Countries that are poorer will have to spend much more on coping with global warming, which can cause havoc for coastal areas, for land productivity.
Conglomerate ITC Ltd’s concern for the
environment and its initiatives to preserve
natural resources are beginning to get
recognition from consumers and translate into
financial gains for shareholders, chairman Y.C.
Deveshwar said on Sunday.
In an exclusive interview, Deveshwar said all
Tata group companies, for instance, had decided
to use only Paperkraft Premium Business Paper, a
brand of printing paper manufactured by ITC
using environment-friendly technologies and
renewable resources.
Though it is slightly more expensive, Paperkraft
is the preferred brand for at least two top
Bangalore-based information technology
companies, he said. “They use it because they
want environment-friendly products... Paperkraft
has the least environment impact.”
For the same reason, mobile phone manufacturer
Nokia Oyj uses ITC’s packaging material
extensively in a number of countries where it
has manufacturing facilities.
“As far as possible, we are trying to integrate
creation of value for the society into our
business strategy, and we are trying to see that
in the medium to long run our initiatives create
value for our shareholders as well,” Deveshwar,
62, said.
In the rare interview, Deveshwar spoke
extensively about ITC’s businesses and focus on
sustainable development. Edited excerpts:
What was the inspiration to create social
wealth and are ITC’s shareholders supportive of
these initiatives?
World Bank has redefined the poverty line at
$1.25 (Rs59), and (by that measure) 420 million
people (in India) live below the poverty line.
As a citizen of India and the leader of a large
company, I have been thinking what we could do
beyond the traditional role of serving the
consumer and creating shareholder value.
Businesses have the resources, and they must
take part of the responsibility. I know it
cannot be done by businesses alone either—all
organs of the society have to join hands to be
able to deal with this massive problem of
poverty on the one hand and climate change on
the other.
There’s threat of global warming—it is going to
impact emerging economies much more (than
developed economies). Countries that are poorer
will have to spend much more on coping with
global warming, which can cause havoc for
coastal areas, for land productivity.
On the one hand, India is a very young country.
Every year 10 million (new) people will come
into the job market, so how to create
livelihoods for those many people every year?.
On the other, how to manage the scarce resources
that India has— we are 17% of global population,
but we have only 2.4% of land mass, 4% of water
resources and 1% of forest resources. We have
one billion-odd people and everybody wants to
upgrade the standard of living. So what would
happen to the quality of air and to the quality
of soil?
Traditionally, our balance sheets do not reflect
the cost of all the resources that we use—the
carbon that we emit, the water that we use, and
what replenishment (of these resources) would
cost.
In the developed world, people now have begun to
decide what they buy based on how responsible
the manufacturer is, and in India, too, in the
long run, society’s well-being and businesses’
well-being will converge. The problem is only in
the short run, when businesses incur a cost, so
they let the society bear the cost, but over a
period of time, if society prospers, businesses
will also prosper.
Creating potential markets and creating
sustainable livelihoods are two sides of the
same coin—if people don’t have income, there
won’t be markets.
The problem is whether you can bear that cost in
your balance sheet. So you have to find a way to
be compensated for it. But I am sure over a
period of time the goodwill that we create will
translate into better returns for shareholders
as well.
Shareholders cannot continue to get returns if
the business is not sustainable, and if we don’t
have the goodwill of the society, the business
will not thrive in the future.
But how do you translate the social wealth
that you create into financial gains for your
company?
That’s the bigger question—companies that create
such value for society, how can they be
compensated in their P and L (profit and loss)
account?
If consumers begin to exercise their choice in
favour of those companies that not only provide
goods and services of high quality, but also
create additional value for society, then every
company will have no choice but to do this.
But how do we communicate to consumers? How can
they measure which company is doing what? ITC
has been publishing a sustainability report
every year—globally, there’s a major reporting
initiative. And then it’s a matter of
measurement and using some kind of index. We
think there should be something that we call “trustmark”.
A new yardstick has to be created by which
people can measure what companies do.
There are auditors who are auditing financial
transactions. Similarly, auditors can be created
who can measure your contribution to society,
and “trustmarks” can be given which are
published on your products and can be recognized
by consumers.
Civil society, or consumers, are going be a big
determinant—that’s one thing. The other thing is
government policies. If the government wants to
mobilize the resources of the corporate sector
for creating social wealth, then, if not tax
breaks, it should provide incentives. The
government could offer such companies
preferential treatment in its buying programme.
The government must recognize responsible
companies in some manner.
Obviously, it hasn’t come to that situation
yet...but the ‘T’ in ITC in our view should
stand for trust and trusteeship. We believe that
in the long run companies who are more
responsible (towards the society and
environment) would have more sustainability of
their prosperity.
For years, ITC has connected rural markets
through its e-Choupal initiative. What kind of
value has it created for the company?
Seventy-two per cent of India’s population lives
in the rural areas, and when we say 420 million
people are below the poverty line, most of them
are in rural areas. There are 640,000 villages
and 60% of these villages have fewer than 1,000
people. So income levels in these villages will
not justify creating infrastructure and
connectivity for these low-density settlements.
That is why very few companies service
below-100,000 markets. So our model—e-Choupal—at
one level helps the farmer improve his
productivity and access to markets, and at
another level, we are converting them into an
economic entity and creating markets for
tomorrow.
To make it a viable proposition, we have got
other manufacturers to ride our e-Choupal
channel, so the cost of maintaining the channel
gets shared by producers of a variety of goods
and services. For instance, it is being used by
producers of seeds, pesticides and fertilizer.
Now, people can buy even motorbikes on the e-Choupal,
or lease a tractor. And the goodwill that we are
creating will eventually help us market our own
products also.
For us to be internationally competitive, it is
necessary for our whole value chain to be
competitive. So, we launched our foods business
only after establishing the e-Choupal channel to
give the business more sustainability. Because
we are buying at the farm gate, and not from the
mandis (markets), we are able to buy some 18
different grains (varieties) of wheat and blend
them for different markets to suit local
tastes—India is not one uniform market.
When will your newly launched consumer goods
businesses start turning profitable?
The conventional wisdom is you should do one
thing at a time. But our belief is once you have
set up a distribution channel, introducing
businesses one by one will take a long time, and
the benefits will be very small—we are in a
hurry.
But in every business we have entered, we have
different competitors, and they are
well-entrenched players. We have taken upon
ourselves a gigantic challenge of competing with
multiple FMCG (fast-moving consumer goods)
players. It will take a little longer (to become
profitable), but eventually we will emerge as a
big player.
We are happy with the way things have gone so
far. At the moment, we are giving each business
the resource support that it needs. Now you’d
see the losses coming down in these businesses,
unless we decide to enter new segments.
When do you think this downturn will end?
We have a stable government, and I am very
optimistic that measures will be taken and in
the not so distant future, we will again see
double-digit growth. In the last quarter, paper
showed improvement, agri business showed
improvement—though some commodities were
affected, our profits increased—only hotels
suffered. That’s always the first to take a
hit—it’s very sensitive. But as the economy
picks up, hotels will turn around. We will
continue to invest...we have three properties
under construction, and one of them is 1.2
million sq. ft. We are going to construct a 1
million sq. ft hotel in Kolkata near ITC Sonar
(ITC’s existing hotel in Kolkata).
What’s your view on the cigarettes business?
What’s the kind of volume shrinkage you
witnessed last year?
We have the lowest per capita consumption of
cigarettes in the world. Yet, until last year,
cigarettes were 15% of tobacco consumption, now
it is 14%. But the 86% is forgotten, and the 14%
of tobacco consumption accounts for 85-90% of
tax collections. We are hoping that the
government would look at the other forms of
tobacco consumption and resort to more moderate
taxation policy on cigarettes and widen the tax
base. What we are saying is you can shrink
tobacco consumption as a whole, but maximize
revenues out of it. Consumption of cigarettes in
India is shrinking... Yes, people have upgraded
to filtered cigarettes, which for a while can
give ITC better margins, but the base is getting
smaller, and it’s not a good thing.
