ITC SUSTAINABILITY REPORT 2016 GRI - G4 COMPLIANT, IN ACCORDANCE - COMPREHENSIVE

It gives me immense pleasure to present the 13th Sustainability Report of ITC.

This Report, as in earlier years, is a proactive disclosure of the Company's Triple Bottom Line performance and is third-party assured. Once again, the Report has achieved the highest "In Accordance - Comprehensive" level of reporting prescribed in the G4 guidelines of the Global Reporting Initiative (GRI).

I am also happy to reaffirm ITC's commitment to the principles of the United Nation's Global Compact. The Company's large-scale sustainability programmes are in alignment with the Intended Nationally Determined Contribution (INDC) commitments made by India to the United Nations Framework Convention on Climate Change. The Company's social investment initiatives also make a meaningful contribution towards meeting the objectives set in the UN Sustainable Development Goals.

• A New Chapter in Global Sustainability

  In many ways, the year gone by marked the beginning of a new chapter in global sustainability. Led by the United Nations, the world adopted the Sustainable Development Goals, a bold new global agenda for ending poverty, fighting inequality and preserving the environment. In April this year, 175 Nations converged in Paris to sign the historic UN Climate Agreement, pledging stringent measures to save the Earth from the disastrous consequences of global warming. While the agreement gave rise to new hopes for the planet and future generations, it was also clear that the world was in a race against time. A race to create sustainable livelihoods of an unprecedented scale before millions of jobless youth became a source of global social unrest. A race also to replenish the environment before it choked future progress and made the Earth a barren planet.

  The UN has warned that the world would need to create at least 600 million jobs over the next decade. This would be critical to providing livelihood opportunities to new entrants as well as to those who have lost their jobs due to the impact of the recent economic crises. In addition, almost a billion people would need to be moved out of abject poverty. Therefore, the challenge today is not only to achieve higher rates of growth in a fragile global economy but to ensure that such growth is equitable and can also create livelihood opportunities. This is indeed a tall task.

  Compounding the social challenges is the alarming pace of environmental degradation and global warming. 2016 is slated to be the hottest year in the history of the planet. Extreme and erratic weather events like heat waves, intense storms, rising sea levels, successive cycles of droughts and floods, catastrophic loss of bio-diversity and top soil erosion have triggered widespread devastation. In India, a double whammy of heat waves and droughts have claimed thousands of lives in recent times. Experts have repeatedly warned that human influence is damaging the environment at a rate much faster than it can ever recover.

  India's socio-economic context mirrors these global challenges. Undoubtedly, the country has made remarkable progress, poised as it is to become the world's third largest economy in PPP terms by 2030. However, the scale and complexity of its sustainability challenges are daunting. Nearly 300 million people, who live in multi-dimensional poverty, still need critical support to live a life of dignity. What is of extreme concern is the fact that more than 10 million youth, who join the workforce annually, are unable to find gainful employment. There is today growing realisation worldwide that such unemployed youth are extremely vulnerable, prone to be radicalised and drawn into criminal and violent activity. Unstable societies cannot foster sustainable economic growth. They negate society's advancements and mire the world in conflict and uncertainty.

  Going forward, India will face larger challenges to ensure food, nutrition, water, energy, education and health security for the 1.5 billion people who are likely to inhabit the country by 2030. Already, environmental resources are under huge stress given the fact that with 17% of the world's population, the country has only 2.4 % of world's land, 4% of global water resources and 1% of forest resources. The need to replenish our environmental resources on a colossal scale has never been more critical and urgent.

• The Role of Business

  Any sustainable solution to such monumental challenges requires the concerted efforts of all sections of society - government, business and members of the civil society. Businesses can indeed play a very meaningful role. With their diverse managerial capability, superior innovative capacity and entrepreneurial vitality, corporates can bring about transformational change in society through productive utilisation of scarce societal resources. The entrepreneurial capability that businesses employ to create winning products and services can be channelled to create larger societal value, enabling a multiplier contribution to sustainable and inclusive growth.

  I believe that these transformative energies of business can be unleashed when corporates redefine their value proposition by focusing on a large purpose to contribute to societal value creation rather than shareholder value alone. It is this belief that helped ITC shape its Vision & Strategy in building a sustainable enterprise of tomorrow.

• ITC's Sustainability Vision & Strategy

  Two decades ago when I assumed office as Chairman, we articulated a superordinate Vision to transform the Company into a vibrant engine of growth for the Indian economy by not only repositioning the organisation for extreme competitiveness but also by making societal value creation a core purpose of business. We embarked on a mission to create an exemplary Indian enterprise that would live by its credo of putting Country before Corporation and Institution before the Individual.

  This mission to serve larger national priorities spurred innovative strategies that orchestrated a symphony of efforts to address some of the most challenging issues facing Indian society -- widespread poverty and income inequities on the one hand; and environmental degradation and the impact of climate change on the other. Leveraging the Company's enterprise strengths and its large presence in rural communities, ITC has over the years designed and implemented large-scale programmes to replenish and enrich the environment, create sustainable livelihoods, empower local communities and address the challenges of climate change. These programmes are encapsulated in the various chapters of this Report.

  It is a matter of great satisfaction for all our stakeholders that the Company is today acknowledged as an exemplar in Triple Bottom Line performance. The choice of sustainable strategy and practices have enabled the Company's businesses and value-chains to generate sustainable livelihoods for around 6 million people. ITC is today the only Company in the world of comparable dimensions to be carbon positive for 11 years, water positive for 14 years and solid waste recycling positive for the last 9 years.

• Integrated Approach to Sustainability

  Embedding sustainability in the Company's DNA requires an integrated approach to ensure impactful outcomes. The abiding Vision to serve a larger national purpose continues to provide the inspiration for every thought and action. Innovative strategies have leveraged the Company's core capabilities to address critical societal challenges identified through extensive stakeholder engagement. As a result of these ground-up efforts, effective programmes have been designed and implemented in close collaboration with local communities ensuring more meaningful outcomes.

  Poverty and environmental degradation are inextricably linked requiring comprehensive interventions that are also adaptive to the local environment and context. Often, such societal challenges are addressed in isolation or in silos leading to sub-optimal solutions. ITC's effort to align national priorities, needs of local communities and high-impact initiatives result in more sustainable and scalable solutions. This mosaic of comprehensive solutions includes the globally acknowledged ITC e-Choupal initiative, large scale afforestation and watershed programmes, animal husbandry and livestock development initiatives, primary education, vocational training, women's empowerment as well as health and sanitation programmes. These together make a meaningful contribution to improving the quality of life of people in rural India whilst also enriching the natural resource base.

  In addition, as an environment steward, ITC strives to lower its carbon footprint at all its operations through Greenhouse Gas Reduction programmes, efforts in renewable energy, construction of green buildings and interventions to reduce specific energy and water consumption.

  A comprehensive set of Board -approved Sustainability Policies has been adopted to guide pro-active action for superior triple bottom line performance. ITC has also adopted a comprehensive CSR policy outlining programmes, projects and activities that the Company plans to undertake to create a significant positive impact on identified stakeholders. A Board Committee on CSR and Sustainability has been in place for several years now to review, monitor and provide strategic direction to the Company's sustainability efforts. In addition, the Corporate Management Committee of ITC is supported by a Sustainability Compliance Review Committee for regular monitoring of initiatives and evaluating compliance with the Sustainability Policies of the Company.

  To bring sustainability issues to centre-stage and rally industry to embrace the larger cause of societal value creation, ITC has joined hands with the Confederation of Indian Industry to establish the CII-ITC Centre of Excellence for Sustainable Development as a focal point for thought leadership, building capacity, raising awareness, information dissemination and recognising exemplars in sustainability.

• Creating Sustainable Livelihoods

  ITC's Social Investments Programme is aimed at economic empowerment of the most disadvantaged sections of society, especially in rural India, through grassroots capacity building. The Company has adopted a 360 degree approach to enrich rural eco-systems, putting in place long-term drivers that progressively contribute to the national priorities of employment generation and inclusive growth.

  To secure livelihoods for the stakeholder communities not just for today but also for the future, ITC's Social Investments programme follows a two-pronged approach. On the one hand, it seeks to make today's dominant sources of income sustainable by empowering rural communities to conserve, and augment their social and environmental capital in order to secure agri production systems and thereby their current sources of livelihood. On the other hand, it aims at creating capabilities for income generation and employment for the future by helping the communities put in place the necessary socio-economic infrastructure to equip them to take advantage of emerging economic opportunities.

  ITC also considers the Union and state governments to be important stakeholders as they play a vital role in helping amplify the scale of the Social Investments interventions through public-private people partnerships. Currently, the footprint of ITC's Social Investments Programme is spread across 26 states covering 166 districts.

• Environmental Stewardship

  In line with the Company's vision to pursue a low carbon strategy, ITC has adopted several initiatives to address the adverse impacts of climate change. Its large-scale afforestation interventions, climate-smart agriculture initiatives and watershed development programmes are complemented by the Company's efforts to continuously enhance energy efficiency and conservation in its units as well as invest in cleaner and renewable energy sources. These initiatives support the INDC commitments made by India to the UN.

  A testimony to ITC's commitment to reducing dependence on fossil fuels is the fact that today, over 47% of the Company's total energy requirements is met from renewable energy sources such as biomass, wind and solar. ITC plans to scale this up to at least 50% by 2020. ITC also continues to focus on water conservation and harvesting initiatives at its units.

  ITC has pioneered the movement for 'green buildings' in India. Several of ITC's properties are LEED^® (Leadership in Energy and Environmental Design) certified. All its premium luxury hotels have earned the LEED Platinum certification, making ITC Hotels the "greenest luxury hotel chain" in the world. The ITC Grand Chola is the world's largest LEED Platinum certified green hotel. The ITC Green Centre in Gurgaon is the highest rated green building in the world. The ITC Sankhya Data Centre in Bengaluru is the first such facility in the world to be receive LEED Platinum certification. Several of ITC's factories are LEED certified as well.

  The Company's Solid Waste Management programme - christened 'WOW - Well-being out of Waste' has provided effective solutions in several cities of South India, enjoying the support of over 5 million citizens, 5,00,000 school children, 350 corporates, more than 1,000 commercial establishments and around 200 industrial plants. This programme addresses the growing concern of post-consumer waste management.

• Towards a New Paradigm of Responsible Competitiveness

  As a Company deeply rooted in the country's soil, ITC has aligned its sustainability initiatives to contribute to Nation building and a secure future. The daunting challenges of social inequities and environmental degradation require growth that need to go far beyond economic wealth creation alone to embrace a much larger model of societal value creation. Undoubtedly, high growth rates are necessary, but that by itself may not be sufficient to ensure social equity or environmental replenishment. A new paradigm of growth is therefore called for -- an integrated approach that builds extreme competitiveness whilst at the same time ensuring that the environment is nourished and not plundered, dignity of labour is preserved and sustainable livelihoods are created along the entire value-chain. I call this paradigm of growth "Responsible Competitiveness", which to my mind creates the winning enterprises of the future.

  It is my belief that enduring and responsible competitiveness of a Nation is strengthened by its ownership of intellectual capital that creates, captures and retains larger value for the country. Ownership of intellectual property is manifest in brands that serve as a perpetual source of value for the enterprise as well as the country they belong to. It is for this reason that ITC has invested in creating world-class Indian brands, several of which are market leaders in their categories. These brands also anchor sustainable value-chains that empower some of the weakest in rural India. In addition, ITC has significantly enriched and enlarged its R&D capabilities with the establishment of the ITC Life Sciences and Technology Centre in Bengaluru. This Centre is driving the Company's agenda of creating intellectual capital for the nation with nearly 350 world-class scientists. In a short span of time, over 480 patent applications have been filed. This effort is expected to accelerate in the coming years. The Company is also investing in physical infrastructure assets to contribute to the country's competitive capacity. Currently, 65 projects are under implementation or in an advanced stage of planning. These together enlarge ITC's capacity to contribute to National priorities and create sustainable livelihoods and environmental enrichment on a much larger scale.

  This journey has indeed been fulfilling, and the scale achieved immensely encouraging, though we recognise that there are miles to go. Yet, our success emboldens us to say that collectively, business and industry can indeed bring transformational change by pursuing a path towards Responsible Competitiveness. A paradigm shift will take place only when consumers, investors, and civil society make an enlightened choice in favour of products and services by sustainable companies. This will unleash strong market drivers to support corporates that innovate to deliver larger sustainable and inclusive value. Preferential government policy and incentives in favour of such companies will lend even further support to multiply the efforts of such sustainability champions.

  It is with great pleasure that I dedicate this Report to our stakeholders, who have supported and encouraged us in this eventful journey. Indeed, these efforts would be worthwhile and fulfilling, if we bequeath a better and secure world for the generations to come.

  Y C Deveshwar Chairman