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

ITC's vision to serve larger national purposes is intended to be realised by embedding sustainability in its core business models. Innovative strategies have therefore been designed and implemented to create sustainable value chains linked to its businesses. Dependent as the organisation is, on agricultural resources, these value chains encompass small and marginal farmers, who constitute some of the most disadvantaged sections of Indian society. ITC recognises that with an expanding and diversified portfolio of businesses, the actualisation of its vision of sustainable development has to necessarily take into account the environmental and social impact within the supply chain. This will ensure competitiveness through a balance between creation of long term social & environmental value and the economic viability of the businesses.

To formalise the sustainable procurement process, ITC has put in place Board approved Policies which address the issues of labour practices, human rights, bribery, corruption and occupational health, safety & environment in the supply chain. These policies, meant for Third Party Manufacturers (TPM), service providers including transporters, suppliers of agricultural & non-agricultural materials and capital goods, franchisees, dealers and distributors collectively referred to as supply chain partners, define the structure around which efforts are directed for continually improving the sustainability performance along the supply chain. A 'Code of Conduct for Vendors and Service providers' details out specific requirements related to the aspects addressed in the policies and through acceptance of this code by supply chain partners, ITC seeks their commitment to comply with applicable laws, respect human rights and contribute to environmental conservation.

Each ITC Business, has its own road map for phase-wise implementation of the sustainability policies and inclusion of its supply chain components within their overall sustainability management system in a progressive manner. Progress of implementation of these road maps is reviewed by the Sustainability Compliance Review Committee.

A simplified representation of the material flow in ITC's businesses is given below:

As evident from the above representation of the generic material flow for ITC businesses, the supply chains of most of ITC's businesses are vertically integrated. Farmers are the key suppliers for the majority of our businesses as they are dependent on agri-commodities, and therefore constitute a vital part of ITC's supply chain. Accordingly the Company has focussed on enhancing the sustainability of its agri-supply chain, details of which are mentioned in the section that follows.

Agri commodities

ITC's Agri Business operations span the entire spectrum of activities starting from agri-services/ crop development to risk management, including sourcing, processing, supply chain, multi-modal logistics, stock management and customer service. The solutions offered are a combination of all or some of these interventions. The solutions also offer the customers the flexibility in terms of quantity, product form, timing, as well as packaging for delivery of the agri-commodities. These solutions provide a competitive edge to customers whilst ensuring product integrity and on-time fulfilment, but also create and capture better value for other partners, especially farmers.

ITC's Agri Business Division has been continuously investing in strengthening capability through multiple sourcing models, customised and identity preserved supply chain infrastructure and network, processing and warehousing tie-ups, technology enabled systems and processes and people capabilities. A hub and spoke model has been built along with the necessary physical infrastructure that has enabled multi-level aggregation and dis-intermediation where necessary. The Division also works closely with farmers to develop identified geographies for specific varieties and for certified and organic crops, and promote adoption of sustainable agricultural practices. This unique approach to creating and enhancing value in the agri-supply chain has thus empowered millions of farmers.

These investments coupled with deep understanding of agriculture, the reach of the e-Choupal network and the eco-system of partners provide the opportunity to offer a wide range of reliable and consistent solutions that are efficient and effective along the entire supply chain.

During the financial year, the Division sourced over 20 lakh tonnes of agri-commodities (Wheat, Soya, Coffee, Potato, Fruits, Maize, Rice and Shrimps) from over 20 states to service a range of customers in India and across several countries, including leading brand owners and bulk processors.

Leaf Tobacco

The ITC's leaf tobacco business has a long-standing commitment to sustainability that's focused on helping the Indian farmers produce more, enhance profitability and thereby improve livelihoods. A major differentiating factor that provides ITC a cutting edge over the competition is our focused crop development initiatives and extension services. Working closely with the farming fraternity, ITC has constantly transferred technology from the lab to the land with appropriate crop solutions. Enabled by a team of agronomists, agriculture experts, engineers and development managers, the sustainability initiative has helped in substantially improving the quality table of the Indian tobacco basket.

ITC has been engaged in enhancing the rural livelihoods through focused efforts by supporting villages to become economically, ecologically and socially sustainable. The objective is to drive smart & sustainable development in villages by empowering Indian farmers through deployment of Good Agricultural Practices and agricultural technologies which improves farm productivity, product quality, reduces cost of cultivation while protecting the natural resources.

The interventions are focused towards deployment of high yielding varieties, promotion of intact root seedling production systems for lower mortality, dissemination of information and best practices on drip irrigation and micro sprinklers for improved yield and lower water consumption, energy conservation initiatives to reduce fuel consumption, introduction of integrated pest management initiatives and customized crop advisory solutions. This ensures surplus income generation in villages, thereby driving faster development in other areas like health, sanitation and education.

The efforts undertaken by the Division to make tobacco production economically, ecologically and socially sustainable, are recognized and considered to be the benchmark in leaf tobacco industry in India and the same is verified periodically as part of Sustainable Tobacco Programme (STP) audit conducted by AB Sustain, an independent third party reviewer. The verification which ensures best practices in tobacco farming and processing is conducted on behalf of key global customers, covering all aspects of the tobacco leaf value chain.

Various initiatives pertaining to soil conservation, viz., promoting use of organic amendments and techniques on soil fertility management aimed at reducing chemical fertilizer use are propagated. Towards sustainable fuel management, a three pronged approach (energy conservation - introduction of fuel efficient technologies, self-sustenance through energy plantations and custody of fuel consumption) has been implemented in tobacco farm value chain. Energy conservation measures such as Barn Roof Insulation, Turbo Ventilators etc. proven to reduce about 30% of energy requirement during curing are being deployed on a large scale in the states of Andhra Pradesh and Karnataka. Trials are in progress for development of fuel efficient technologies in tobacco curing.

With an objective of developing a self-sustaining model for sourcing fuel wood, ITC has developed energy plantations covering more than 10,000 Hectares in 2015-16. These plantations are expected to offset the total fuel requirements for tobacco curing in our operating regions. Also, farmers are encouraged on use of alternate fuels for curing such as coffee husk, biomass briquettes etc.

Going forward, we believe that our approach of creating sustainable rural livelihoods ensures surplus income generation to the farming community, which in turn will minimize vulnerability of the community and drive overall village development.

For further details about our relationship with the agri-supply chain, please refer to 'Social Investments - Mission Sunehra Kal' section in this Report.

Since ITC is vertically integrated to a large extent, it provides unique opportunities for establishing synergy and thereby minimising environmental impacts through optimum utilisation of raw materials, reuse/ recycling of wastes and optimum logistics. As explained earlier, agri-commodities being the key raw materials for most of ITC's businesses, they are accorded prime focus in the overall supply chain. ITC's interventions in this domain along with community development initiatives have not only supported sustainable agricultural practices but also contributed to sustainable livelihood creation for farmers. Thus, material sustainability issues specific to environment have been taken care of to a large extent.

Further, in line with the overall strategy to embed principles of sustainability into the various stages of product or service life-cycle, ITC initiated life cycle assessments (LCA) of its products & services in 2010 with an objective to evaluate the impacts and identify areas for improvement in the value chain. So far, LCAs have been carried out for selected product categories from Paperboards & Specialty Papers, Packaging & Printing, Lifestyle Retailing and Personal Care Products Businesses which have helped in identifying broad areas for improvements within as well as beyond ITC's boundary. These assessments have been followed up with detailed studies which in turn have provided concrete solutions towards more efficient packaging designs, loading efficiencies and consequent reduction in transportation costs/ GHG emissions/ energy use. ITC will continue to work in this direction, in line with its Policy on Life-cycle Sustainability, to identify the opportunities for improvement in the value chain and take appropriate measures for optimisation.

In line with its commitment to extend the Triple Bottom Line philosophy along our supply chain, ITC, as a preliminary step in 2013-14, started including the Notebooks manufacturers of ESPB which contributes to around 88% of the total business of ESPB, within the reporting boundary. The material aspects of these exclusive Third Party Manufacturers (TPMs) are included in this Report. During the year, specific guidelines covering safety and environmental aspects have been prepared for TPMs of Notebooks and training programmes organised for enabling them to carry out safety inspections/ audits of their facilities to ensure safe operations. On similar lines, guidelines were drafted for TPMs of Agarbatti and Matches, to bring awareness on various environmental and safety risks associated with their operations, which will help them in mitigating such risks. In addition, the 2- wheeler rider's safety programme has been extended to train our wholesale distributors' personnel in order to create awareness on safe road travel. Going forward, ITC will continue to support its supply chain members in these aspects.

In 2013-14, ATC Limited, an associate company had been brought within the reporting boundary, where support had been extended in implementing systems and process to improve the sustainability performance of its manufacturing operations. Further, 2 TPMs of the Cigarettes Business have also been included in the reporting boundary and necessary knowledge support is being provided in specific areas like energy and water conservation, material utilisation, etc.

ITC will continue to work along with the supply chain partners in line with its policies to enhance their understanding and performance on sustainability aspects and including their performance in the reporting boundary.