**2. Understanding corporate social responsibility (CSR)**

The concept of CSR was first put forward by Howard R. Bowen (1953) based on philanthropic activities. This concept has long been abandoned because now the company views CSR as one of the company's strategies to improve the company's image which will also affect the company's finances.

Achmad [2] explained that CSR was born from the public's insistence on corporate behavior, which is usually always focused on maximizing profits, the welfare of shareholders, and ignoring social responsibilities such as environmental destruction, exploitation of natural resources, and so on. In essence, the existence of the company stands opposite to the reality of social life. Current CSR concepts and practices are no longer seen as a cost center but also as a corporate strategy that can spur and stabilize long-term business growth.

It is therefore important to disclose CSR in financial statements as a form of social responsibility reports to the public.

The definition of CSR was raised by the World Business Council in Sustainable Development "Corporate Social Responsibility, the continuing commitment by business to be ethical and on attribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large."

According to Edi Suharto [3], CSR emphasizes more on efforts to balance corporate and environmental and social goals, where CSR is defined as: "a way by which companies strive to strike a balance between economic, environmental and social objectives of the community, while continuing to respond the expectations of shareholders and stakeholders."

International Standards Organization (ISO) 26000 [4] Guidance on Social Responsibility formulates CSR definitions and guidelines, which have become international standard guidelines, as follows:

*"Corporate Social Responsibility is the responsibility of the organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior; and is integrated throughout the organization and practiced its relationship."*

CSR disclosure standards developed in Indonesia are referring to the Global Reporting Initiative (GRI) standard because they are more focused on disclosure standards on various performances: economic, social, and corporate environments with the aim of improving the quality and utilization of sustainability reports.

GRI is an organization-based network that has pioneered world development, uses the most sustainable reporting frameworks, and is committed to continuous improvement and implementation throughout the world (www.globalreporting. org) [5]. The focus of GRI disclosures consists of three disclosures, namely:

#### **2.1 Economy**

The economic dimension concerning organizational sustainability has an impact on economic conditions and stakeholders and the economic system at the local, national, and global levels, and the indicators illustrate:

a.Capital flows among various stakeholders

b.The main economic impact of the whole community organization

Financial performance is fundamental to understanding the organization and its sustainability. However, this information is usually already reported in the financial statements.

### **2.2 Environment**

The environmental dimension concerns the sustainability of an organization's impact on life, within natural systems, including ecosystems, soil, air, and water. Environmental performance indicators are related to inputs (materials, energy, and water) and outputs (emissions/gas, river waste, and dry waste/garbage). In addition, their performance includes performance related to biodiversity, environmental compliance, and other relevant information such as environmental waste and the impact of products and services.

#### **2.3 Social**

The social dimension concerns the sustainability of an organization that has had an impact on the social system that operates. The social performance indicator GRI (Global Reporting Initiative) is an organization-based network that has spearheaded the development of the world, identifying key aspects of performance which include labor/labor practices, human rights, community/social, and product responsibility.

CSR activities in GRI are stated in the Corporate Social Responsibility Index (CSRI). CSRI will be assessed by comparing the number of disclosures made by the company with the number of disclosures required in the GRI, which includes 79 items of disclosure in the form of: economic, environment, labor practices, human rights, society, and product responsibility.

CSR Index (CSRI) calculation is formulated as follows:

$$\text{CSRI}\_t = \frac{\text{Amount disclosed}}{79} \times 100\% \tag{1}$$
