German Supply Chain Law: Monitoring employment practices and environmental issues in Indonesia

last updated on 5 May 2022 | reading time approx. 4 minutes

• Which risks occur along supply chains in Indonesia? »

• Which industries appear particularly vulnerable to adverse impacts of human/labor rights or environmental issues in Indonesia? »

• Is there any legislation in Indonesia which addresses these risks? To what extent is it enforced in practice? »

• Can you provide a case example (e.g. taken from local media coverage) in which a foreign or local company had to deal with such adverse impacts? »

Which risks occur along supply chains in Indonesia?

There is quite a variety of potential risks likely to affect compliance with supply chain regulations in Indonesia. They include:

• Illegal logging, forest and land fire
• Poor waste management and illegal waste dumping
• Forced displacement (commonly to indigenous people for land clearing)
• Utilization of child labor
• Incompliance with minimum standard of work conditions, such as minimum wage, workhours, overtime pay

Which industries appear particularly vulnerable to adverse impacts of human/labor rights or environmental issues in Indonesia?

With regard to environmental issues, the pulp and paper industry, the manufacture of furniture as well as the palm oil industry seem particularly prone to compliance risks.

As to human and labor rights, mainly the labor intensive industries such as the textile industry, garment and footwear industry, food and beverage as well as tobacco related industries seem particularly vulnerable to infringements.

Is there any legislation in Indonesia which addresses these risks? To what extent is it enforced in practice?

Human rights risks in Indonesia include particularly

(i) forced displacement – usurpation of indigenous people’s rights and
(ii) Utilization of child labor.

These issues are addressed in (i) Law No. 39 of 1999 on Human Rights and (ii) Law No. 1 of 2000 on the Ratification of ILO Convention No. 182 concerning the Prohibition and Immediate Action for the Elimination of Worst Forms of Child Labour.

Enforcement is weak. Law enforcements in Indonesia normally look for specific regulations in creating basis of the violations in human rights.

Environmental risks include

(i) poor waste management,
(ii) illegal waste dumping,
(iii) forest and land fire and
(iv) illegal logging.

These issues are addressed in (i) Law No. 32 of 2009 on Protection and Management of the Environment, as amended by Law No. 11 of 2020 and (ii) Law No. 41 of 1999 on Forestry, as amended by Law No. 19 of 2004 and Law No. 11 of 2020. Enforcement is quite common, coordinated by the Ministry of Environment and Forestry together with regional governments.

Environmental report is usually integrated in business activities report (such as quarterly Investment Activities Report)

One of the efforts of supervision in relation to environmental management is carried out through a Company Performance Assessment Program in Environmental Management, held by the Ministry of Environment and Forestry. Black listed companies are restricted in many ways in conducting their business activities, for example: companies under black list cannot participate in tenders organized by governmental bodies.

Important points of Employment/Industrial relations are:

• Non provision of (i) occupational safety and health protection, (ii) protection against immorality and indecency and (iii) treatment that shows respect to human dignity and religious values.
• Child labor: No child (everyone below the age of 18) may be employed, with specific conditions of permissible child labor as set forth in the Manpower Law. Other than that, there is prohibition from employing and involving children in the worst forms of child labor, such as: slavery or practices similar to slavery, prostitution, the production of pornography, porno-graphic performances, or gambling, production and trade of alcoholic beverages, narcotics, psychotropic substances, and other addictive substances, or works harmful to the health, safety and moral of children.
• Under standard of female workers protection (as set forth in the Manpower Law).
• Payment of less than minimum wage: Every worker has the right to earn a living that is de-cent from the viewpoint of humanity. All workers are entitled to receive at least the minimum wage as determined by the regional government where the workers undertake their work from time to time.
• Demand of more than standard working hours: Standard working hours under Indonesian laws is maximum 40 hours per week, and may differ depending on the specific business sector. Working more than this standard working hours must be considered as overtime;
• Workers and their families shall each be entitled to social security for workers, i.e. organized by Manpower BPJS and Health BPJS.
• Every worker has the right to form and become member of a labor union. Workers cannot be fired for reasons of participation in establishment of or the participation in a worker union, either as a member or organizer outside of working hours, or within working hours in accordance with prior agreements with the company/entrepreneur or the provisions in employment contract, company regulation, or collective employment agreement.

Employee rights are addressed in Law No. 13 of 2003 on Manpower, as amended by Law No. 11 of 2020. The legislation is enforced quite commonly in large cities or cities where famously known for their industrial areas, however in smaller cities/regencies/areas, enforcement may be less of an attention. Entrepreneurs/companies must provide report annually in form of Mandatory Manpower Report.

Can you provide a case example (e.g. taken from local media coverage) in which a foreign or local company had to deal with such adverse impacts?

PT Bumi Mekar Hijau (BMH), a company holding a concession land of more than 120,000 ha in South Sumatra from 2004 was accused of causing forest and land fire during 2014-2015 and was the  defendant in a civil suit brought up by the Indonesia’s Ministry of Environment (MOE). The MOE calculated that there were more than  2 trillion Indonesian Rupiah in material damages and more than 5 trillion Indonesian Rupiah as the company’s liability in restoring the burnt forest and land (more less covering 20,000 ha). These damages excluded exponential damages corelated with the haze caused by the fire which affected people’s lives in surrounding areas and some was believed to have reached the surrounding countries such as Singapore and Malaysia.

For this reason, during 2015-2016, Singapore’s environmental organizations and private sectors, such as several of Singapore’s largest supermarket chains, including NTUC FairPrice and Sheng Siong Group Ltd, announced boycott on products sourced from Indonesian company Asia Pulp & Paper Group (APP). APP was publicly suspected to have beneficial ownership in BMH.