KEY IMPACTS, RISKS & OPPORTUNITIES

It is increasingly evident today that the security of future generations can be at significant risk unless economic growth models are sustainable and inclusive. Rapid progress, with callous depletion of natural resources and disparities in wealth, will have consequences that will not only impact the sustainability of business, but also that of the economy and the nation. It is for this reason that ITC aspires to contribute to a larger national goal of building societal capital through a commitment that goes far beyond the market.

ITC's abiding vision to be an exemplar in Triple Bottom Line performance provides the driving force to sustain growing shareholder value with the superordinate goal of creating value for society. We practice this philosophy by not only driving each of our businesses towards international competitiveness, but also by building the competitiveness of the larger value chain of which we are a part.

With the rapid changes in the Indian marketplace, aspirations of consumers are increasingly getting aligned to global standards. The wide array of choices now available to the Indian consumer, in terms of national and international brands, has put immense pressure on manufacturers to deliver world-class products and services. ITC's diverse internal competencies together with its deep consumer insights, state-of-the-art technology and strong R&D capabilities have enabled it to constantly deliver superior value to customers in terms of world-class products and services. ITC has gained significant marketshare over the years in all sectors that it has forayed into. This bears testimony to the continued trust reposed in the Company by consumers. It is a matter of pride that our brands today account for three of the top five FMCG brands in the country.

Realising the close linkages between the agricultural sector in India with ITC's businesses, the Company has over the years engaged in several initiatives that transform the quality of life of the farming community. To enhance farm productivity and raise incomes, ITC launched the pioneering e-Choupal network, which today covers 40,000 villages and reaches out to 4 million farmers. In addition, the Company has recently launched large scale agri-extension services through the ‘Choupal Pradarshan Khet’ initiative. This far reaching programme has been implemented to ensure larger productivity gains in agriculture and higher returns to farmers. ITC has also contributed to creating sustainable livelihoods through social and farm forestry, integrated watershed development and animal husbandry programmes. Favourable and stable Government policies will be critical in ensuring long term involvement of corporates in agriculture and rural development. Given the wide ranging benefits to farmers, such public-private partnerships need to be encouraged through a concerted policy framework.

ITC's agri-sourcing has not only enhanced the competitiveness of the entire agri value chain but has also led to efficient sourcing for its businesses. Linking the Indian farmer to world markets, ITC's Agri exports constituted nearly 60% of the foreign exchange earnings of $3.2 billion.

Over the years, ITC has consistently created significant shareholder value. Total Shareholder Returns, measured in terms of increase in market capitalisation and dividends, grew at a compound rate of over 26% per annum (compounded annual average), over the last 13 years.

In response to the emerging challenges and impact of climate change, ITC has initiated innovative measures that contribute to climate change mitigation. ITC is making efforts to combat climate change by adopting strategies which achieve energy efficiency benchmarks, de-risk various businesses and benefit from the opportunities offered by climate change mitigation and adaptation mechanisms. A 'Carbon Committee' has been set up comprising senior managers from Finance, Environmental, Health and Safety and Legal. The 'Carbon Committee' plays an important role in implementing the above strategies.

ITC's investments of nearly Rs 8,000 crores in the last decade to enhance the competitiveness of its businesses support direct employment to the tune of over 25,000 and indirect employment across the value chains of nearly 5 million people, whose livelihoods are substantially linked to their association with ITC. The Company's new FMCG businesses alone support the competitiveness of over 150 vendors in the SME sector thereby enabling them to adopt best practices, induct superior capabilities, and eliminate reprehensible practices like child labour.

With increasing demand for skilled expertise and talent, talent management remains one of the vital challenges that confront industry today. To address this issue, ITC has engaged extensively in creating a responsive, stakeholder-centric and market-focused culture that enhances organisational capability and vitality. It has also constantly strived to attract and nurture quality talent by making significant investments in learning and development, providing a culture of care and concern as well as systems and processes that encourage engagement and involvement.
 

Our business operations primarily impact the environment in three areas -

• Green House Gas (GHG) emissions

• Water use and emissions

• Solid wastes.

We have implemented innovative strategic initiatives to not only minimise the environmental impact but also create a positive footprint in each of these areas of global concern.

GHG Emissions - In order to mitigate any adverse impacts resulting from our activities, we follow a two-fold strategy -

• Minimise specific energy consumption in each of our businesses through improved technology and processes - Most ITC businesses, as detailed in relevant parts of this Report, are among the best in their class of business and continue to further lower their energy intensity. Over 24% energy in ITC is produced from renewable resources.
    

• Carbon dioxide Sequestration through large-scale forestry programmes - Over 80,000 hectares of tree plantations, created by our efforts todate sequester 1.95 times the total carbon dioxide emitted by our operations thereby ensuring our status as a ‘Carbon Positive’ Company for the third year in a row. Within the next five years, we plan to green 100,000 hectares, which would not only lead to sustainable sources of raw materials for our expanding Paperboards business and provide millions of man-days of employment to marginalised farmers, but also help consolidate ITC's ‘Carbon Positive’ status.

Water Responsibility - India accounts for 18% of the world's population but has only 4% of global fresh water resources. In order to create a positive impact in the area of water we have adopted a three-fold strategy -

• Minimise the consumption of fresh water per unit of output in all the businesses - Through water audits, conservation and use of next practices/latest technologies, our businesses have not only brought down the specific consumption of water substantially. These achievements are comparable to international benchmarks.

• Minimise/recycle the treated effluents - A large number of our units now recycle all the treated effluents, thereby not only minimising fresh water intake and also preventing pollution. The details are provided in the relevant sections of this Report. The number of such units has been increasing over the years.

• Create rainwater harvesting potential within our units and in socially relevant areas - We have systematically invested in creating additional rainwater harvesting potential in the Company units and through external watershed development projects in water stressed areas. This recognises the critical need to ameliorate water scarcity in rural India which is home to more than 72% of our population with agriculture as their mainstay. Nearly 67% of the cultivated area face severe moisture stress for 5 to 10 months a year.

ITC's watershed development projects now assist farmers in 24 districts, benefiting 33,311 farmers. A total of 2,178 water harvesting structures have been created, providing critical irrigation to 18,483 hectares of farmland.

As a result of these measures, ITC has sustained its status as a 'Water Positive' Company for the six consecutive years. Our endeavour to sustain our 'Water Positive' status and contribute meaningfully to the country's effort in mitigating water scarcity problems gives us the stimulus to envisage a goal of bringing a total of 50,000 hectares under soil and moisture conservation in the next five years.

Solid Waste Management - A three-pronged strategy guides the Company's endeavour to reduce solid waste and achieve a 'Zero Solid Waste' status through 100% recycling -

• Reduction of waste per unit of output

• Ensure recycling of all wastes generated by our operations

• Maximise reuse of the wastes as raw material

As a result of these initiatives, 98.95% of all solid wastes generated was recycled in 2007-08. Several of our units have already achieved nearly 100% recycling of all solid wastes.

We also used 163,250 tonnes of waste paper as raw materials in our Paperboards business, thereby creating a 'Positive Foot-print' even in the area of solid waste.
 

In line with ITC's abiding vision to contribute to a larger societal purpose, several initiatives have been implemented to bring in social equity and create a better future.

Our social initiatives support the Millennium Development Goals (MDGs) enunciated by the United Nations. The goals, which target reduction of poverty by half, promote gender equality and provide universal education form a blueprint agreed to by all the nations of the world and leading development institutions.

Millennium Development Goal - Poverty Eradication and Hunger - ITC's initiatives which support the MDG - Poverty Eradication and Hunger are listed below -

• e-Choupal - The ITC e-Choupal initiative is a powerful illustration of the Company's commitment to empower the small farmer and thus engender rural transformation. Through these rural partnerships, ITC touches the lives of nearly 4 million farmers across India.
   

• Social and Farm Forestry Programme - ITC innovatively leveraged its pulpwood requirements to provide sustainable livelihood opportunities to poor tribals and marginal farmers, by assisting them to convert their private wastelands into productive pulpwood plantations.
   

• Integrated Watershed Development - ITC's watershed development programme facilitates village-based participation in building, reviving and maintaining micro-water-harvesting structures and management of water resources to reverse land degradation, ensure soil and water conservation, provide critical irrigation and raise agricultural productivity.
    

• Integrated Agriculture Development Programme - This initiative facilitates a combination of solutions for optimising water management and enhancing farm productivity. Farmers are also encouraged to form agri-business centres, enabling them to pool knowledge and resources, have access to quality inputs on time and improve productivity and quality.
   

• Livestock Development Programme - This initiative assists small and landless farmers to upgrade livestock quality through cross-breeding by artificial insemination to boost milk productivity by a factor of 6 to 9 times, leading to a threshold increase in household incomes and thereby an improvement in their poverty status.

Millennium Development Goal - Promote Gender Equality and Empower Women - ITC's initiative to empower women include the setting up of Self Help Groups (SHGs) facilitating the promotion of micro-credit groups which is the first step towards the economic empowerment of women. Mature SHGs are linked with micro-enterprises like incense stick rolling and embroidery to provide diversified sources of income for poor rural households.

This programme is in line with the MDG of Promoting Gender Equality and Empowering Women.

Millennium Development Goal - Achieve Universal Education - ITC's supplementary education programme provides infrastructural support to Government-run primary schools and learning through Supplementary Learning Centres to stem drop-outs and enable more children to complete school and move on to higher standards. All these programmes are implemented around our production sites situated in rural hinterlands or semi-urban locations.

This initiative supports the MDG - Universal Education.

Millennium Development Goal - Improve Maternal Health - In line with this goal, initiatives in building low cost sanitary toilets improve hygiene in villages, improving access to such basic facilities for women, while backyard horticulture provide nutritional supplements. Our health camps address the curative needs of villagers.

Details of these initiatives are presented in the various chapters of this Report, and reflect our commitment and pride in being ‘Citizen First’.