INTERNATIONAL CONFERENCE ON CSR AND COMBATING MALNUTRITION:

OBTAINING MILLENNIUM DEVELOPMENT GOALS (MDGs) IN INDONESIA

Grand Sahid Jaya Hotel, 13 – 14 December 2010

Keynote Address

Mrs. Sri UripFormer President Director Unilever Indonesia

Commissioner PT CIMB Niaga Bank

INTERNATIONAL CONFERENCE ON CSR AND

COMBATING MALNUTRITION: OBTAINING

MILLENIUM DEVELOPMENT GOALS (MDGS) IN

INDONESIA

13-14 December 2010

Grand Sahid Jaya Hotel, Jakarta

Partnership between

Special Envoy on MDGs for the President of the Republic of Indonesia

and

PA CSR

Sri Urip

Independent Commissioner CIMB Niaga Bank

Writer of CSR Strategies as a Competitive Edge in Emerging Markets

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THE GLOBAL CHALLENGES

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THE CHANGING WORLD OF INDUSTRY

The ongoing revolution on communication, technology and travel,underpinned by broader political, economical and social changes has made allbusinesses in any country becoming part of a wider Global Market.

Hence, it is becoming very important to ensure the ongoing support andunderstanding of the local community in which a company is operating.

The ultimate aim of any business should be value creation both to thebusiness as well as the wider society This would mean a fundamental internalchange, which is integrating CSR into the business processes, as CSR couldprovide an effective mechanism to create, preserve and enhance thecompany’s reputation and image.

Note: There are few examples of companies struggling to withstand damagedreputation, not because they have breached the law, but mainly due to thelack of trust and acceptance from the community or lack of company’sunderstanding of the local community’s needs.

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THE GLOBAL MARKET

Opportunity

New Market opportunity

Outside home base opportunity

Global /regional sourcing and innovation centers.

Challenges

More demanding consumers

Complexity of market and environment

Emergence of NGOs

Internet Social Network (face book, twitter etc.)

Government policy and regulation

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THE CHALLENGES

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more demanding

consumers

competitive

differentiation

emergence of

NGO’s

complexity of

market &

environment

government

policy & regulation

Globalization

The importance

of GCG & CSR

capability

competition

the importance of

HR dev.

convergence &

consolidation

tightening of

margin

Corporate

Challenges

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Profit was previously the most important issue of being in Business.

Entering the 21st century the new mantra of Business are: Profit-People –and Planet (3 Ps)

- People issues ranging from workers health and safety, employees

morale / engagement & development (=Company Culture / Good

Corporate Governance)- People -internal

- Social issues on community building & education (issues on

entrenched poverty) – People -external

- Environmental issues e.g. global warming, disturbance of

ecosystems etc.- Planet

are coming to the fore as core business issues.

All these activities are included in the Corporate Social Responsibility of the Company both within and outside the core Business operation.

THE EVOLVING BUSINESS PARADIGM (1)

THE EVOLVING BUSINESS PARADIGM (2)

Business globally has transformed their “Key Business Processes” into “Strategic Capabilities” to facilitate the change from “Product” to “Services Capabilities” competition.

This has made People becoming the Corporations’ main asset to ensure sustainable growth and profit.

Given the high complexity and challenges of the above , it is a must for a business to survive, to define the optimum balance between social,environmental and economic factors for short and long term performance / profit (meaning GCG / CSR activities should be embedded into the company’s culture and should be part of the short / long term strategy of the company)

To ensure sustainability of Growth and Profit, Businesses should adopt sustainability related values, principles, strategies and practices.

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THE BOUNDARIES OF GOOD CORPORATE GOVERNANCE

& CORPORATE SOCIAL RESPONSIBILITY

Spheres of influence adopted from World Business Council for Sustained

Development (WBCSD) to accommodate the unique environment in

Indonesia

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GCG AND CSR (1)

GCG is the incorporation of high standards of corporate behavior as a culture within the corebusiness operation

CSR is the interaction of the Corporation and the external environment outside the corebusiness operation, which involves the interdependent relationship between its core operation,its business partners, the environment and the market including the wider community and thegovernment.

Both GCG and CSR are now becoming an increasingly important part of the business strategy:Good Corporate Culture and Human Resources Capability are major determinant of acompany‟s success or failure and CSR activities are important tools to support the Company‟sStrategy and Image / Reputation

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GCG AND CSR (2)

CSR and GCG can be seen as intangible elements that contribute to Corporate Reputation -hence Corporate Success.

It has equal importance but different perspective from that of the financial measures

People, process, system / technology and event are basically component of the core businessoperations which are within the close control of the company which GCG takes a major part ofbuilding the Company Reputation.

From the macro perspective business has little or no control over the government, industry,society, especially now with the globalization and the International community, but well definedand strategic CSR activities will ensure the optimum balance between social, environmental andeconomic factors for short and long term profit sustainability.

Well managed GCG and CSR is equal to good “Risk Management”

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CSR

(CORPORATE SOCIAL

RESPONSIBILITY)

CSR IN COUNTRIES WITH DIFFERENT STAGES OF DEVELOPMENT

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Though the principles of CSR are essentially the same globally, but each country/location still calls for different emphasis in its implementation process.

The successfuk application of CSR priciples is directly influenced by the business understanding of its business strategy in proportion to the needs of the local community.

Developed Countries, in which most states assume primary responsibility forsocial welfare of the community,

- CSR concentrate on care for environment, green issues etc.

Developing Countries: CSR activities is a necessary part of doing business, in countries which is still lacking in basic infrastructure and the capacity to build social capital

- build infrastructure, employment & wealth creation- community development & involvement, training /vocational study & empowerment.- create social capital- improve lifestyle- care for environment /green issues

WHY APPLY CSR PRINCIPLES?WITHIN EACH CORPORATE BUSINESS STRATEGY

TO ENSURE COMPETITIVE EDGE

External challenges= Regional & Global competitive situation= More demanding consumers= Developing market, non-

conducive environment,high unemployment, limitededucation, low purchasing power

= Corporate creates consumerism for under privileges consumers and its advertising creates unnecessary needs (Oxfam)

= Industries litter/ pollute the country. e.g. packaging & detergentpollute the soil / water, mining ruins the soil. (Environmentalist)

= MNC kills local companies (World Social Forum) likewise with Big Local / International companies.

Internal Needs

=To achieve sustainable growth within a

developed market and conducive

environment

= It‟s the vision and the commitment of

responsible Corporations to contribute

to sustainable micro economic

development, through involving the

community into the corporation “value

chain.” and share “Best Practices”

= The believe that a company should

not only offering excellent products

and services, but also contributing to

make the world we live a better place to

live.

= To participate actively in the

Government Policy Development in

order to create a framework in which

allows Businesses to contribute

actively to sustainable development14

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CHARACTERISTICS OF SUCCESSFUL CSR PROGRAMS (1)

A Company can expect to successfully practice sustainable CSR, only when theCompany is able to exert a high degree of control required to ensure GCG within itscore business operations

A business can not do CSR activities without sustainable profit

The principles of CSR are the same globally, but each location calls for differentemphasis in the implementation, depending on the needs of the society in which thebusiness is operating.

Involve and empower the local community and form alliances with NGOs,central/regional government, expert / educational institutions and media.

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CHARACTERISTICS OF SUCCESSFUL CSR PROGRAMS (2)

Provide a win - win solution

Generates sustainable benefit for all stakeholders

A win - win situation can only be sustainable if continuous community“capacity development, involvement and empowerment” arebeing done, supported by the necessary infrastructure.

Ensure continuous monitoring and assessing the CSRimplementation and issue sustainable reporting, following the GRIstandard.

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WHY CSR SHOULD BE EMBEDDED WITHIN THE BUSINESS STRATEGY?

To ensure sustainable growth within the new global highly competitive market companies should pursue not only profit, but all 3 dimensional value creations, which are Profit, People and Planet (3Ps)

CSR is currently widely recognized as an important tool for business to build trust and confidence in their stakeholders at the same time ensure sustainable benefit for both corporations and communities

Well defined and strategic CSR program will ensure an optimum balance between social, economic and environmental factors

CSR embedded within the Business Strategy will provide competitive edge in the areas of:

-Brand equity/ Sustainable Image

-Corporate Reputation

- Employees Retention

- Environment conservation

- Risk mitigation

Green

Company

Care for

environment

PROFIT

PLANET

Socio economic growth

Improved living standard/

better education &

better human resources

Increase health concern

PEOPLE

The impact of the three dimensional creation of of the 3Ps

Community development

& Involvement

Employment / wealth

creation (internal & external)Sustainable

growth & profit

Total

Competitive

edge

Good Corporate

Citizen

Total Effectiveness

Continuous innovation

& Total

Quality Assurance

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CSR MAPPING(ALTERNATIVE

CSR TYPES)

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CSR MAPPING WITHIN A DEVELOPING MARKET (1)

.Employment/wealth creation, create social capital and improve lifestyle

CSR linked with the extended supply chain embedded within the Corporate Business Strategy.Developing the Product through innovating & marketing its product, establishing sourcing facilities, suppliers, the logistic and distribution network through partnership / cooperation with mutual benefit with SMEs (e.g. transfer of technology / knowledge /system etc.) –social impact of the Value Chain development.

II. CSR linked with market development /expansion through community development,education and other efforts to improve lifestyle eg. change behavior training

III. Care for environment, ensure market environment conducive for operation/growth and mitigate risk and Image, through community capacity building/development/ training and empowerment and behavior training & change. Buildinfrastructure and support primary / vocational studies to facilitate an accelerateddevelopment of the local workforce and / or self- employment.

IV. Philanthropy – ad-hoc direct benefit for society e.g. helping victims of naturaldisasters (flood, earth quake etc).

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CSR MAPPING WITHIN A DEVELOPING MARKET (2)

Manufacturing

of products

Consumers /

End users

Logistic /

distribution

Distributors

/ Traders

Insist on GCG

operation

Leverage

technical know

how / quality

assurance

GCG operation

Develop

training

sessions for

distributors

& their

salesmen

Responsible

Advertising /

competition

•Community

Building

•Social

education

•Care for

environment

GCG

operation

Leverage

logistic /

/distribution

strategic

planning

GCG operation

Develop 3rd

party

productions &

ensure captive

market

Corporate Impact to Society (SME) through the Value Chain development

CSR link with Extended Supply Chain (3)

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BUDGET / CONTROL / MONITORING & REPORTING

CSR linked with the extended supply (value) chain of which all activities are

completely the responsibility of the Corporations, monitoring should be done

through the company‟s system and reporting of result are included in the

corporation‟s financial reporting system (including internal/external audit and

risk management control). Cost is part of the operation cost.

CSR linked with market development- cost is a part of the advertising and

promotion budget

All other activities, a separate social accounting report is required, the current

recommended reporting is using the GRI reporting system

CSR to ensure market and environment conducive for growth – tailor

made budget for CSR could be part of profit, part of advertising / promotion

budget

Corporate Philanthropy – cost is part of profit.

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ISO 26000International

Standard

Guidance on social responsibility

Final Draft

Copenhagen 2010

ISO 26000 – OVERVIEW

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THE SEVEN PRINCIPLES OF SOCIAL RESPONSIBILITY ISO 26000

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1. Accountability )

2. Transparency ) GCG

3. Ethical behavior )

4. Respect for

stakeholders’ interest -

GCG/ CSR

5. Respect for the rule of law –

GCG/CSR

6. Respect for international

norms of behavior –

GCG/CSR

7. Respect for human rights.-

GCG/CSR

THE SEVEN PRINCIPLES OF SOCIAL RESPONSIBILITY ISO 26000

Corporations adopting the ISO 26000 should take into account the integration and the

interdependency of all seven principles .

Meaning that the corporations should pursue the 3 dimensional value creation i.e. 3 Ps (

Profit, People, Planet)

It is expected that the corporations are already adopting the organizational Good

Corporate Governance (GCG)

CSR program should be integrated throughout the corporations‟ operation, meaning CSR

strategy should be embedded within the business strategy.

Community Development (CD) is becoming “community engagement & participation” and

is renamed as “Community Involvement and Development” (CID), basically highlighting

community involvement, education and culture, employment creation and skills,

technology development, wealth and income creation, health and social investment.

It is the responsibility of a corporation to understand and prioritize the problems and

needs of the community, get the maximum participation with the aim to empower them.

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TWO DIFFERENT ROUTES TO START CSR ACTIVITIES

Internal need to ensure sustainable growth & development of Corporationsthrough commitment of the development of a sustainable conducive market environment & community wealth creation.

Own Corporate „s CSR initiative , to ensure competitive edge and sustainable growth & profit.

To be coordinated and supported by the

Government including possible tax

incentives for CSR directly benefiting the

Community / Public. To ensure optimun

National impact, corporations to be

encouraged to socialize and collaborate

similar community development

programs and to learn from each other

CSR successes and failures.

Will ensure successful contribution to the achievement of improving National welfare, hence MDG‟s

External / Global pressure linked with the signing of the United Nations Millennium Declaration by 189 countries including Indonesia (September 2005), to achieve the Millennium Development Goals (MDG‟s) by 2015.

External / National pressure

Since the issuance of Ministry Decree BUMN no. KEP-236/BMU/2003 and updated by Ministry Decree No/ PER 05/MBU/2007, it is becoming compulsory for States Enterprises to set aside a max. 2-3% of its profit for CSR.

In the Indonesian Limited Liability Companies Law ( Law No.40, 2007) CSR is becoming mandatory for all corporationsand is considered as the responsibility / contribution of Corporations to improve National Welfare

Mandatory CSR programs, without realizing their own needs in pursuing CSR to ensure Corporations‟ competitive edge for sustainable growth & profit, will not give optimum result in contributing to the achievement of the MDGs and will be felt as a burden to the corporations.

TO ENSURE REGIONAL / GLOBAL BUSINESS COMPETITIVE EDGE,

THROUGH COLLECTIVE SOCIAL RESPONSIBILITY (1)

Globalization has changed the market in Indonesia from a local market into a regional / global market, hence to succeed in business, the Indonesian market environment and the product / services offered should have a regional / global competitive edge.

It is all stakeholders (Government, NGO’s, EducationalInstitutions, Business Corporations etc.) responsibilityin making the country (Indonesia) a safe and conducive place for new investments ( both local & foreign) and ensure sustainable growth through Good Governance, Good Social Responsibilities and “Total Competitiveness” (competitive edge)

Collective CSR budget from Corporations could represent a substantial source of Public Revenue ( “wealth creation”)

Collective CSR activities could contribute substantially in developing / accelerating the micro economic sustainable growth ( through leveraging “Good Governance / Value Change” and “Best Practices”)

Collective CSR activities could help accelerate the development of a conducive market environment for both local and foreign investors and will accelerate the micro-economic growth of Indonesia (availability of good infrastructure, good education / health facilities, well trained human resources / labor, care for environment etc.)

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BNENEFITS OF CORPORATE SOCIAL RESPONSIBILITY

Collective CSR activities amongst various corporations and its stakeholders could contribute to the micro-economic development of a developing country through sustainable benefit to all.

Government

Development and acceleration of micro-economic sustainable growth through using “good corporate governane /value change” and “best practices”, resulting to a market environment conducive for both local and foreign investors (with the availability of good infrastructure, good education and health facilities, well trained human resources and labor and well- cared –for environment )

Encouraging CSR activities, giving direct benefit to the community, with meeting certain development and sustainability criteria possibly being considered for tax incentives

Joint CSR budgets possibly reperesenting an additional source of public revenue (employment and wealth creation to reduce poverty)

Local Community and Society

Change habits, improved quality of life

Capacity building, creates employment and wealth

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TO ENSURE REGIONAL / GLOBAL BUSINESS COMPETITIVE EDGE, THROUGH

COLLECTIVE CORPORATE SOCIAL RESPONSIBILITY (3)

Corporations

Growth, profit, image and competitive edge.

Community acceptance and goodwill

Pride and spiritual values to employees and their families

Genuine dialog with stakeholders

The world and environment

Waste management

Balanced Ecosystem

Green and clean environment

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Best Practice Sharing

of CSR implementation

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CASE STUDY 1: JOB CREATION / WEALTH CREATION

( THE IMPACT OF THE VALUE CHAIN).

PT. Unilever Tbk. ( suppliers, 3rd party producers, sales distributors etc.)

1998 - direct employees 2.300 vs. 13.700

2003 - direct employees 3.096 vs. 25.000

2008 - direct employees 3.627 vs. 300.000

People work full time for

- Pura Group the company outside their

(paper waste collection as part of internal operation process.

its raw materials, husk –waste

from rice milling plants - used as fuel

for the modified burners of its elecric

power station )

2007 - direct employees 8500 vs. 40.000

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CASE STUDY 2: SOURCING OF BLACK SOYBEANS (PT UNILEVER IND.)(AS PART OF THE VALUE CHAIN)

BACKGROUND

In 2001 Unileve Indonesia acquired Kecap Bango – a sweet soy sauce producer.

The basic material for sweet soy sauce is black soy beans. Three years after the acquisition, Kecap Bango sales increased by 425% . With this dramatic change in demand , it was difficult to get sufficient supply locally with consisitent quality of black soybeans. Therefore to secure future demand and ensure consistent quality, Unilever Indonesia had created an altenative supply chain to buy directly from local farmers. No expertise in farming black soybeans is available within the company, hence a cooperation with the agricultural faculty of GAMA University has been established. The program iis included in the local government strategic plan. Unilever provides financial credit and guarantees purchase of the product at a contracted price. GAMA agrcultural faculty develops a new variety of black soybean seed, improve the qualityof the seed, develop certified seeds sources and identify more reliable production/planting method.The local government issues the necessasry regulations and permissions.

RESULT:

2002-2008 ---- 5000 farmers were participating in the planting of black soybeans covering an area of 5000 acres in Yogyakarta, East , West and Central Java

• Farmers‟ participation is expected to grow further at a rate of 50% per annum

• With a consistent high quality of seed /high efficiency of planting coupled with the security of a captive direct market, Unilever/banks farmers are able to increase their income by 10-15 % than the market rate. Farmers also enjoy the continuous availability of credit from Unilever /Banks and the university‟s technical assistant.

• For the first time in 61 years through its scientific research , the agricultural faculty of GAMA became the founder of a completely new variant of premium quality black soybeans, certified by the Minister of Agriculture through a decree issued on February 2007

• Gives Unilever Indonesia a secure supply of black soybeans with consistent Quality.

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CASE STUDY 3 – DANAMON GO GREEN ( “NOTHING WASTED”THE WINNER OF THE BBC

WORLD CHALLENGE 2009 AWARD AT THE HAGUE DEC,1, 2009)

BACKGROUND.The traditional markets in Indonesia are one of the pillars of the economy and welfare of the people, a beehive of activity and they are always dirty. These traditional markets produced thousands of tons of waste every day, of which 70-90% is high quality materials for organic fertilizers. In cooperation with the local govenment, the market community and a prominent bio-technology institute, the Danamon Peduli Foundation (DPF) applies a simple technology to convert thousands of tons of organic waste into high-quality organic fertilizer. Everyday, one composing unit can convert one-to-three tons of organic waste into high quality 500kgs t0 1,2 tons of compost,

The key success and sustainability of this program is a wi-win partnership between DPF and the local government.DPF provide s the project design, machinary and composting house, technical assistance, training, monitoring and evaluation with the help of the experts from the biolotechnology institute.

The local government identify needs, provide land within or close to the markets, issue permission and socialize the program. To ensure commitment, the program is included in the local government strategic planning..

This program has been rolled out and replicated by 31 local goverments within the year 2008. The local governments send progress report every month to be processed by DPF knowledge managements ystem.

Through this monthly reporting system, each local government get a regular feedback on their result compared to others.

RESULT

Has improved health and hygiene in the market place and the market is becoming a pleasant and clean environment to work in and trade their goods.

Has generated socio-economic benefits for the community, meaning it provides additional income for the community, solves fertilizer scarcity issues

Improved land condition

Reduced waste management problems for the market place.

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THANK YOU

Sri Urip

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