Key Impacts, Risks and Opportunities
If rapid economic growth is to be sustained in a country as large and
diverse as India, it is imperative to include those living at the margin as meaningful
participants in the economic process. The slow pace of progress so far towards achievement
of the Millennium Development Goals highlights the seriousness of the issues relating to
ITC's aspiration to create enduring value for the nation provides it the
inspirational motive force to sustain growing shareholder value. ITC practices this
philosophy of a 'commitment beyond the market' by not only driving each of its businesses
towards international competitiveness, but by also consciously contributing to enhancing
the competitiveness of the larger value chain of which it is a part.
Over the past decade, value addition by ITC has grown at a compound annual
rate of more than 12% to over Rs. 68,000 crores, representing nearly 1.1% of the
value-added by the Industry sector of the economy. Nearly 77% of such value-added accrued
to the Exchequer, providing the much-needed resources for deployment in developmental
priorities. Foreign exchange earnings of the ITC Group during this period amounted to
nearly US $ 2.5 billion, of which earnings from agri exports constituted nearly 65%. These
earnings from linking the Indian farmer with world markets represent well over 2% of the
country's agri exports.
ITC's investments of over Rs. 6,000 crores in the last decade towards
enhancing the competitiveness of its businesses support direct employment to the tune of
20,000 and indirect employment across the value chains of nearly 5 million people, whose
livelihoods are substantially linked to their association with ITC. The investment plans
envisaging Rs.14,000-15,000 crores over the next few years would further enlarge ITC's
ITC's engagement across diverse value chains spans the farming community,
small enterprises and shopowners in the small, medium and cottage sectors. The Company's
new FMCG businesses alone support the competitiveness of over 120 vendors in the SME
sector thereby enabling them to adopt best practices, induct superior capabilities, and
eliminate reprehensible practices like child labour. To illustrate, the Incense sticks
business sources products from 8 vendors in the cottage sector, who predominantly employ
women. Four of these vendors have earned the ISO 9001 certification - a first for this
industry. Thus the symbiotic partnership between the Company and such cottage industry
vendors leverages complementary strengths for mutual benefit, thereby enabling these
enterprises to flourish without the need for public largesse.
ITC's mission of fulfilling a larger social purpose is based on the
bedrock of sound financial performance. It is ITC's belief that creation of shareholder
value provides the only basis for sustainable contribution to the superordinate goal of
creating national value.
ITC aims to sustain its market standing as one of India's most valuable
corporations, achieve leadership position in each of the business segments within a
reasonable time frame and achieve a Return on Capital Employed (ROCE) in excess of the
Company's cost of capital, at all times.
Over the last decade Total Shareholder Returns, measured in terms of
increase in market capitalisation and dividends, grew at a compound rate of over 30% per
annum, placing ITC among the foremost in the country in terms of efficiency of servicing
financial capital. Amongst listed companies in the private sector, ITC ranked 4th in terms
of Gross Turnover and 3rd in terms of pre-tax profits for the financial year ended 31st
March 2006. The Company ranked 6th by market capitalisation amongst listed private sector
companies in the country, as at 31st March 2006. The Company has consistently achieved a
ROCE well in excess of its cost of capital. It is a measure of the continued trust reposed
in the Company by consumers that ITC's brands today account for three of the top five FMCG
brands in the country.
Just as the Company's businesses have contributed to strengthening its
economic value creating ability, their impact on enhancing social and ecological capital
is also growing in magnitude and significance.
ITC's impact on the environment as a result of its operations mainly
concerns three areas: (a) release of greenhouse gases contributing to global warming; (b)
consumption of water, both from surface and sub-surface sources, adding to the depletion
of freshwater availability; and (c) generation of solid wastes, adding to the
non-degradable waste being generated by industry.
ITC has been at the vanguard of Indian industry's attempts to minimise its
environmental footprints through strategic initiatives in each of these areas of global
Global Warming: In order to mitigate the effects of
global warming, the Company is following a two-fold strategy: (a) reduce specific energy
consumption in its operations through improved technology and processes; and (b) sequester
greenhouse gases, especially carbon dioxide, through a large-scale forestry programme.
These efforts have resulted in greening 41,000 hectares of land, helping ITC sequester
more carbon dioxide than its operations emit. The total CO2 released by ITC's operations
in 2005-06 was 1,202 kilo tonnes while CO2 sequestered was 1,244 kilo tonnes, or 104% of
emissions. This positions ITC uniquely as a 'carbon positive' corporation. By 2010, the
Company plans to green 100,000 hectares, significantly more than it would require for its
expanding paperboards operations.
Solid Waste Management: Non-degradable waste is a growing
menace adversely affecting the environment. Three plans are in place to reduce solid waste
within the Company and make it a 'zero solid waste' company in the next two years: the
major emphasis is on reduction of waste per unit of output so that the total generation of
waste comes down significantly; the second step is to ensure recycling of all the wastes
generated by the Company's operations; and the third step is to maximise reuse of the
wastes as raw material. As a result of the first two steps during 2005-06, 78.7% of all
wastes generated was recycled. ITC hopes to become a 'zero solid waste' company in the
next two years through 100% recycling/reuse.
Water Conservation: ITC is mindful of the fact that
freshwater in the country is increasingly becoming a valuable resource given that India
accounts for 18% of the world's population but has only 4% of global freshwater resources.
In order to mitigate the negative impact on freshwater depletion due to its operations,
ITC has adopted a three-fold strategy: (a) minimise the consumption of fresh water per
unit of output in all its businesses; (b) minimise/eliminate discharge of treated
effluents to prevent damage to the environment in any way; and (c) create rainwater
harvesting potential within the Company's units. Rainwater harvesting within the units has
seen a significant increase between 2002-03 and 2005-06 - from 0.24 MKL to 0.61 MKL.
ITC's endeavours towards sustainability go beyond the corporate boundary.
The Company has been systematically and strategically investing in creating additional
rainwater harvesting capacity through external watershed development projects in water
stressed areas. This was prompted by the fact that even though 70% of India's population
lives in the countryside and agriculture accounts for 19% of the country's GDP, nearly 67%
of the cultivated area faces severe moisture stress for 5 to 10 months a year. From 3
projects covering 60 villages during 2001-02, ITC's watershed development projects now
cover 325 villages in 16 districts, benefiting 15,506 farmers. A total of 1,011 water
harvesting structures have been created. These structures provide critical irrigation to
10,277 hectares of farmland and have led to an additional storage potential of 18.99 MKL.
As a result of these measures, ITC has been a 'water positive' Company for
the past four consecutive years. Compared to the net freshwater consumption of 4.62 MKL in
2005-06, the Company has created potential storage of 19.60 MKL through its water
harvesting efforts both within its units and in moisture-stressed districts of the
The Company is keen not only to maintain its status as a 'water positive'
corporation but to continue to address one of India's foremost problems - the threat of
more and more areas in the country becoming moisture deficit. In the next five years
therefore, the Company has planned to bring a total of 50,000 hectares under soil and
moisture conservation through the creation of 1,500 additional water-harvesting structures
leading to an additional potential storage of about 28 MKL.
ITC believes that an effective growth strategy for the nation must address
the needs of rural India, home to 75% of the country's poor. It is imperative to ensure
that India's economic growth is inclusive, embracing its villages, so as to free millions
of disadvantaged citizens from the indignity of poverty.
ITC has partnered the Indian farmer for close to a century. ITC is now
engaged in elevating this partnership to a new paradigm. The ITC e-Choupal initiative is a
powerful illustration of the Company's commitment to empower the small farmer and thus
engender rural transformation.
ITC is also engaged in several other CSR initiatives in the economic
vicinity of its operating locations. The Company's Sustainable Livelihoods initiative
strives to create alternative employment for surplus labour and decrease pressure on
arable land by promoting non-farm incomes. The thrust of the Company's social sector
investments, christened 'Mission Sunehra Kal', is on: natural resource management, which
includes wasteland, watershed, and agricultural development, creating sustainable
livelihoods, comprising genetic improvement in livestock and economic empowerment of women
and community development, with a focus on primary education, health and sanitation
(Detailed plans for each of the above initiatives are available in the 'Social
Performance' section of this Report).
Through its rural partnerships, ITC touches the lives of nearly 4 million
villagers across India. In the next 5 years, ITC aspires to empower over 10 million rural