ITC's Vision & Strategy
Chairman's Statement

I have great pleasure in presenting ITC’s Sustainability Report 2013, a transparent and voluntary disclosure of the Company’s Triple Bottom Line performance. It encapsulates ITC’s abiding commitment and pro-active action in contributing meaningfully to India’s pursuit of sustainable and inclusive development. ITC’s multi-dimensional sustainability initiatives also support the global community’s efforts in building a secure future for the generations to come.

This Report commemorates an important milestone as it is the 10th consecutive year of its publication. As in earlier years, this Report conforms to the stringent ‘G3’ guidelines of the Global Reporting Initiative (GRI) at the highest ‘A+’ level. It has also been independently assured by M/s. Ernst & Young Pvt Ltd.

I am happy to once again reiterate the Company’s support to the principles underlying the United Nations Global Compact. It is a matter of great satisfaction that ITC’s unique and inclusive business models together with its focussed social investments contribute significantly to the Millennium Development Goals enunciated by the United Nations.

We have been deeply encouraged by the accolades received, in India and abroad, for the Company’s exemplary performance in augmenting social and environmental wealth. For the second consecutive year, ITC was ranked first in the CSR category in the Nielsen Corporate Image Monitor. In 2012, the Company was honoured with the World Business and Development Award at the historic Rio+20 United Nations Summit for its large-scale Social and Farm Forestry programme. This award is a tribute to the efforts of thousands of tribals and poor farmers in rural India, who have partnered ITC in enriching the country’s environmental capital while generating significant sustainable livelihood opportunities. These acknowledgements give us strength in pursuing a path less travelled to create growing societal value.

It also gives us humble pride that, as a company from a developing nation, ITC has been able to achieve the unique global distinction of being the only company in the world of comparable dimensions to be Carbon Positive (for 8 successive years), Water Positive (for 11 consecutive years) and Solid Waste Recycling Positive (for 6 years now). ITC’s businesses and value chains support sustainable livelihoods for more than 5 million people, many of whom represent the weakest sections of society. For the last 17 years under my watch as Chairman, total shareholder returns have grown at a CAGR of over 26 %. This triple bottom line performance is a manifestation of ITC’s abiding vision and commitment to create enduring value for its stakeholders.

Global Challenges

Five years after the outbreak of the global financial crisis, the world economy continues to remain fragile. The recurring dips in growth and employment are a cause for concern despite all-out attempts to contain the Eurozone crisis and strengthen recovery in the United States. The cascading effect of the economic slowdown in the richer nations have left deep scars across the globe. Though developing countries managed to drive more than half of the global growth in 2012, their growth rate also plunged to new lows.

The continuing economic slowdown can have serious consequences on social stability including that arising out of increasing unemployment, mainly amongst the youth. The “Global Employment Trends 2013” Report of the ILO released recently presents an ominous picture. The number of unemployed worldwide will rise to 202 million in 2013 with nearly 10 million accumulating in the last 2 years alone. What is worse is that youth unemployment, estimated to reach over 75 million in 2014, is growing at a far higher rate. The crisis has dramatically diminished the labour market prospects for young people, as many experience long-term unemployment right from the start of their labour market entry, a situation that was never observed during earlier cyclical downturns, the ILO Report says. This can turn out to be a colossal waste of human resources with serious mismatch of education, skills and jobs; a generation losing out on valuable work experience and erosion of occupational skills while at the same time fuelling social unrest as disillusionment and frustrations rise. Austerity, forced upon by economic circumstances, as well low incomes and low demand will continue to put pressure on employment. Therefore, it is now mission critical to find innovative solutions for sustainable livelihood creation of a magnitude that can arrest and avert a potential social disaster.

These global challenges are further aggravated by the continued degradation of the world’s environment. Scientists recently flagged yet another crisis alert when it was found that the carbon dioxide levels in the atmosphere had reached an average daily level higher than that measured for at least three million years. This can further accelerate global warming and changes in sea levels. The Arctic Region, the earth’s dazzling white cap, is turning green.

In Asia, upto 88 per cent of bird species are at peril due to climate change and need special protection in vast stretches. Rapid industrialisation, deforestation and disproportionate growth of cities have caused severe water stress and food insecurity across the planet. Experts fear that the damage to the ecological balance of the earth may well be irreversible. A World Bank Report warns that the planet can be 4 degrees warmer by the turn of this century.

Sustainability as a Business Strategy

Societies across the globe can ignore these warning signals only at their own peril. Business, as critical organs of society, cannot succeed in societies that fail. Therefore, they have to be an integral part of the solution. I am of the firm belief that corporates possess enormous capacity to create transformational change through innovative business models that deliver significant societal value even as they generate economic wealth. Shareholder value creation ought to be a reward for societal value creation. Responsible corporates create societal value by serving their consumers through competitively superior value propositions, by preserving and replenishing the environment and by innovating strategies that maximise sustainable livelihood creation.

Traditionally, companies have participated in the task of creating societal value through philanthropic activities. This approach, though well intentioned, has its limitations. Confined to philanthropy, corporates tend to limit their CSR to only extending financial support to social projects. As a result, there is a disproportionate focus on outlays rather than on outcomes. In such an approach, the capacity to extend financial support far outweighs the transformational capacity of business to create larger societal value. Global research by renowned experts such as Prof. Michael Porter and Mark Kramer of Harvard have however established that societal value creation delivered through a strategic business context is more meaningful and scalable. Philanthropy, as noble as it is, is seen to be less effective than CSR that is linked to the context of business. And that to my mind is the critical difference which can make business’ social contribution more meaningful, scalable and sustainable. The focus of strategic CSR is on outcomes that enhance the business context and simultaneously add value to the social dimension. A focus on outcomes spurs proactive innovation to deliver meaningful social interventions optimising resources and capacities at hand.

ITC’s Sustainability Approach and Action

ITC’s vision to serve larger national priorities is realised by this strategic approach of embedding sustainability in its core business models. Innovative strategies have been designed and implemented to create sustainable value chains linked to its businesses that encompass some of the most disadvantaged sections of society, especially those residing in rural India. The vitality of ITC’s winning brands drive the competitiveness of these value chains. At the same time, these linkages provide unique sources of competitive advantage to the Company’s businesses.

Take for example, ITC’s atta (wheat flour) brand, Aashirvaad. The ITC e-Choupal system has co-created with farmers an efficient agri-value chain that enables identity-preserved procurement lending a unique source of competitive advantage to the Company’s Foods businesses. Farmers gain from ITC’s agri-extension services that impart know-how for increased productivity, efficient market linkages as well as from the growing market share of Aashirvaad. At the same time, ITC derives gains from an efficient supply of quality raw materials. The ITC e-Choupal has benefitted over 4 million farmers in 40,000 villages and significantly raised rural incomes.

Similarly, a wood-fibre value chain based on the Company’s R&D driven clonal propagation programme and implemented through a Social & Farm Forestry initiative has provided 64 million person days of employment till date to poor tribals and marginal farmers, created a green cover of more than 1,40,000 hectares and a competitive source of fibre for its Paper and Paperboards Business. Recently, an Agro-Forestry initiative has provided encouraging results through multiple cropping of trees and other agricultural crops, demonstrating that such innovative practices can address the “food or fibre” conflict by enabling areas of co-existence. This innovation has been able to release upto 75 % of land for agricultural crops in the pilot areas without compromising wood pulp production.

Another unique example of livelihood creation through competitive value chains is the Agarbatti (Incense Stick) Business. ITC has trained rural women to roll agarbattis, which are then sourced by the Company for its Mangaldeep brand, thereby empowering them with a stable source of livelihood. ITC’s Women Empowerment programmes support livelihoods for over 40,000 rural women.

Recognising that water stress is a major crisis impacting agricultural production and livelihood of farmers, ITC’s Integrated Watershed Development programme has enabled soil and moisture conservation covering 1,16,000 hectares providing precious water resources. As a result, farmers are able to get additional crops in areas that are mostly rainfed enhancing their incomes substantially. Given the success of these programmes, several State Governments and the National Bank for Agriculture and Rural Development (NABARD) have engaged with ITC on such watershed projects in a public-private-people partnership, multiplying livelihood opportunities as well as enhancing agri-productivity and rural incomes. These programmes together with the Social & Farm Forestry initiative also add to eco-restoration through rainwater harvesting, top soil conservation and large scale carbon sequestration.

In addition, ITC’s Livestock Development programme augments off-farm rural livelihoods and has provided animal husbandry services to over 8,00,000 animals, increasing milk yields substantially. This has provided an impetus in supporting a dairy value chain through a corporate social responsibility initiative adding significant value across the chain.

The ITC Supplementary Education programme has reached out to over 3,00,000 rural children providing them additional support to benefit from a better education and help build a better future. These programmes, in the catchment areas of the Company’s operations, are also supplemented with health awareness camps and sanitation projects. Therefore, ITC’s wide array of social sector interventions have multiplicity of positive impact by not only creating market-linked opportunities for poor rural households through enterprise development, especially among women, but also by enhancing employability through education and skills training. It is a matter of great satisfaction that ITC has been able to substantially scale up such programmes over the years transforming the rural communities into vibrant economic organisations and empowering them with enhanced incomes and livelihoods. This Report details some of these unique sustainability-embedded business models as well as other social development interventions.

It is also a matter of immense satisfaction that ITC has adopted the “CII Code of Conduct for Affirmative Action” that enjoins the Company to focus on initiatives in the areas of Employability, Entrepreneurship, Education and Employment. Whilst ITC is committed to employing youth from the disadvantaged communities, it is the Company’s belief that a more vital mission is to significantly enhance the talent pool of youth from these communities by equipping them with the necessary skills or qualifications to make them more employable in the formal sectors of the economy.

Reaffirming ITC’s support to the National Action Plan on Climate Change, as well as its strategic endeavour of pursuing a low carbon growth path, the Company has taken proactive steps to move beyond statutory compliance in environmental performance of all its units. Each unit is mandated to implement measures to continuously improve energy, water, emissions and effluent management. Best practices at units also include maximisation of rainwater harvesting, solid waste recycling and the use of external waste as raw material. The Company is steadily expanding its renewable energy portfolio. Today over 40% of its total energy consumption is from renewable sources, an important achievement considering the large manufacturing base of the company. ITC has been at the forefront of the green building movement in India. The ITC Green Centre in Gurgaon was re-certified in 2012 as the highest rated green building in the world with LEED Platinum certification. All ITC’s premium luxury hotels are today LEED Platinum rated making it the greenest luxury hotel chain in the world. ITC Grand Chola in Chennai is the world’s largest LEED Platinum rated hotel in the ‘New Construction’ category. The Company is also gaining green certification for its production units, several of which are LEED Platinum rated factories.

Being Future Ready

ITC believes that its Vision, Values and Vitality have created a sustainable organisation that is future-ready with a growing contribution to creating large scale societal value. ITC’s credo of “Let’s Put India First” underlines the philosophy of the organisation to put “Country before Corporation” and the “Institution before the Individual”. This vision to create larger societal capital is inspired by the Company’s strong values of Trusteeship, Transparency, Empowerment, Accountability and Ethical Corporate Citizenship, which are the cornerstones of its Corporate Governance philosophy.

We recognise that the Company’s capacity to create societal value will crucially depend on the continued robust growth of our businesses. ITC’s aspiration to be a strong engine of growth for the Indian economy is manifest in the strategy to create multiple drivers of growth that will make a substantial and ever growing contribution to its stakeholders and the nation. By investing in the creation of world-class brands, supported by extensive R & D shaped at the ITC Life Sciences and Technology Centre and by leveraging all its enterprise strengths, the Company will continue to offer competitive and superior value propositions to its customers. ITC’s world-class brands will ensure that larger value is created, captured and retained in the country for national development and growth.

This Sustainability Report with its continuing theme - “For All our Tomorrows” - embraces within its covers our inspiration and endeavours to create enduring value for a better, more sustainable and secure future. It is with this commitment that we move into the future to create new horizons of shared progress and prosperity.

Y C Deveshwar
Chairman, ITC Limited
May, 2013