build the corporate sustainability that contributes to sustainable development goals. However, experts’ opinions need empirical evidence to show how the process under which such interrelationships among different concepts and collaborations by different stakeholders evolves in real life, especially in the context of developing countries.

Hence, this study explores why and how companies can institutionalise sustainable development goals into their business operations. The study of Astra with three embedded cases will be used to directly answer the questions on how a company can dedicate resources in developing rural areas by supporting smallholders and building infrastructure surrounding palm oil plantations; develop vocational education at secondary and tertiary levels; provide access for people to have life-long learning opportunities in acquiring skills and knowledge to be productive partners of the company; and build economic foundation by empowering micro, small and medium enterprises along and outside the company’s supply chain.

Poverty, in this study, is not only addressing people living below US$ 1.25 per day, but more importantly, it shows why and how a company addresses a more fundamental cause of poverty, which is lack of capability, access to finance and access to markets. If the company can contribute in providing the necessary skills and access, then people will have the capabilities to achieve their aspirations, including earning better income. This book supports Sen’s (1992, 1999) assertions that poverty can be alleviated if the capability of people is improved. Beyond that, this book also shows that companies can innovatively combine the improvement of people’s capabilities with necessary finance access and market access, so both the company and the community can achieve sustainable development goals.

The theoretical model, which was based on empirical evidence of over 50 years of company practice and more than 30 years of its strategic CSR programs, can help companies, scholars and states translate development policies into concrete actions. It is expected that insights from the virtues and commitments from the company’s leaders in embedding social issues into their corporate aim ‘to prosper with the nation’ can inspire decision makers at the state and company levels in combating poverty and building dignity of people in which they operate. Thus, the presence of companies can become a blessing for developing countries rather than nightmares for many.

Roles of companies in developing countries

Developing countries still suffer from sustainable development issues such as poverty, inequality, social exclusion for the poor and environmental degradation, despite the presence of global value chains and foreign direct investment. A recent United Nations Development Programme (UNDP) report reveals that globally, half of the world’s population, or 2.7 billion people, lives on US$ 2.50 a day on average, and 1.2 billion of these live on less than US$ 1.25 a day. In total, more than 2.2 billion people are vulnerable to ‘multidimensional poverty’ (UNDP, 2014). Developing countries’ governments are willing to encourage private sector participation to improve the economy and create jobs by providing investment incentives and deregulations, and by relaxing labour and environmental laws, risking the future sustainability of the environment and the society. However, the benefits of trade, foreign direct investment and global value chains are still captured by multinational corporations (MNCs), while the developing countries only get minimal benefits of globalisation, thus contributing to inequality between rich and poor countries (UNDP, 2014).

Many developing countries are categorised as ‘weak countries’, where weak governments lack the capacity to govern corporate behaviour and to deliver public goods (Scherer and Palazzo, 2011). In fact, during the 1980s and 1990s, the enforcement of labour laws across developing countries declined in response to competition for foreign direct investment, because the adherence to codes of conduct of MNCs only reaches their own subsidiaries, and does not always include their suppliers (UNDP, 2014). Indeed, in developing countries, companies need to be self-regulated to manage their operations responsibly, including in conducting their CSR activities, because governments do not have the capacity to enforce laws and regulations (Scherer and Palazzo, 2011).

The concept of CSR itself has evolved over time. This book uses Carroll’s (1979) CSR definition, that ‘the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organisations at a given point in time’ (p. 500). In the context of developing countries, Visser (2009) finds that economic contributions from companies are the most important because these countries have high unemployment and widespread poverty. Philanthropic contributions come second in importance, because society expects companies to provide voluntary contributions to society, and sometimes contributions are also considered as common practice within the norm of ‘the right thing to do’. Legal responsibilities have been difficult to achieve because the legal infrastructures in developing countries are still underdeveloped, with a lack of law enforcement by government. Lastly, he argues that ethical responsibilities are the most difficult to implement because developing countries still suffer from high levels of corruption and poor governance. As such, sustainable development becomes central to the CSR agenda in developing countries (Fox, 2004), where companies are expected to perform extended roles in providing public goods such as health, education and infrastructure (Scherer and Palazzo, 2011). Overall, the literature on sustainable development, CSR, and corporate sustainability shows that these concepts are interrelated, but that they need to be clarified. Furthermore, experts strongly argue for social capital as an alternative way of explaining and improving the livelihood of low-income people in developing countries, but there is a lack of empirical evidence to support this argument (Ansari et al., 2012).

Based on the above discussion and the literature review in chapters 2, 3 and 4, this book has two broad objectives. First, it aims to investigate the actual role of a company in contributing to sustainable development in a developing country. Second, this book aspires to explore why and how the concepts of sustainable development, CSR programs, social capital and corporate sustainability are interrelated and evolve over time.

Lessons from a responsible company in a developing country

This study reveals that companies can significantly contribute to these integrated goals and targets of the UN’s sustainable development goals. Taking lessons from a long history of Astra – an Indonesian company which started as a family business and is now one of the largest public listed companies in the country – shows that a corporation can survive and thrive if it sees itself as an embedded part of the society. The company, the community and the environment are influencing each other and the company makes genuine efforts to ensure that its presence benefits its stakeholders, both in good times and in times of crisis. Indeed, sustainable development goals can only be achieved when the concerns of people, planet and prosperity are pursued in partnership among the relevant stakeholders. The study shows that peace can be achieved if the company can reduce social jealousy and income disparities surrounding the company and along the company’s supply chain.

Like many other developing countries, Indonesia provides high market growth opportunities with a challenging business environment. This archipelagic country has 255.2 million people (BPS, 2015). Indonesia is currently the sixteenth largest economy in the world, which is predicted to become the seventh largest by 2030. By 2030, the country will have a population of 280 million and a US$1.8 trillion market opportunity in customer services, agriculture, fisheries, resources and education (McKinsey Global Institute, 2012). Despite such lucrative opportunities, Indonesia poses challenges for business because of its poverty (UNDP, 2011), weak regulatory system (Mourougane, 2012), lack of skilled labour (World Bank, 2010) and lack of infrastructure (McKinsey Global Institute, 2012). The UNDP’s Human Development Index (HDI) shows that Indonesia’s performance in...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of tables
• Foreword
• Acknowledgements
• List of acronyms and abbreviations
• 1 Introduction: corporations and sustainable development goals
• 2 Corporate social responsibility and sustainable development in developing countries
• 3 Social capital and corporate sustainability in developing countries
• 4 Theoretical linkages between sustainable development, corporate social responsibility, social capital and corporate sustainability
• 5 Research approach
• 6 Indonesia, a very large developing country
• 7 Astra, one of the largest companies in Indonesia
• 8 Empowering micro and small enterprises to build supply chain and prosperity
• 9 Developing vocational education to secure skilled workers
• 10 Eradicating poverty by empowering smallholder farmers
• 11 Building theory on corporate social responsibility and sustainable development
• 12 Conclusion: a replicable model for corporate social responsibility and sustainable development
• Appendix: notes to contributors
• Index