• Continued Competitiveness

The Company’s cigarette business, the oldest in its business portfolio, is increasingly impacted by a high incidence of taxation and a discriminatory regulatory regime on the legal cigarette industry in India which have over the years led to a significant shift in tobacco consumption to lightly taxed or tax-evaded tobacco products like bidi, khaini, chewing tobacco, gutkha and illegal cigarettes.

ITC’s enterprise strengths such as deep consumer insight, cutting-edge Research & Development, strong rural linkages, superior agri-sourcing, world-class manufacturing, brand-building skills, culinary expertise, innovative consumer packaging, world-class human capital, digital technology and an effective trade marketing, distribution and logistics network and sustained investments in R&D, enable the Company to power its strategy of developing multiple drivers of growth through diverse businesses. These enterprise strengths have helped in creating new FMCG businesses, and fortified its traditional businesses. Competencies developed have also lent support to its information technology business.

• Sustainable Use of Natural Resources

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.

Challenges related to achievement of target on energy efficiency improvement, increased electricity consumption from non-fossil fuel based energy resources that may arise owing to sectoral GHG emission reduction targets set aligned with Government of India’s commitment under INDC to UNFCCC.

As part of its long term strategy for water security at localised watershed level for the operating units and other stakeholders, ITC has already conducted comprehensive studies at selected sites and work initiated to address the identified water-related risks. Going forward with the learning from these detailed studies, ITC intends to consider and incorporate the aspects of water security for its upcoming projects right from the design stage and operating units in water-stressed areas.

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.

ITC’s responsible water stewardship initiatives such as Integrated Watershed Development Programme will help towards meeting the water security needs of all stakeholders at the watershed level. ITC has also collaborated with external experts for development of appropriate interventions.

ITC has already adopted a low carbon growth path with goal set for 50% renewable energy share by 2020 as part of overall energy security strategy. While investments will continue to be made in renewable energy assets based on techno-commercial feasibility, focus is given on reducing the overall energy demand. This will not only reduce the carbon emissions but also help in cutting down the overall energy cost.

• Health and Safety

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.

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. For agri-products sourced under Agri-Business division, stringent process control and quality inspection norms have been established to ensure utmost product safety. Manufacturing locations for branded packaged foods, including third party manufacturing units, are Hazard Analysis and Critical Control Point (HACCP)/ISO 22000 certified, ensuring that products use the best quality ingredients and utilise the highest quality processes. In service sectors such as hospitality, these strengths have permitted ITC to leverage the market to its advantage.

The well-established e-Choupal network coupled with the “Choupal Pradarshan Khet” programme facilitate small and marginal farmers in access to customized knowledge on scientific farm practices, soil testing, balanced fertilization, foundation seeds and seed treatment, water, weed, pest and post-harvest crops management and supply of quality inputs like drought resistant seeds to improve farm competencies.

• Dynamics of Government Policies and Regulation

Regulatory framework such as the Forward Contracts (Regulation) Act and the Agricultural Produce Market Committee (APMC) Act were framed at a point of time in the past to curb excessive speculation in agri commodities and to allow farmers efficient access to the market without the exploitation of intermediaries. But such regulations today limit flexibility for farmers and deprive them of full value of their produce. In addition, regulations like the Essential Commodities Act (ECA), which impose stock limits and restrict movements from time to time, create uncertainty in business viability for organisations like ITC with significant dependence on agri raw material. This acts as a huge deterrent to long-term investments required to build infrastructure like climate-controlled storages and transport facilities to prevent wastage.

The Cigarette industry had to contend with a steep increase in Excise Duty for 4 years in succession along with discriminatory and punitive increases in Value Added Tax (VAT) rates by some States. Recently, the Government has issued notification increasing the size of graphic health warnings from 40% of the surface area on one side of the cigarette package to 85% of the surface area of both sides of the package. Such measures, including the tax increases and excessive regulatory regime provide a large arbitrage to tax-evaded and contraband suppliers. As a result, the share of legal cigarettes has reduced from 21% in the 80s to 11% today, while at the same time illegal and contraband cigarettes have proliferated exponentially, making India one of the largest markets for contraband products. These policies have led to a significant shift in tobacco consumption to lightly taxed or tax-evaded tobacco products like bidi, khaini, chewing tobacco, gutkha and illegal cigarettes, which presently constitute over 89% of total tobacco consumption in the country.

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.

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 and tax evaded cigarettes. Raising the awareness of policymakers 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 losses to the exchequer as a result of tax evaded cigarettes, and help in ensuring that livelihoods of farmers and others in the value chain are not lost.

• Human Capital and Well-being

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.

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.

• Sustainable Availability and Use of Natural Resources

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.

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 undertaken 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

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.

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

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.

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.

• Low productivity of rain-fed agricultural sector of India

ITC operates across the agri value chain of 19 crops and is present in 17 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.

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

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.

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.

• Post-consumer Waste Management

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

New regulations in this area are not only putting additional pressure on industry to work out alternate product packaging options but also demanding to develop adequate waste management system based on Extended Producer Responsibility.

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.

ITC has already initiated collaborating with government, municipal corporations, NGOs, communities and other stakeholders to tackle the issue of plastic packaging waste. ITC is devising a multi-pronged approach not only to ensure waste segregation at source and improve the reuse/ recycle rate by raising mass-level awareness and incentivizing informal sector to collect all types of plastic packaging, but also to enhance the economic value of plastic waste through engaging with regulatory authorities and industry institutions.

• Corporate Reputation

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.

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.

• Social Media

The explosion of Social Media channels 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 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.

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 for engagement with potential employees, Hub and Scope, is an example of the Social Media interaction. Several ITC brands like Bingo!, Yippee!, Wills Lifestyle and Engage have a social media presence to constantly interact with their respective target audiences.

• Customer Satisfaction

Customer feedback is one of the vital inputs for any organisation to modify or update the product/service in order to better address the requirements and sentiments of its customers. Growing options for customers, increased customer awareness on quality, health and safety, consumers’ expectation on continual innovation, aggressively low price offer from competition, are some of the key challenges encountered by businesses today in achievement and maintenance of high levels of customer satisfaction.

A regular customer feedback system forms an integral part of ITC’s Businesses where there is direct interface with customers. In the case of FMCG products, consumers are provided several communication channels like email, telephone number, website address and feedback forms to enable them to contact the relevant Business. Processes are laid down to ensure that consumers are provided with responses on their feedback in a timely manner. Customer feedback for B2B businesses like Agri Business and Packaging and Printing, is obtained through different activities e.g. pre-season engagement with customers (in case of Agri Business), client visits and engagement of the Divisional Management Committees with major customers. In the Information Technology Business, the Customer Service Satisfaction Survey is an annual check on the robustness of the engagement, culminating in a Customer Experience Index. For Hotels Business, WOW ratio – a Guest Satisfaction Index is continuously monitored and used for benchmarking and performance improvement.