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Chairman Speaks

 

Keynote Address by Mr Y C Deveshwar, Chairman, ITC

15th World Forum of IAJBS
XLRI Jamshedpur

June 8, 2009 : 10.30 am

Taking The Lead Towards Sustainable Development

Ladies & Gentlemen,

It is indeed an honour to be with you this morning at the 15th World Forum of the International Association of Jesuit Business Schools. I am also delighted that this Forum is being hosted at the XLRI, an institution for which I have the highest regard. Your contribution to advancing the cause of professional management education is indeed laudable. Like many others, my company has also been enriched by your distinguished Alumni, and I must indeed pay tribute to this institution for shaping some of the brightest talent in our country.

I would also like to compliment you on your choice of the defining theme for the World Forum - "Taking The Lead Towards Sustainable Development". The subject is not only topical but one that is very close to my heart. I have, therefore, great pleasure in sharing with you some of my views on this subject.

I am delighted to see, in this distinguished gathering today, participants and experts from all over the world. In many ways, you represent a global family -- bound by common values and a purpose that go far beyond national borders, language, culture, race, religion and ideology. A global family united in a common concern to find solutions for a better tomorrow.

It is somewhat a tragedy of circumstances that, despite path breaking advancements the world has made over several centuries, more than half of the global population is still threatened by the worst forms of poverty, hunger, disease and degradation. Aggravating this is also a global economic system that has paid scant attention to conserving and augmenting the rich natural resources we have inherited over many generations. In this race for economic strength, for faster and higher growth rates, we seem to have created a world with tremendous inequities as also apathy for nature's rich endowments. It is obvious that somewhere the world has gone terribly wrong in pursuing its growth objectives.

Let me therefore place before you my first proposition - Economic Development and Sustainable Development are not necessarily the same thing. Ever since the Industrial Revolution, the last century and half witnessed unparalleled material development. Modern capitalism has indeed expanded the horizons for material development and wealth creation. Unfortunately, such material development has come at a significant price.

As we made rapid progress in financial prosperity, we also created a tremendous burden on nature's living systems. As a consequence, in less than half a century, the world lost a fourth of its topsoil and a third of its forest cover. In the last 35 years alone, we lost a third of our global bio-diversity. Scientific evidence today confirms that humanity's demand on the planet's living resources, known as its Ecological Footprint, now exceeds the planet's regenerative capacity by about 30 per cent. This means that it now takes the Earth one year and four months to regenerate what we use in a single year. And if we continue at this pace, we will need the equivalent of resources of two Earths to support us by the mid 2030s. (Incidentally, reports indicate that if everyone lived the lifestyle of the average American, we would need as much as the resources of five planets). And that is a luxury we cannot afford. Irrespective of our national boundaries, we have just one planet and one biosphere that sustain all living forms. That is indeed the reality check - rich or poor, developed or developing, we have one world to live together or perish together.

Apart from this strain on living systems - that are a source of fuel, raw materials and food - the remorseless increase in the planet's population also places enormous pressure on life support services which work on a 24x7 basis. Even when we sleep, our biosphere ensures a continuous supply of air and water through the carbon and water cycles. Continuing degradation of land, forest and water resources progressively undermine these life support services leading to phenomena like global warming, drought and floods. We have inherited a 4 billion year stock of natural capital. We cannot afford to diminish this stock in the name of material progress.

Indeed, we have been living far beyond our means. The recent global and financial meltdown is yet another manifestation of this stark reality. And we must heed this wake up call, because once again in the history of mankind, we have been offered yet another opportunity to change the course of things to come. It is time that we now realign our collective consciousness to engineer a strategic shift. It is time that we exercise a conscious choice to align all economic activity with a much larger super-ordinate goal of benefiting society. Benefits that go beyond wealth creation alone to embrace a much larger respect for the ecology and for ensuring development with social equity.

The challenges of development

To my mind, there are two major challenges that threaten the progress of mankind today and the security of future generations. The first arises from growing income inequities. The second relates to the threat of global warming and climate change.

A recent UNDP Report states that 10 % of the richest adults in the world today own 85% of the world's household wealth, while the bottom 50 % of adult population have only 1 % of total household wealth. These numbers are alarming, but if we look at the population projections forward it is even more daunting. From a current level of around 6.7 billion people, we will move to a global population of 9 billion by 2050. Almost the entire addition of over 2 billion is likely to take place in developing nations. And a very large proportion of this will also live in conditions of acute poverty. It is obvious that global economic development will be severely burdened by such huge levels of poverty. And to compound it will be the increasing lawlessness, terrorism and unrest that is fuelled by such widespread discontent.

Developing countries like India, with large numbers living at the margin, are obviously very vulnerable. According to the latest estimates of World Bank, 42 % of India's population live below $1.25 a day. More than 800 million live on less than $ 2 a day. The International Food Policy Research Institute has recently published its Global Hunger Index which estimates that 200 million people in India live in conditions of acute hunger. According to the UNDP, India ranks 132nd out of 179 countries in terms of the Human Development Index. This not only implies a vulnerable population living on the edge, but a large number of people who are unable to contribute to the productive mainstream of the economy.

In addition, India also has to contend with a unique structure - 72% of population live in rural areas that is home to 75% of the nation's poor. This structure poses the biggest challenge to sustainable development. Unless the millions of disadvantaged get the opportunity to earn, save, spend and invest, economic growth will continue to be limited and inadequate to serve the needs of such a large population.

Our development challenge extends beyond upgradation of human capital. Let me now paint a scenario for you to highlight the challenges. Imagine that India has suddenly today joined the ranks of the OECD as a developed country with similar levels of per capita consumption of energy. India would then annually consume over 60% of world energy, release nearly half the world's emissions, deplete about 45 % of the world's fossil fuels, and create non-recycled solid waste to the tune of 6 billion kgs. from the transport sector alone. This simplistic extrapolation demonstrates the devastating impact of growth on the environment in the absence of strategies to address these serious issues.

The threat of environmental degradation was poignantly highlighted way back by Mahatma Gandhi in his reaction to a question related to India's economic development. He said, "It took Britain half the resources of the planet to achieve prosperity. How many planets will a country like India require?"

With 17 % of the world's population, India has only 4 % of fresh water resources and 1% of global forest resources. To compound the environmental challenges, we now have challenges arising from global warming. The poor in India are already facing its impact in severe droughts, floods, changing weather patterns, agricultural productivity, and larger incidence of disease. In addition, there are immediate environmental threats - for example, the Gangotri Glacier in the Himalayas, which is the main source for the Ganges, is retreating by nearly 25 meters per year. At this rate scientists predict the loss of all central and eastern Himalayan glaciers by 2035. The consequences can be disastrous for a country like us with a large agricultural sector and a long coastline vulnerable to rising water levels.

In six months from now, more than 10,000 people from all over the world will converge in Copenhagen to find constructive solutions to fight global warming and climate change. Copenhagen will need to cognize for the special circumstances of developing nations like India. We need access to clean technology, fruits of scientific research in medicine and healthcare, and inexpensive capital to fund clean energy projects, as also physical and social infrastructure. To my mind, advanced nations owe a responsibility to developing nations, given that their unbridled consumption habits have largely fuelled the onset of global warming. They have had a head-start in development without restrictions on energy use or in the disproportionate consumption of resources. It is therefore incumbent on them to find constructive solutions to support developing nations. For example, they could contribute to a Fund that supports innovation and development of high-end technology and research. These technologies and products could then be made available to developing nations, where it is most needed, without the high cost barriers created by issues such as Intellectual Property Rights and so on. India's policy makers will need to look at alliances with other developing nations to assert such a legitimate demand.

The multiple challenges arising from growing income inequities, global warming and climate change indeed make future economic progress unsustainable. Market forces, as they stand today, do not adequately reward such longer-term sustainability objectives and therefore have not been able to address these challenges. Going forward, we will have to necessarily chart a growth path that not only achieves the economic goals but also simultaneously addresses the larger social and environmental objectives. We have to trigger a much broader paradigm of growth, a paradigm that goes beyond economic development alone to achieve sustainable and inclusive development.

Shortcomings of current economic model

»
Shortcomings of the global economic system
  • Focus on Shareholder Value rather than Societal value
  • The short run supersedes the long run
  • The means overshadow the ends
  • Only financial outcomes incentivise
    managements

To my mind, Sustainable Development means economic progress coupled with upgrading social capital and ecological capital. Sustainable Development is about the Triple Bottom Line - across three dimensions namely Economic, Social and Ecological - creating economic wealth, social wealth and ecological wealth.

It is heartening to see today the beginning of a conscious effort by organizations around the world to accord more priority to meeting Triple Bottom Line objectives. However the challenges are large. All organs of society will need to align their forces to enable a constructive partnership that can realize the global goal of sustainable development.

Role of Business in securing sustainable and inclusive development

The role of Indian business enterprises in this regard is critical, particularly because the corporate sector employs vast societal resources in the pursuit of its growth objectives. It is therefore in the enlightened self-interest of business to also find innovative solutions that build and augment both social and natural capital.

I am also of the firm belief that private enterprises are extremely well placed to play a much larger role. Corporates, through their operations, have a large number of touch points which constitute the front line of engagement with civil society. The physical presence in communities around their catchments gives them an opportunity to directly engage in synergistic business activities that can create livelihoods and add to preservation of natural capital.

Pre-requisites of Sustainable Development

»
Redefine Purpose of Business - Service to Society
 
» Shareholder Value is a reward  for Societal Value
  creation and not an end in itself
 
» Redefine P & L and Balance Sheet more
   comprehensively
  • measure both shareholder and societal value creation
  • account for both societal and company asset formation

To my mind, there are three kinds of businesses in the context of sustainable development:

One - those that pursue shareholder value creation above all else. Such companies exist from quarter to quarter, focused solely on their incomes, leaving a deferred burden for somebody else to take care of. I put it to you, that such companies are committing a cardinal sin and are a burden on society.

Two - those that pursue shareholder value and comply with Regulations. Compliance would ensure adherence to minimum acceptable standards. Such an approach can at best slow down damage to natural capital.

Then there are enterprises that are willing to go that Extra Mile. Go beyond the dictates of Regulation. Such companies do not view shareholder value as the end in itself. Shareholder value is deemed important to the extent required to attract financial capital. A necessity and a mere means to realizing the broader purpose of creating societal value. They are driven by a superordinate goal; by a Commitment beyond the Market. Their culture is imbued with values that are born out of a larger purpose.

Of course there will always be examples of business leaders with exemplary social conscience and integrity. They will drive their enterprises forward with such a vision without any external incentives or rewards. The need of the hour is to ensure that such an approach is more widespread; that businesses extend themselves beyond mere compliance. A key ingredient towards this end is the time horizon over which society judges the worth of businesses. A quarterly approach would spawn the first kind of companies. A longer term approach can create businesses of the kind that can create much greater societal value through virtuous cycles of sustainable development. You are familiar with the concept of corporate leadership managing firms in trust for shareholders. In my view, the notion of trusteeship extends beyond shareholders to society at large.

Role of Education

Multiplying companies of the third kind require the creation of a market for responsible corporate conduct. Such a market can only come about through heightened awareness of civil society. Such awareness can create a "pull factor" - both for regulators and for businesses. An aware civil society can ensure progressive tightening of regulations in step with growing resources of society and advancement in technology. An aware civil society can also create the market for responsible corporate behaviour by exercising their choice as consumers - rewarding those corporations that provide goods and services with due regard to socio-economic and ecological requirements.

What I wish to illustrate to you today is that the goals of shareholder value creation and sustainable development need not be in conflict. I am of the firm belief that it is possible to address the apparent contradiction through innovation, through creative business models. So that we can convert threats into opportunities. This process begins with a realization of the compelling challenges. Out of such realization spring values. Out of values springs choice of strategy. Out of strategy springs missionary zeal in execution.

ITC Limited : A Case Study

Today, I would like to give you some illustrations from our Company -- ITC Limited - to demonstrate how a larger contribution can be made by the private sector with a conscious strategy to contribute to the Triple Bottom Line.

Over a decade ago, we redefined our Vision to reflect our commitment to go far beyond the market in enlarging our contribution to the society and to the nation. Inspired by this opportunity, we fashioned unique business models that synergised long-term shareholder value enhancement with fulfillment of a larger societal purpose.

This vision finds expression through two major interventions of the Company: one, that is integrated into our Business and the second which relates to the CSR activities that each our businesses have been mandated to carry out in the catchment area around their operations.

Let me first present to you a case study of ITC's eChoupal. This pioneering initiative is today the world's largest Rural Digital Infrastructure for empowering the small and marginal farmer.

ITC's eChoupal

As you are perhaps aware, almost 72 % of India's population live in Rural India, and 60% of our workforce earn their livelihood from Agriculture. However, this sector contributes to only 18 % of GDP. Though India has one of the largest land areas under irrigation, agricultural productivity is far below the best benchmarks. Farm sizes are small and fragmented, 'last-mile' connectivity is very poor, and there is over-dependence on rain as more than half the land is moisture-stressed. Both physical and social infrastructure constrain efficiency. Farmers also do not have adequate capacity to manage their meagre resources. As a result of these multi-dimensional challenges, farmers are plagued by a vicious cycle of low productivity, low income, and low investment which contribute to widespread poverty in Rural India. This also leads to an over-dependence on exploitative middlemen compounding their plight further.

ITC, as you aware, is one of India's leading players in the Agri Products and Branded Foods business. Recognising that farmers constitute the first rung in the agricultural value chain, we embarked on a major initiative to build their competitiveness by bringing them the benefits of an Information Technology enabled agri-extension and information service. This initiative, which we call the eChoupal, has today transformed Rural India with significant empowerment of small and marginal farmers. By providing digital connectivity in the form of computer kiosks, solar panels for electricity and satellite based internet connectivity and by training lead farmers who we call sanchalaks, we provide farmers a host of services. This includes customized information on prices in the local language, disaggregated weather information, best practices in farming, a competitive channel to procure quality inputs and a choice to sell their produce at the farm gate. By eliminating wasteful intermediation, farmers become a part of an efficient supply chain and secure higher margins, and also gain from a two-way flow of goods and services procured through the e-choupal network. No contracts are signed with the farmers binding them to do business with us only, and they are free to sell their produce to whomsoever they wish to.

Currently there are around 6,500 choupals serving nearly 40,000 villages and 4 million farmers. Sanchalaks today, among other services, also offer insurance products from leading companies and are also placed well to offer other rural products and services. The eChoupal has enhanced the bargaining power of farmers in the nature of a Virtual Co-operative, increased their productivity through best practices in farming and freed them from the clutches of intermediaries thereby enhancing their incomes and purchasing power.

Taking this initiative further, we have now created Integrated Rural Service Hubs which we call the "Choupal Saagars". These rural hubs not only provide an effective collection and storage facility, but also provide a host of services including telemedicine, soil testing and a unique shopping experience for rural communities bringing benefits of convenience and choice.

The eChoupal initiative has today become a fulfillment channel for a two-way flow of goods and services and raised rural incomes. As a Company, we have not only gained from an efficient supply chain and identity preserved procurement, which in turn adds value to our packaged foods business, but in the process have also created an inclusive model of business that empowers small and marginal farmers by giving them the power of digital connectivity and access to markets.

Community Investments

To supplement the e-Choupal initiative, and enhance the quality of life in rural India, ITC has also helped in creating significant community assets. A major programme in this context is ITC's Integrated Watershed Development initiative for sustainable agriculture and community development. Water availability, and its conservation and management is a critical issue for Indian agriculture, with more than 50 % of arable land being drylands with severe moisture stress. Recognising this vital role that irrigation and water play in the rural economy, ITC has helped create watershed projects covering over 44,000 hectares in water-stressed areas, providing precious water resources for agriculture, rural communities and livestock. In addition, by bringing water resources closer home, it has freed rural women from a very difficult chore of fetching water over long distances. This has also improved their quality of life by providing more time that can be devoted to crucial areas such as education, for women as well as their children.

In addition, our integrated animal husbandry services have been launched benefiting over 2,70,000 milch animals. Over 1,80,000 children attend our supplementary education centers, and 18,000 women entrepreneurs have been created through 1000 self-help groups. These are philanthropic programmes that are, in the short run, a drag to the financial bottom line. It is my belief, however, that in the long run, we would greatly benefit from the support and trust of the communities where we operate.

ITC's Social & Farm Forestry

The second initiative that I would like to talk to you about is ITC's Social and Farm Forestry project which creates sustainable livelihoods for tribals and marginal farmers.

This initiative is part of the Value Chain of ITC's Paper business. Some years ago, I was advised that due to several challenges, which entailed huge investments and issues in sourcing wood pulp, it would be advisable to close down our paperboards business. At that point in time, we took a strategic decision not only to revitalize our paper business but to grow it by creating a competitive source of wood pulp by helping tribals grow trees in their private wastelands.

ITC invested in extensive R & D in a clonal propagation project to create unique saplings which apart from being disease resistant, would grow much faster and in harsher conditions. These saplings, which are today popularly known after our paper plant in Bhadrachalam, were distributed to tribals and marginal farmers for harvesting in unproductive wastelands. Today, this programme covers over 90,000 hectares and has provided over 40 million man days of employment. ITC is a willing buyer of such produce, whilst the growers are free to sell to the highest bidder in the open market.

ITC could have taken the easier route by importing pulp given the low import duty regime, rather than a more difficult route of mobilizing tribals and marginal farmers, involving long gestation and substantial investment exposure. However, adopting this more challenging route has brought about a multiplicity of benefits -- creation of a green cover for carbon sequestration, ground water recharge and soil conservation and a source of sustainable livelihoods to a large number of disadvantaged sections of our society. If we had imported wood pulp and converted into paperboards, we would have given employment to only 600 people in our paper mill. However, by following this difficult but satisfying route, we have today provided a livelihood potential for over 40 million mandays so far.

Committed engagement with the farming community, over time, has led to capacity building and higher productivity. This in turn has provided ITC with a sustainable source of quality and cost competitive pulp-wood for its paper and paperboard business. In addition, it has enabled us to create today India's greenest paper for business and home use, which we offer in the market under the "Paperkraft" brand. Its unique environmental credentials not only come from the fact that it uses wood pulp from renewable plantations, but also because it uses cutting-edge environmental friendly technology in the form of elemental chlorine free and ozone bleached process which virtually eliminates all major effluents. This, in my view, exemplifies the integration of triple bottom line objectives as a part and parcel of business strategy.

India today possesses a huge opportunity in promoting agro-forestry. The paper and pulp industry, however, is only one application of wood-based industries, and barely uses 4 % of the total wood consumed in India. Trees provide an invaluable renewable resource that lends itself to multiple commercial applications. Therefore, it is also a major potential source of livelihood creation. The agro-forestry value chain has the rare distinction of being able to contribute to augmenting energy capacity and ecological wealth besides supporting the core needs of food and housing. As the primary resource for paper based industry, it supports the spread of education, so crucial for developing economies like ours. With increasing population, rising incomes and consequent demand for energy, education, housing and home lifestyle products, the wood-based value chain is well poised not only as a profitable economic activity but also as a catalyst sector that promotes sustainability and inclusive growth.

Money may not grow on trees but surely can grow along with trees. Promotion of forest and wood-based industry carries the potential for transformational change, provided usage of output is linked to replenishment. Viable wood-based industry is not about felling trees. It is about growing more trees than are felled. Such a strategy would facilitate land use diversification by supporting value added wood-based industry. A whole new opportunity can be opened up through promotion of forest and herb-based products for culinary, cosmetic and curative use in domestic and international markets. To my mind, this is one of the largest opportunities available in India to promote sustainable development and create livelihoods, and policy makers need to give it far more priority.

Triple Bottom Line Performance

Today, it gives me immense pleasure to state before you that, given this philosophy of conducting business, we have become the only company in the world, of our size and diversity to be carbon positive, water positive and solid waste recycling positive. We sequester 2 times the carbon we emit from our operations, and generate 3 times freshwater potential than what we consume. In addition ITC's businesses generate sustainable livelihoods for over 5 million people, many of whom represent the most disadvantaged in India. And it is with deep satisfaction that I mention to you today that we have been able to do all this and still achieve a compound rate of growth in Total Shareholder Returns of over 25 % in the last decade.

Role of Management Institutions in furthering Sustainable and Inclusive Growth

As I said earlier, the challenges of sustainable and inclusive development need all of us to join and align our forces to  do what we can in our respective areas of influence and operation. I firmly believe that institutions like yours are also very well placed to make a meaningful difference in ensuring that the future can shape a more secure and sustainable economy and society.

Your invaluable contribution, to my mind, can be in 3 distinct areas :

First, to spread awareness and education in the area of Sustainability - and the need to build sustainable societies for all its stakeholders. Your curriculum could integrate Sustainability as a separate line of study and engagement, because a study of Management can hardly be complete today without integrating such value systems.

Second, you could engage in meaningful research, in collaboration with business and industry, to find innovative solutions that address the sustainability challenges of economies like ours. The fruits of this research would not only help corporate recipients but also be valuable inputs for Government policy, including that for multilateral negotiations.

Third, it is critically important to create awareness amongst civil society and government that those exemplars that invest in building a sustainable future need to be supported with policies, consumer franchise and preferences that reward such constructive action. The Jesuit network of institutions is not only powerful but extremely effective, because you work with passion and zeal that is unparalleled. You would do a significant service to society and indeed to future generations by promoting the cause of sustainability and sustainable organizations.

We stand today at a defining juncture when we can influence the course of future events by redefining our own value propositions in a way that are more conscious to the needs of society. The lessons of the past are before us. It is said that those who do not learn from history are condemned to repeat it. Surely, with all the knowledge at hand, the experience of generations and in our own enlightened self-interest we will make a break from the past and create a more meaningful and secure future for all of us. That indeed would define a new freedom for mankind, a freedom from greed and from destruction. A freedom that will give a new lease of life to this Planet and to those who will come after us.

As I conclude today, let me recall what Rabindranath Tagore said many years ago, :

"Into that heaven of Freedom, my father, Let my Country Awake".

Thank you, ladies and gentlemen.