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

Global water requirements are projected to exceed available sustainable water supplies by 40% within 2030¹. The issue of water crisis plagues large parts of the world including Africa, parts of North America and Asia. According to a 2030 Water Resources Group Report¹, in India, the aggregate gap between demand and supply of water is expected to be 50% of the demand in 2030. Also, the report projects that increasing population and rise in demand for food/feed crops will lead to agricultural demand doubling in comparison with 2005.

It is important to note that in India agriculture which is largely rain-fed, accounts for around three quarters of all water (surface and sub-surface) when accounted for at the local watershed level. With around ²55% of net sown area meeting its water requirements from rainwater alone, the agri-sector is specially vulnerable to climate change, which may lead to considerable adverse impacts on agricultural yields. Agriculture being the primary contributor of water consumption, focused efforts must be made towards efficient irrigation practices and bringing down the overall water demand for this sector. On the supply side, India's water resources remain constrained due to inefficient use of water, over exploitation of ground water reserves without adequate recharge and variations in surface water availability because of erratic rainfall patterns.

ITC has sought to engage actively with multiple agencies to share experiences and also improve understanding of the complex social and technical issues related to water. ITC has actively supported the development of the India Water Tool as a working group member, an activity coordinated by the World Business Council for Sustainable Development (WBCSD). This tool permits a first level analysis of water risks across the country maps water risk for individual locations to prioritize site-specific water-management improvements, an issue that is becoming increasingly real in the Indian context. ITC has been actively engaged with the Alliance for Water Stewardship in the development of the International Water Stewardship Standard, which lays out the framework for sustainable water management and what it takes to achieve water stewardship. Based on this understanding, ITC had partnered with International Water Management Institute (IWMI) to carry out a water security study at the watershed level for its Paperboards and Specialty Papers Business Unit at Bhadrachalam. The recommendations of the report are now being implemented in the watershed area towards ensuring improved water security for all stakeholders.

Learnings from these experiences and its extensive work on integrated watershed development, ITC has evolved a long term strategy for water security at the local watershed level for all stakeholders and is in the process of doing the same for its operating units located at identified high water stress areas.

¹ Charting our Water Future, Report by 2030 Water Resources Group, 2009
² Prioritization of rainfed areas in India, Planning Commission Report

Water Withdrawal

In 2015-16, ITC Units withdrew 33.8 million kilolitres (kl) of water, a decrease of 2% over the previous year (34.48 million kl in 2014-15) despite an increase in production for most businesses. This performance is primarily attributable to the on-going initiatives undertaken towards water conservation across ITC Units.

Of the 33.8 million kl of total water withdrawn, 77.8 % of water resources were sourced from rivers, 19.8% from ground water sources and only 2.4% from municipal and other water sources.

During the year, focused efforts by all Units to reduce intake by conducting water audits, benchmarking and adopting leading practices facilitated the reduction of specific water intake as illustrated in the following sections.

In order to maintain its performance, ITC Businesses have set voluntary specific water intake reduction targets at the Unit/ Business level.

Considering the fact that three Units of Paperboards and Specialty Papers Business together accounted for around 89% of total water intake of ITC , greater efforts have been focused on the performance of the Units (as given in the following section) under this Business.

Paperboards Unit at Bhadrachalam

India's largest integrated paper and paperboards mill accounted for 75% of the total fresh water intake in ITC. In 2015-16, the Bhadrachalam Unit's freshwater intake was 41.4kl per tonne of product, a reduction of 2.8% over the previous year's 42.6 kl/tonne, primarily due to various water conservation initiatives undertaken by the Unit, which include increased recycling of effluent in process areas. The persistent efforts of the Unit towards water conservation are evident in the consistently decreasing trend of specific water intake as depicted below. However, specific water intake target for 2015-16 could not be achieved due to higher water consumption in Paper Machine (#7) and less backwater utilization in the Pulp Mill during specific product category runs.

Specialty Papers Unit at Tribeni

ITC's Unit at Tribeni manufactures specialty paper, which is a water intensive process. The Unit has achieved around 23.6 % reduction of specific water intake during the reporting period over the previous year primarily due to process improvements, increased use of recycled treated effluent for boiler make-up, cleaning, etc. The specific water intake target for 2015-16 could not be achieved due to delay in execution of some water conservation proposals like installation of second set of tertiary filtration for increased usage of treated effluent, which would deliver the water saving benefits in the coming year.

Paperboards Unit at Kovai

Water conservation measures including the arrest of losses in intake pipeline undertaken by the Unit led to the reduction in specific water intake from 11.6kl/tonne in 2014-15 to 11.19 kl/tonne in 2015-16. The specific water intake target for 2015-16 could not be achieved due to unforeseen machine stabilization issues between September to November, 2015.

Effluent Discharge

All ITC Units covered in the boundary of this report met the regulatory requirements of discharge quality and quantity in 2015-16. The two Paperboards and Specialty Papers Units at Bhadrachalam and Tribeni accounted for 98.9% of total treated wastewater discharged outside Unit premises in ITC, out of which 72.5% was utilised for irrigation purpose. Therefore specific focus has been accorded to the performance of these 2 Units in terms of treated effluent discharge volume as well as quality.

Bhadrachalam Unit has been reaping the benefits of initiatives undertaken towards recycling of treated effluent as is evident from the continually decreasing trend of specific treated effluent discharged. For Tribeni Unit, the specific treated effluent discharged has decreased from 66.7 kl/tonne in 2014-15 to 64.6 kl/tonne in 2015-16.

Since 2010-11, the wastepaper-based pulp and paper mill at Kovai has not discharged any treated effluent outside its premises.

The quality of the treated effluent from Paperboards and Specialty Papers Units was far better than the stipulated standards in India:

In addition, the quality of the treated effluent from Bhadrachalam Unit was comparable with European standards:

The level of adsorbable organic halides (AOX) generated during the bleaching process is another critical parameter applicable only to ITC's Bhadrachalam Unit. These compounds are formed as a result of reaction between residual lignin from wood fibres and chlorine compounds used for bleaching. Depicted below is the specific AOX level for Bhadrachalam unit for the year 2015-16 showing that the level is well below the norm stipulated by Ministry of Environment, Forest and Climate Change (MoEFCC) as well as national and international benchmarks.

ITC is committed to achieving zero effluent discharge through treating and recycling of all wastewater. Along with this, harvesting of rainwater within its properties not only reduces water intake but also maximises groundwater recharge and reduces run-off. In 2015-16, the following Units achieved the goal of zero effluent discharge outside the premises.

Cigarette Factories at Bengaluru, Munger, Saharanpur & Pune, Leaf Processing Units at Anaparti, Chirala & Mysore, Packaging & Printing Unit at Tiruvottiyur and Munger, Snacks and Noodles Unit at Malur and Pune, Dairy Unit at Munger, Life Sciences & Technology Centre at Bengaluru, Research Centre at Rajahmundry, Paperboards and Specialty Papers Business Units at Kovai and Bollaram, Personal Care Products Business Unit at Manpura, Lifestyle Retailing Business Headquarters at Manesar, Hotels - ITC Maratha and ITC Grand Central in Mumbai, ITC Rajputana at Jaipur, ITC Grand Bharat, ITC Green Centre at Gurgaon and ITC Mughal in Agra.

Water Security in Catchment Areas

With the intent of progressing towards water stewardship, ITC had carried out a pilot water security study at Bhadrachalam in order to develop a comprehensive understanding of issues involved. The study included basin level water accounting & budgeting within a defined catchment boundary, detailed hydrogeological mapping covering the use of ground water as well as surface water resources, aquifer recharge, Mureru river health restoration programme to address basin level risks, etc. Based on the recommendations of the study, a detailed long term plan has been drawn up to help achieve water security for all stakeholders in the catchment and appropriate interventions at watershed level are being implemented through the Social Investment Programme of ITC. The study report is proposed to be shared with government agencies for participative implementation of recommendations with key stakeholders.

ITC has also initiated work on water security studies for two other river basins (Ghod river, Maharashtra and Bhavani river, Tamil Nadu) towards sustainable water stewardship. The objective is to create an ecosystem with all stakeholders being aware of the competing demands and future risks of available resources. The basin level security plan would involve development of framework in coordination with various stakeholders to mitigate identified risks.

With the Bhadrachalam experience, similar studies have been completed at ITC's two other Units located in water stressed areas to help achieve water security for all stakeholders in the catchment area. The recommended interventions include augmenting rainwater harvesting systems in the catchment areas by measures like rejuvenation of traditional cascading tanks and village ponds, mapping of appropriate recharge areas for the local aquifers, community-level initiatives to promote sustainable irrigation practices to reduce water use, move to less-water intensive crops without impacting the economic benefits, etc. Phase-wise Implementation of these interventions has been planned in the subsequent years.

Going forward with learning from these detailed studies, ITC intends to make water security assessment an integral part of greenfield/brownfield project design and development.

Impacts in the Value Chain

In line with the Board approved Policies on Life cycle Sustainability and Responsible Sourcing, in 2014-15, ITC had initiated the process of accounting for water intake of supply chain members. In 2015-16, the total water intake for ATC Limited (an associate Company), and two exclusive third party manufacturers for the Cigarettes Business, together was 28,801 kl. ITC has completed 6 LCA studies till date and intends to undertake more of them for evaluating opportunities for improvement in the value chains of its products and services.

Enlarging Water Positive Footprint

The Company's continued interventions in rainwater harvesting both in the Company premises and socially relevant watershed areas have enlarged our water positive footprint. Details on these interventions are available in the "Social Investments - Mission Sunehra Kal" section of this Report.

As on March 31, 2016, ITC's Integrated Watershed Development Projects, covering 2,59,050 hectares of land, support the Water Positive status of the Company for the 14th year in a row. Due to focussed efforts on reducing net water consumption through various water conservation initiatives across the businesses and increasing the total rainwater harvesting potential created within the Units and through watershed development initiatives, the rainwater harvesting potential created is now over three times of the net water consumption by its manufacturing operations.

The total rainwater harvesting potential created by the Company so far is over three times the net water consumption by ITC's manufacturing operations.

For the watershed structures outside ITC Units, the 'RWH potential' figures from 2008-09 account for silt deposits - the adjustments are based on actual sample measurement & the extent of silt deposit depends on the age & location of a structure.

While continuing its integrated watershed management programme, ITC will be guided by the principles of water stewardship to ensure water security for all stakeholders across all our operating Units.