ITC Sustainability Report 2015 :: Stakeholder Engagement, Risks & Opportunities & Materiality Analysis

Stakeholder Engagement

ITC has a structured approach to address stakeholders' concerns, in line with the Company's policy on stakeholder engagement. The approach draws upon the long term stable relationships built with key stakeholders such as shareholders, farmers, customers, suppliers, employees, local communities, regulatory bodies and the media. Recognising that stakeholder engagement is an integral part of enriching partnerships, ITC has institutionalised these existing relationships through appropriate processes. Targeted consultations are being conducted on a regular basis, with due weightage given to each stakeholder's nature of engagement with the organisation. The stakeholder engagement processes focus on:

Transparency and accountability
Monitoring and tracking of key concerns expressed by those who have been consulted
Timely reporting back to those consulted on ITC's action plan
Periodic review of actions taken for redressal of concerns
Continued integration with materiality identification

ITC's Process of Stakeholder Engagement

Details of each of the above mentioned steps are elaborated below.

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Identification of Key Stakeholders

Consultation with Key Stakeholders and Identification of Key Concerns

Highlighted below are the consultation mechanisms with the key stakeholders, together with key concerns, requirements and expectations identified through them.

Stakeholder	Consultation Mechanism	Key Issues
Providers of Financial Capital	Annual General Meeting Exclusive section in Corporate Website on 'Shareholder Value' which serves to inform and service shareholders An exclusive e-mail id: isc@itc.in for direct interaction with shareholders Regular interventions with institutional investors	Continued profitability and growth of the organisation Transparent and effective communications Investor servicing Anti-corruption, whistle blower mechanism
Government and Regulatory Authorities	Representations on policy issues through industry associations and other bodies Participation in policy advocacy discussions at various forums	Regulatory compliance Strong Governance Anti-corruption Tax Revenues Resource Efficiency Transparency in disclosures Livelihood generation
Customers	Market surveys Personal contacts/visits Personalised lifestyle privilege programme Customer satisfaction surveys Joint development and improvement projects Key account management	Fair and competitive pricing Product/service quality Transparent communication to consumers Adequate information on products Product/ service availability Timely delivery of product/service Maintenance of privacy/ confidentiality
Employees	Induction programmes/Training workshops Individual performance appraisal Employee engagement survey Grievance handling processes	Caring and empowering work environment Personal development and growth Employee safety Grievance resolution Competitive compensation
Farmers	Regular formal/ informal talks Agreements for all procurement activities e-Choupal and Choupal Pradarshan Khets (demonstration farms)	Inputs on agricultural best practices Know-how on improvement of productivity and profitability Consistent increase in income generation Capacity development for further investment Sustainable & accelerated growth in livelihoods and farm incomes Responsible sourcing of agri-raw materials
Supply Chain Partners	Manufacturers' Meet Vendor Meets Pre-agreement negotiations Agreements for all procurement activities	Knowledge and infrastructure support Regular communication and updates on business plans Inclusion of local medium and small scale enterprises in vendor base Competency development of local vendors Stability/tenure of relationship Ordering and Payment Routines Purchasing prices Changes or cancellation of orders
Local Communities	Community needs assessment activities undertaken in collaboration with independent parties/Civil Society Organisations Formation and regular meetings of village institutions Public hearings during greenfield/expansion projects Assessment of direct and indirect impacts of ITC's social investments on communities	Community development programmes based on local communities' needs Strengthens livelihood opportunities Improvement of social infrastructure for hygienic and healthy living environment Dignity of life through economic & social empowerment
Media	One-on-one Media Interactions Press Conferences/Press Releases Advertisements/Promotions Interviews with Senior Managers	Transparent and accurate disclosure to stakeholders Responsible Corporate Citizenship Corporate Reputation
Civil Society	Partnership in implementation of CSR Programmes under Mission Sunehra Kal Discussions on Community Issues with Civil Society Organisations	Financial support for community development programmes Managerial support Environmental pollution prevention Safe products and services Responsible Corporate Citizenship

Prioritisation and Addressal of Key Concerns

The sensitivity of an issue to a stakeholder and to ITC, in terms of high/ low importance forms the basis of the materiality analysis. Please refer to the Materiality Analysis section for further details.

Risks and Opportunities: Sustainability Challenges

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Sustainability Risk Portfolio

As a diversified enterprise, ITC has always upheld a system-based approach to business risk management. The Corporate Risk Management Cell works with the Businesses to establish and monitor the specific profiles including strategic, operational, environmental and social risks. The process includes the prioritisation of risks, selection of appropriate mitigation strategies and periodic reviews of the progress on the management of risks. The annual planning exercise requires all Businesses to clearly identify their top risks and set out a mitigation plan with agreed timelines and accountability. The senior management of the Company also periodically reviews the risk management framework to keep it contemporary and relevant so as to effectively address the emerging challenges in a dynamic business environment.

Based on the ongoing risk assessments at Businesses level and aggregated at the organisation level, ITC has classified its sustainability challenges into two broad categories - those that are influenced by global events, and challenges that are unique to India.

Global Challenges

According the World Economic Forum Report on Global Risks 2015, short term risks that endanger the world today arise as a direct outcome of human action, including interstate conflicts, collapse of states, governance deficits and large-scale terrorist attacks. On the other hand, the list for long term global risks is dominated by those related to physical and environmental issues that have been less prominent in recent headlines, such as climate change and food & water security. Although the importance of these slow-burning issues have been recognised by the world at large, little progress has been made to address them in light of their detrimental and far-reaching consequences for the current and future generations. The expected impact of climate change on the ability to grow food and access water could further exacerbate population migrations, thereby threatening the socio-economic stability of receiving countries.

Another growing concern is unemployment and underemployment further contributing to social and rising socio-economic inequality. This is reflected in the fact that among the members of the Organisation for Economic Co-operation and Development (OECD), the average income of the richest 10% has now grown to about nine times that of the poorest 10%.

The anticipated and real impacts for the above issues amongst developed and developing countries are however vastly different, both in scale and scope. These differences are multi-layered and multi-faceted given the dimensions of the challenges and the socio-economic environment prevailing in different countries. Given this context, countries like India while cognising for the larger global challenges, will have to shape their own sustainability agenda with focus on specific issues that have an immediate and direct impact on the Indian society at large.

The Indian Context

It becomes essential to understand in this context that while India mirrors many of the global challenges, issues like poverty, social inequities, unemployment, environmental degradation, water and food crises assume even more acute and multi-dimensional characteristics in India. Land pressure for instance, assumes greater significance in India which is home to 17% of the world's population, with only 2.4% of the world's land share.

Agriculture in India engages around 50 per cent of the country's workforce and supports the livelihoods of 75 per cent of the population living below the poverty line. Ironically however, agriculture today accounts for just about 14 per cent of GDP and therefore, the average farmer's per capita income is less than one-fifth of the rest of the country's average. Such low incomes are a result of a deteriorating natural resource base, disconnected value chains, fragmented and small-size landholdings, weak infrastructure, inadequate knowledge and multiple intermediaries. In addition, around 55% of India's total sown area meets its requirements from rainwater alone. This assumes importance in the face of climate change related challenges of erratic rainfall leading to drought and floods. A majority of the farmers are hence trapped in a vicious cycle of low productivity and low investments. Therefore there is a need to address these challenges by means of ensuring farming population's sustainable access to water, knowledge and other necessary resources, whilst simultaneously arranging for diversifying the income base for India's workforce aligned with Government of India's "Make in India" campaign.

The other risks that India faces are inadequate infrastructure and the failure of urban planning in the face of rapid urbanisation. As per a World Bank Study "Power for All: ELECTRICITY ACCESS CHALLENGE IN INDIA" published in November 2014, around 311 million people in India still remain without access to electricity. Of these, more than 100 million currently are beyond the reach of the grid and can be reached only by using decentralised household or village systems. On the other hand, rapid urbanisation, increasing population, higher consumption levels and inadequate infrastructure are putting a severe strain on the ecology. A large amount of waste being generated today ends up in landfills, leading to serious concerns of public health and sanitation risks as well as large scale environmental degradation. Negative impacts of urbanisation are also manifest in the pollution of almost all Indian rivers that have been absorbing domestic and industrial sewage and agricultural wastes over the last few decades. Apart from posing a serious health problem to millions of people that continue to depend on polluted water from rivers, this also endangers the biodiversity dependant on it. It is therefore the need of the hour for the country to invest in basic infrastructure. This will further require enormous resources that can only be generated with a larger focus on livelihood creation and widening of the tax base.

ITC's operations and markets are India centric and the Company's world-class Indian brands ensure that larger value is created, captured and retained in the country for national development and growth. Therefore the organisation's sustainability is closely driven by the country's advantages and vulnerabilities. In line with the risks and opportunities that may impact India's economic, social and environmental sustainability, ITC has mapped the key challenges, risks and opportunities likely to impact its own long-term prospects and those of its stakeholders.

Challenges	Risks and Opportunities
Own Operations
Continued Profitability	Risks High incidence of taxation and a discriminatory regulatory regime on cigarettes has been leading to a significant shift in tobacco consumption to cheaper and revenue inefficient forms like bidis, chewing tobacco etc. and also to cheaper tax-evaded as well as contraband cigarettes Opportunities ITC's strength lies in its multiple drivers of growth which leverages its enterprise strengths such as consumer insights, innovative product development, brand building, state-of-the-art manufacturing, efficient supply chain and distribution infrastructure, world-class human capital and sustained investments in R&D
Sustainable Use of Natural Resources	Risks Increased water scarcity may directly impact ITC's Paperboards and Specialty Papers Business which is relatively more water intensive in its operations compared to other ITC Businesses. With continuous decline in ground water and uneven supply of surface water, it may become even more challenging for businesses to meet their requirements. Disruptions in rainfall patterns will also impact water quality requiring additional treatment and costs before it can become usable. These challenges may bring about further regulatory pressure on water withdrawal. Challenges related to energy security due to volatile energy prices and inadequate infrastructure for capitalising on off-site renewable sources of energy in the country. Opportunities These risks provide an immediate stimuli to focus on energy conservation and maximising contribution from renewable energy sources. This should provide long-term advantages in terms of both reduced costs as well as reliability of support. ITC would also enjoy first mover advantage by developing internal systems and processes to operate in such a natural resource constrained environment. Integrated Watershed Development Programme to increase availability of water and recharge aquifers.
Health and Safety	Risks While ITC is progressing steadily towards its target of zero accidents of employees within its premises, ITC cognises that accidents while traveling to and from the workplace are on the rise in India, given the steady proliferation of 2 wheelers, the poor conditions of roads and inadequate infrastructure. Given ITC's presence in the FMCG and Hospitality sectors, constant vigilance is required to monitor the health and safety impacts of its products and services on consumers. Opportunities Safe work environment is critical in boosting employee morale and productivity. Apart from best-in-class infrastructure, ITC's opportunity lies in its robust systems that have been developed over the years to ensure safety of employees within ITC premises as well as outside premises. ITC employees can also act as ambassadors for safety and play an individual role in creating awareness on this vital aspect. Creating a culture of safety though appropriate behavioural interventions. ITC has well established systems and processes to ensure that its products and services are delivered in compliance with national or international standards as relevant. In service sectors such as hospitality, these strengths have permitted ITC to leverage the market to its advantage.
Dynamics of Government Policies and Regulation	Risks The Cigarette industry had to contend with a steep increase in Excise Duty for three years in succession along with discriminatory and punitive increases in Value Added Tax (VAT) rates by some States. Such tax increases undermine the legal domestic cigarette industry by providing a large arbitrage to the tax-evaded and contraband suppliers. This sub-optimises the revenue potential from this sector, diminishes the share of the legal industry besides failing to achieve the objective of tobacco control in the country. Strong regulations like Forward Contracts (Regulation) Act were put up to curb excessive speculation in agri-value chain and to allow farmers efficient access to the market without the exploitation of intermediaries. But such regulations today limit sufficient flexibility for farmers and deprive them of maximum value. In addition, regulations like the Essential Commodities Act (ECA), which impose stock limits and curb movements from time to time, create uncertainty in business viability for organisations like ITC with significant dependence on agri-inputs. This acts as a huge deterrent to long-term investments required to build infrastructure like climate-controlled storages and transport facilities to prevent wastage. Multi-layered and complicated system of environmental and labour laws in the country reduce overall competitiveness Moreover, possible regulatory measures such as carbon taxes or additional requirements under the Perform, Achieve, Trade (PAT) and Renewable Energy Certificates (REC) schemes can put additional cost burdens. Opportunities ITC has created strong Indian brands in the cigarettes segment, in the absence of which, the domestic market would have been more vulnerable to the onslaught of smuggled tax evaded cigarettes of foreign origin. Raising the awareness of policy makers and civil society on the menace of illegal and contraband cigarettes, which impact both revenue and livelihoods of farmers would help in enhancing enforcement as well as stemming the rapid increase of the illegal industry. This will lead to eliminating the losses to the exchequer as a result of tax evaded cigarettes, and also help in ensuring that livelihoods of farmers and others in the value chain are not lost. ITC engages with industry associations, organisations and other appropriate forums in line with its policy of Responsible Advocacy. This is aimed to help the formulation of a balanced and pragmatic policy framework that addresses the concerns of the industry.
Human Capital and Well-being	Risks ITC operates in a diversified, ever-changing, highly competitive global landscape. This necessitates the development of a strong, customer responsive world-class human capital base. The challenge of meeting the growing needs of an organisation with the requisite skills co-exists with the challenge of attracting and retaining the best talents given the multitude of options available to skilled professionals. There is also a need to nurture harmonious employee relations to enable smooth functioning and productivity enhancement to be able to support the organisation's growth and progress. Opportunities In order to sustain growth and to continue to deliver value for stakeholders, it is necessary for organisations to recognise human capital as a critical resource base. The over 100-year-old brand value of ITC provides an opportunity to attract talent from premier institutions. Retention of such a talent pool is in turn facilitated through a talent management strategy focused upon building a high quality 'future-ready' pool of managers, specialists and business leaders, supported by significant investments in learning and development and backed by a culture of care and concern.
Catchment Areas
Sustainable Availability and Use of Natural Resources	Risks Rapid growth in population and unplanned urbanisation has led to consumption of natural resources at a rate far higher than the earth's capacity to regenerate. Sustainable availability of resources for industrial use as well as domestic consumption could therefore be a risk in the catchment areas of ITC. Opportunities ITC's deep rooted stakeholder centric approach and understanding of interdependence of social and environmental aspects have enabled ITC to be a pioneer in identifying sustainability issues beyond the horizon and taking necessary actions. This is manifested in integrated watershed development as well as afforestation programmes initiated by ITC more than a decade ago for ensuring augmentation of natural resources and enable higher productivity, create a green cover and restore soil health.
Employability of local population	Risks Lack of proper education and inadequate availability of requisite skills in local population, especially from disadvantaged sections of society in the catchment areas is a challenge faced by most of ITC's manufacturing units. This points to the compelling need to create a large pool of skilled human resources from among the local populace. Opportunities ITC's deep engagement with rural communities, which has been enhanced by the co-creation of economic opportunities, has helped in forging strong relationships. This provides an opportunity to enhance gainful livelihoods of local population. ITC's partnership with local Industrial Training Institutes and agencies that impart vocational training on skills related to sales & distribution, hospitality, construction and technology acts as an opportunity to enhance the employability of youth from disadvantaged sections of society in the catchment areas of ITC operations.
Poverty and Social Inequity	Risks Nearly 700 million people living in rural India, with low adaptive capacities, have a direct and symbiotic dependence on climate sensitive sectors (agriculture, forest and fisheries) and natural resources (water, bio-diversity, mangroves, coastal zones and grasslands) for their subsistence and livelihood. The limited options of alternative off-farm employment, combined with endemic poverty, continue to imperil the livelihood of millions of small and marginal farmers with fragmented landholdings, mainly in rain-fed agriculture regions, where the production regime is inherently fragile and getting more so due to a number of factors. Opportunities ITC's innovative development models based upon the foundation of its deep rooted stakeholder centric approach, provide the opportunity of simultaneous generation of sustainable livelihood as well as creation of positive environmental footprint. Such models unleash strong drivers for achieving development with social equity. The Company's approach to develop the competitiveness of value chains of which it is a part enables the creation of long term drivers that address the problem of social inequities.
Supply Chain
Low productivity of rain-fed agricultural sector of India	Risks ITC operates across the agri value chain of 19 crops and is present in 18 states with substantial investments in resource intensive models that entail heavy capital infrastructure. Since around 55% of India's total sown area meets its requirements from rainwater alone, climate change generated environmental challenges aggravate the risks of low productivity of agricultural sector of India, in turn impacting sustainability of agri based businesses. Low productivity risks are compounded by absence of focussed incentivisation of precision farming, micro-irrigation, watershed development and power-efficient farm mechanisation There are inadequacies in the policy framework required to boost the provision of rural infrastructure so that wastage can be eliminated and farmers can receive better returns. Furthermore, absence of crop and weather insurance reduce the risk-taking capability of the small-scale farmers for investment in infrastructure improvement. Opportunities Owing to long standing presence in the agri-commodities market of the country, ITC has created a rich knowledge pool of agri-based interventions in terms of infrastructure, connectivity, price discovery, market access and farm productivity. ITC's close connect with the grass root level and effective dissemination of critical information provide opportunities for ITC to address the challenges in its agri-value chain.
Limited Capabilities of Small Scale Supply Chain Partners	Risks ITC's supply chain comprises of a large number of small-scale partners many of whom operate under limiting circumstances in terms of their ability to invest in efficient technologies and their necessity to rely on labour intensive practices. Opportunities ITC's long presence in the Indian market has helped in understanding the pulse, strengths, weaknesses and concerns of its supply chain partners, especially the rural population. This in turn has helped in forging strong relationships with supply chain partners and in capacity building of these partners for overcoming their own limitations and maximising value.
Customer/ Consumer Space
Waste Management	Risks Average per capita waste generation of India is lower than that of OECD countries or even other Asian countries. However, the Indian industry is facing increasing pressure on packaging waste, which highlights the need for more effective solid waste management. Inadequate solid waste management systems result in a large amount of wastes being generated today to end up in landfills. Heaps of unattended waste, foraged by cattle and rag-pickers alike, have become a common sight both in urban and rural areas of the country Public Concerns on inadequate solid waste management across rural and urban India can initiate regulatory attention on product packaging. Opportunities ITC's deep rooted stakeholder centric approach and understanding of interdependence of social and environmental aspects have enabled ITC to be a pioneer in identifying sustainability issues beyond the horizon and taking necessary actions. This is reflected in the fact that fibre for the Kovai Unit of Paperboards and Speciality Papers Business of ITC, is sourced from recycled waste. Given ITC's century old significant presence in the country and its close connect with the grass root level change makers, ITC has the opportunity to propagate waste segregation at source at all levels of society and to facilitate effective collection mechanism whilst generating livelihood for rag-pickers.
Corporate Reputation	Risks Inadequate information or misrepresentation, especially in the media, can impact corporate reputation. Adverse coverage or feedback on ITC's brands and businesses can impact brand salience in the minds of the consumer/customer. Opportunities ITC's structured media engagement plan comprises an array of activities including press releases/statements, media interviews by top management, media coverage of important corporate and business milestones and regular presentations to senior media editors. In addition, presentations are also made to key stakeholders backed by publications on various issues. These provide an opportunity to the senior management team to effectively engage with stakeholders on issues relating to ITC's products, services, initiatives and business practices. During the year, perception surveys have led to ITC being ranked as the `Most Admired Indian Company' by Fortune India magazine. The latest Neilsen Corporate Image Monitor also lists ITC among the top 3 companies in India in terms of reputation.
Social Media	Risks The explosion of Social Media, namely web applications like Facebook, Instagram and Twitter, which allow individuals to form virtual communities of common interest and link up with people across the globe to share news, views, visuals and videos, is posing a new challenge to organisations. Being unregulated, social media allows the instant dissemination of information globally without any mechanism to verify or authenticate the flow of information. This creates the possibility of spreading misinformation that can impact consumer behaviour as well as corporate reputation. Opportunities ITC has created its own presence in social media leveraging publicly available web applications as well as creating dedicated branded web applications to disseminate information about the organisation and its brands in the digital space. ITC's corporate Twitter handle, @itccorpcom provides an opportunity to engage in the social media space. In addition, ITC has created customised apps for mobile phones to provide superior and transparent access to information to its stakeholders. ITC's Facebook page, Hub and Scope has created a community to also engage with potential employees. Several ITC brands like Bingo!, Yippee!, Wills Lifestyle and Engage have a social media presence to constantly interact with their respective target audiences.

Materiality Analysis

ITC's Materiality matrix enabled the design of the content of this Report so as to provide a reasonable and balanced picture of the organisation's Triple Bottom Line impacts and its performance. ITC's materiality analysis is based upon the following three pronged approach.

Materiality Matrix

	Procurement from Local Suppliers Employee Engagement	Economic Performance Local Community Development Statutory Compliance Sustainable Livelihoods Employee/Customer Health and Safety Sustainable Forest Management Employment Product Packaging
	Anti-corruption Human Rights Transportation Public Policy Advocacy Product Labelling Customer Privacy	Sustainable Supply Chain Learning and Development Natural Resources Usage Efficiency Marketing Communication Climate Change

Economic

Environmental

Social

Environmental & Social

Disclosure on Material Aspects

Sl. No.	Material Aspects	Details Available in Sections
1	Economic Performance	Economic Performance
2	Sustainable Livelihoods	Economic Performance Social Investments - Mission Sunehra Kal
3	Procurement from Local Suppliers	Economic Performance
4	Climate Change	Energy Air Emissions
5	Natural Resources Usage Efficiency	Energy Water Management Recycling and Waste Management Raw Materials
6	Product Packaging	Product Responsibility Recycling and Waste Management
7	Transportation	Energy Air Emissions
8	Sustainable Forest Management	Raw Materials Biodiversity
9	Sustainable Supply Chain	Supply Chain
10	Statutory Compliance	Product Responsibility
11	Employment	Labour Practices & Decent Work and Human Rights
12	Learning and Development	Labour Practices & Decent Work and Human Rights
13	Employee Engagement	Labour Practices & Decent Work and Human Rights
14	Human Rights	Labour Practices & Decent Work and Human Rights
15	Local Community Development	Economic Performance Social Investments - Mission Sunehra Kal
16	Social Infrastructure	Economic Performance Social Investments - Mission Sunehra Kal
17	Anti-corruption	Governance Structure
18	Public Policy Advocacy	Responsible Advocacy
19	Employee/ Customer Health and Safety	Occupational Health and Safety Product Responsibility
20	Product Labelling	Product Responsibility
21	Marketing Communication	Product Responsibility
22	Customer Privacy	Product Responsibility

Stakeholder Engagement, Risks & Opportunities & Materiality Analysis