The Legal 500

Government Regulation No. 47 of 2012 on Corporate Social and Environmental Responsibility ("Regulation) has been issued on 4 April 2012 to implement Article 70 (4) of Law No. 40 of 2007 on Limited Liability Companies. This is a long-awaited piece of implementing legislation that clarifies the nature of the required corporate social responsibility (CSR) activities, which have been a vague requirement (which has survived a Constitutional Court challenge) for nearly 5 years.        

Article 2 states the limited liability companies have social and environmental responsibilities, while Article 3 states that companies in, or related to, the natural resources sector have an obligation to exercise such responsibilities both within and outside the company's business activities.

Elucidation of Article 3 (1) further elaborates on what is meant by companies related to the natural resource sector, and defines such as those having an impact on the function of natural resources, including the conservation of the environment. This is a change from how the CSR obligation was previously understood, in that it now applies to all companies that have an environmental impact, and not merely to those whose business activities are in, or related to, the natural resource sector.

Article 4 tasks the Board of Directors, subject to the approval of the Board of Commissioners, with formulating an annual work plan that consists of planned actions and budgets to implement the CSR responsibilities. Implementation of such responsibilities has to be included in the company's annual report and reported to the AGM pursuant to Article 6. Companies for whom CSR is an obligation, according to Article 5 (1), have to consider the appropriateness and reasonableness (defined in the elucidation as being based on the company's financial capability and the social and environmental effects of its business activities) of the planned actions and budgets. While Article 5 (2) clarifies that the implementation of such CSR obligations is accounted as a cost to the company.

Failure to fulfil the obligation makes the offending company subject to sanctions pursuant to Article 7; the exact nature of sanctions is not well defined however, with the elucidation merely stating that all forms of sanctions under related legislation are available.

Companies that excel in fulfilling their CSR responsibilities and obligations can be recognized, and awarded (potentially via the provision of certain facilities, according to the elucidation), by the relevant authorities pursuant to Article 8 (2).

The expanded and better-defined approach to the CSR obligations appears to be an attempt to force companies to internalize some of the negative externalities of their business activities. This is arguably a better approach then the CSR obligation being a "philanthropy tax," with little underlying basis beyond the fact that companies in the natural resources sector are an easy target.

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