ITC Limited Report and Accounts 2016

ITC is driven by its inspiration to be an exemplary Indian enterprise serving larger national priorities. Spanning all the three sectors of the economy - agriculture, manufacturing and services - ITC's businesses make a unique contribution to the economy. The Company's relentless efforts to pursue extreme competitiveness, make societal value creation the core of its business strategy, invest in game-changing R&D and science-led innovation as well as state-of-the-art infrastructure will contribute to making the future even more sustainable and profitable.

At ITC, the credo of Country before Corporation defines the Company's nation-orientation, and its aspiration to contribute to a future of rapid progress and prosperity.

ITC is inspired by the clarion call to Make in India, given the enormous promise it holds to transform the Indian economy. Make in India can ensure a significantly higher order value capture in the Indian economy, fuelling jobs, maximising revenue and enabling sustainable development.

Over the past two decades, ITC has built a robust portfolio of businesses spanning FMCG, Paperboards & Packaging, Agri Business, Hotels and Information Technology, leveraging synergies from the Company's enterprise strengths. These encompass deep consumer insight, cutting-edge Research & Development, strong rural linkages, superior agri-sourcing, world-class manufacturing, brand-building skills, culinary expertise, innovative consumer packaging, digital technology and an effective trade marketing, distribution and logistics network.

Today, ITC has an impressive presence in all the three sectors of the economy, namely, agriculture, industry and services, providing unique sources of competitive advantage by harnessing the diversity resident in different businesses. All this has enlarged the Company's capacity to contribute to national priorities and create sustainable livelihoods on a much larger scale.

It is mission critical today to create world-class Indian brands through ownership of intellectual property. It is only then that a virtuous cycle of innovation and investment will create new opportunities for growth and lead to the generation of higher order sustainable livelihoods.

Creation of a new generation of world-class brands demands tremendous staying power with substantial investment commitments over the long haul.

ITC has tirelessly endeavoured to build world-class Indian brands. In a relatively short span of time, a vibrant architecture of popular brands has been crafted organically. Some of them are already clear market leaders in their segments. In aggregate, these new consumer brands currently represent an annualised consumer spend of over Rs. 12,000 crores.

Such world-class Indian brands help create, capture and retain larger value for the Indian economy. In addition to spurring investments and growth, such brands can become a force multiplier for inclusive and sustainable development. By serving as market anchors, these brands can lend relative stability to drive the competitiveness of the entire value chain of which they are a part. This in turn can further empower the weakest in the economic value chain and generate considerable sustainable livelihood opportunities so critical for our country.

ITC's vision to contribute to a sustainable, secure and inclusive future has brought about transformational change, particularly in areas of its engagement in rural India. Apart from ITC's e-Choupal that has helped raise farm productivity and incomes, the Company's social investment programmes have created large-scale sustainable livelihoods along with environmental replenishment that promotes climate change resilience.

These widely acknowledged initiatives include Afforestation, Watershed Development, Livestock Development, Women Empowerment, Primary Education, Vocational Training and Health & Sanitation.

ITC is investing in India's future by building world-class assets that will contribute to the country's competitive capacity. This ambitious investment plan, underpinning ITC's support to the Make in India vision, envisages an outlay of Rs. 25,000 crores in 65 projects across the country.

These include state-of-the-art Integrated Consumer Goods Manufacturing and Logistics facilities, luxury hotels, R&D facilities, office and residential complexes that are being set up across regions, contributing to balanced economic development. These investments will not only add substantially to ITC's competitive ability but also spur livelihood creation along the entire value chain.

At ITC, creating intellectual capital is being driven by a nearly 350-strong diverse pool of highly qualified world-class scientists at the state-of-the-art Life Sciences & Technology Centre in Bengaluru.

In a short period of time, ITC has filed more than 480 patent applications. The distinction does not lie as much in the number of patents filed, as in the fact that the intellectual property resident in these filings belongs also to the country of origin, that is India.

The Directors present the Business Responsibility Report of the Company for the financial year ended on 31st March, 2016, pursuant to Regulation 34 (2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Company also publishes annually, a comprehensive Sustainability Report, based on the Global Reporting Initiative (GRI) guidelines.

The details on the aspects discussed in this Report are available in the Company's Sustainability Report. The Company's Board approved Sustainability Policies, ITC Code of Conduct and the Sustainability Report are available on the Company's Website - www.itcportal.com.

ITC's sustainability initiatives are inspired by the opportunity to serve larger national priorities through a Triple Bottom Line contribution to the economy. It is the Company's deep conviction that businesses possess the transformative capacity to create far larger societal value by leveraging their entrepreneurial vitality, creativity and innovative capacity. This Vision is manifest in the unique models fashioned by the Company to enable the creation of large scale sustainable livelihoods and the augmentation of natural resources.

This Triple Bottom Line commitment of the Company to simultaneously build economic, social and environmental capital has spurred innovation to orchestrate a symphony of efforts that address some of the most challenging societal issues including widespread poverty and environmental degradation. These concerted efforts of the Company over several years have led to the creation of sustainable livelihoods for around 6 million people, many of whom represent the most disadvantaged in society.

While the Company's pioneering work in empowering rural India is a global exemplar, it has also spearheaded several initiatives to achieve new benchmarks in environmental excellence. Recognising that climate change is a threat that particularly makes rural communities extremely vulnerable, the Company has adopted a low-carbon growth strategy. This encompasses large-scale afforestation, increasing use of renewable energy and a continuous quest to maximise natural resource efficiencies across all its operations.

ITC is the only company of comparable dimensions in the world to be carbon positive for 11 years, water positive for 14 years and solid waste recycling positive for 9 years. Its environmental stewardship is also reflected in all its luxury hotels being Leadership in Energy and

Environmental Design (LEED®) Platinum Certified and the increasing share of renewable energy usage in the Company's total energy consumption, which presently stands at 47.3%.

Business Responsibility Policies and Guidelines

The Company has aligned its policies and guidelines with the principles enunciated under the Business Responsibility Reporting framework on social, environmental and economic responsibilities of business. The context of the BR principles is embodied in the Sustainability Policies and Code of Conduct adopted by the Company, implementation of which is ensured through well-established systems and processes across all its businesses.

Reporting on Sustainability Initiatives

For the past 12 years, the Company has published Sustainability Reports encapsulating its performance across the three dimensions of the Triple Bottom Line. ITC Sustainability Report 2015 meeting the latest G4 guidelines of the GRI, 'In Accordance - Comprehensive' category was also third party assured at the highest criteria of 'reasonable assurance' as per the International Standard on Assurance Engagements (ISAE) 3000. The 13th Sustainability Report covering the sustainability performance for the financial year ended on 31st March 2016 and prepared in accordance with the GRI G4 Guidelines, will be available shortly. In addition, the Report and Accounts 2016 of the Company provides a review of the Company's Triple Bottom Line performance.

A Board approved policy provides the framework for ITC's corporate governance philosophy, which is anchored on the values of trusteeship, transparency, ethical corporate citizenship, empowerment, control and accountability. ITC believes that since large corporations employ societal and environmental resources, governance processes must ensure that they are utilised in a manner that meets stakeholders' aspirations and societal expectations. ITC embeds sustainability principles in its business strategies, and coupled with corporate governance processes, seeks to ensure superior Triple Bottom Line performance.

The practice of Corporate Governance in ITC takes place at three interlinked levels:

The three-tier governance structure ensures that:

• Strategic supervision (on behalf of the shareholders), being free from involvement in the task of strategic management of the Company, can be conducted by the Board of Directors with objectivity, thereby sharpening accountability of management;
• Strategic management of the Company, uncluttered by the day-to-day tasks of executive management, remains focused and energised; and
• Executive management of a Division or SBU, free from collective strategic responsibilities for ITC as a whole, focuses on enhancing the quality, efficiency and effectiveness of the business.

ITC's governance framework enjoins the highest standards of ethical and responsible conduct of business to create value for stakeholders.

For more details on ITC's governance structure, please refer to the section, 'Report on Corporate Governance', in the Report and Accounts.

Strategic Supervision of Business Responsibility Practices

The role of the CSR and Sustainability Committee is, inter alia, to review, monitor and provide strategic direction to the Company's CSR and sustainability practices towards fulfilling its Triple Bottom Line objectives. The Committee seeks to guide the Company in integrating its social and environmental objectives with its business strategies and assists in crafting unique models to support the creation of sustainable livelihoods. The Committee formulates and monitors the CSR Policy and recommends to the Board the annual CSR Plan of the Company in terms of the Companies Act, 2013.

The CSR and Sustainability Committee presently comprises the Chairman of the Company and five Non-Executive Directors, two of whom are Independent Directors. The Chairman of the Company is the Chairman of the Committee. The names of the members of this Committee and the number of meetings held during the year are provided in the Report and Accounts.

The Sustainability Compliance Review Committee (SCRC) constituted by the Corporate Management Committee presently comprises one member of the Corporate Management Committee (as Chairman) and six senior members of management. The role of the Committee, inter alia, includes monitoring and evaluating compliance with the Sustainability Policies of the Company and placing a quarterly report thereon for review by the Corporate Management Committee.

During the year, three meetings of the SCRC were held to review the implementation of Sustainability Policies and the progress towards sustainability targets.

The Company's strategic intent to create enduring value by investing in new engines of growth is powered by its strong and competitive capabilities in R&D, innovation & technology and an array of institutional strengths including deep consumer insights, brand building capability, trade marketing and distribution infrastructure, focus on quality and world-class manufacturing practices, strong rural linkages and outstanding human resources.

The Company endeavours to embed the principles of sustainability, as far as practicable, into the various stages of product or service life-cycle, including procurement of raw material/service, manufacturing of product or delivery of service, transportation of raw materials and finished goods, and disposal by consumers. Policies on 'Life-cycle Sustainability' and 'Responsible Sourcing' detail the Company's approach in this respect.

A climate of creativity and innovation coupled with a culture of care and concern enables 25,564 employees - including 2,244 female employees - of the Company to enhance value creation for all its stakeholders and address the challenges of tomorrow with conviction and confidence. The superior capability of the Company's talent pool is premised on a work culture that nurtures quality talent and promotes a conducive work environment that combines the need to focus on performance and results with a caring and compassionate work ethos. Policies on 'Diversity and Equal Opportunity', 'Freedom of Association' and 'Environment, Health and Safety', among others, guide the management approach on specific elements of the Company's work practices.

The Policy on Stakeholder Engagement provides the approach for identifying and engaging with stakeholders that include shareholders, customers, employees, farmers, suppliers, communities, civil society, media and the government.

The Company believes that an effective stakeholder engagement process is necessary for achieving its sustainability goal of inclusive growth. Accordingly, it anchors its stakeholder engagement on the following principles:

The Company has put in place systems and procedures to identify, prioritise and address the needs and concerns of its stakeholders across businesses and units in a continuous, consistent and systematic manner. It has implemented mechanisms to facilitate effective dialogues with all stakeholders across businesses, identify material concerns and their resolution in an equitable and transparent manner. These measures have helped the Company develop strong relationships, which have withstood the test of time.

The Company's collaborative partnerships with communities are manifest in its programmes such as watershed development, social forestry, animal husbandry services and women empowerment. These initiatives augment the natural resource base of the nation and create sustainable rural livelihoods.

The Company has Policies on Human Rights applicable to its employees and its value chains. The Policies and their implementation are directed towards adherence to applicable laws and to uphold the spirit of human rights, as enshrined in existing international standards such as the Universal Declaration and the Fundamental Human Rights Conventions of the International Labour Organisation (ILO). During the year, the Company introduced systems to ensure sound implementation of ITC's Sustainability Policies specifically with respect to the Human Rights and a decent work place.

The Company has in place a Code of Conduct for vendors and service providers which have been signed-off by identified Vendors/Service Providers across Businesses, and a Grievance Redressal Procedure to address concerns, if any, pertaining to Human Rights and decent labour practices for its employees.

A system for employees to read and sign-off the Sustainability Policies including Policies on Human Rights and ITC's Code of Conduct was rolled out across Divisions. During the year, 8,587 employees across the Company have been covered, amounting to 94% of the managerial workforce.

The Company is a global exemplar in environmental sustainability and takes pride in being carbon positive, water positive and solid waste recycling positive for many years. The Company has contributed to environmental stewardship by not only ensuring efficient use of resources but also by augmenting precious natural resources.

The Policies on 'Life-cycle Sustainability', 'Environment, Health and Safety' and 'Responsible Sourcing' provide the necessary direction towards climate change mitigation and adaptation efforts as well as natural resource replenishment initiatives. Such efforts include implementation of a low carbon growth strategy across its businesses, integrated soil and water conservation programmes and the creation of large-scale sustainable livelihoods amongst the marginalised sections of society.

The Company has sought to align with the NAPCC (National Action Plan on Climate Change) of the Government of India to respond to the challenges emerging from the threat of climate change. Some of the measures implemented include continual improvement in specific energy consumption (energy consumed per unit of product or service), enhanced use of renewable energy and expansion of forestry projects to improve the Company's positive carbon footprint.

The Company has also computed its Greenhouse Gas inventory in line with the ISO 14064 standard, which has been assured at the highest 'Reasonable Level' as per the ISAE 3410 standard, by a third-party assurance provider.

The Policy on Responsible Advocacy provides the framework for the necessary interface with Government/Regulatory Authorities on matters concerning the various sectors in which the Company operates. The Company works with apex industry institutions that are engaged in policy advocacy, like the Confederation of Indian Industry, Federation of Indian Chambers of Commerce and Industry, Associated Chambers of Commerce and Industry of India and various other forums including regional Chambers of Commerce. The Company's engagement with the relevant authorities is guided by the values of commitment, integrity, transparency and the need to balance interests of diverse stakeholders.

The Company, for its social development projects, organises meetings with the local administration and state governments to seek their participation and involvement. Their expert advice and counsel are also sought and approvals obtained, where required, for the planned interventions. The Company also engages in public-private-partnerships (PPP) with the state governments for such projects.

In social sector, the two most important stakeholders of ITC are:

• Rural communities with whom the Company's agri-businesses have forged long and enduring partnerships through crop development and procurement activities.
• Communities residing in close proximity to our production units, situated in urban and semi-rural locations.

The stakeholder communities face the challenge of securing sustainable livelihoods, which is addressed through the Company's two-pronged approach: Horizon 1: Making today's dominant source(s) of livelihoods sustainable; and Horizon 2: Creating capabilities for wealth generation and employment for tomorrow.

The two horizon strategy has necessitated an integrated approach to development involving several interventions which are summarised below. All programmes are implemented through a mix of national and grass-root level Programme Implementation Agencies (PIAs).

Horizon 1 - Making Today's Livelihood Sustainable

• Social Forestry: This Programme is designed to provide food, fuel and fodder security through plantations. During 2015-16, the programme greened over 20,138 hectares, taking the cumulative total to 87,674 hectares. Out of this, the area under Agro Forestry during the year was 10,655 hectares, taking the total area under agro forestry to 24,566 hectares.
• Watershed Development: This Programme facilitates community-based participation in planning and executing watershed projects. During 2015-16, 58,864 hectares was brought under soil and moisture conservation along with the construction of 1,534 water-harvesting structures, which contributed to the creation of rainwater harvesting potential of 3.57 million cubic metres. The cumulative area under soil and moisture conservation now stand at 2,59,050 hectares while the total number of structures constructed to date number 7,998.
• Animal Husbandry: 238 Cattle development centres were functional during the year for rendering animal husbandry services spread in 7 states. 2.29 lakhs Artificial Inseminations (AI) were conducted during the year leading to live births of 91,850 hybrid progenies. The cumulative total of AIs conducted since inception is 17.91 lakhs while progenies born to date number 5.70 lakhs.
• Improved Agricultural Practices: The Programme provides a range of agricultural extension services to farmers to enhance farm productivity. During 2015-16,764 Farmer Field Schools (FFS) were functional in disseminating know how on advanced agri-practices to nearly 17,000 farmers for different crops and 228 Agri-Business Centres rendered extension services.
• Women's Economic Empowerment: This initiative provided a range of gainful employment opportunities to poor women supported with financial assistance by way of loans and grants. During 2015-16, 14,000 poor households, including 10,200 ultra-poor women, in the core catchments had access to sustainable sources of income through non-farm livelihood options, taking the total number of women beneficiaries to date to over 50,000.

Horizon 2- Creating Future Capabilities

• Education: The Education Programme provides children from weaker sections access to education with the focus on quality and retention. During the year, the programme covered 45,823 children while 164 government primary schools were provided infrastructure support. This takes the total number of children covered under the programme to date to 4.60 lakhs while a cumulative total of primary schools supported stands at 1,322.
• Vocational Training: This Programme builds skills of youth to enable them to compete in the job market. 11,872 youth were enrolled for training under different courses during the year of which 36% were female and 41% belonged to the SC/ST communities. The total number of youth covered to date under the programme is 31,367.
• Sanitation: To achieve the objective of zero open defecation, 7,175 Individual Household Toilets were constructed during the year - 5,231 through direct Company contribution and the balance through convergence with government schemes. This takes the total number of toilets constructed to date to 15,429. In addition to construction, an equal focus was given to awareness campaigns to create demand and drive behaviour change.
• Solid Waste Management (SWM):

  The Company has also been collaborating with local municipal agencies to work on sustainable management of community waste. The Programme's aim is to promote a clean and green environment and provide a sustainable source of livelihood for rag pickers and waste collectors.

  The Well-being out of Waste (WOW) movement today extends to 400 municipal wards of Hyderabad, Chennai, Bengaluru, Coimbatore and some towns of Telangana covering over 5 million citizens. The Programme creates a sustainable livelihood for 10,000 rag pickers and waste collectors by propagating source segregation at each of the households. Similar programmes are operational in 9 districts of Saharanpur, Hooghly, Kolkata, Munger, Guntur, Madurai, Pune, Thiruvallur and Haridwar also.

  The primary focus is on the door-to-door collection of household waste and segregation at the site in order to re-cycle so as to minimise the load at municipal landfills.

As an organisation which upholds and makes significant efforts to ensure good governance, the Company complies with all relevant laws of the land. The Company's uncompromising commitment to providing world-class products and services to customers is supported by its concern for the safety of its customers/consumers. The Company's overall approach on this vital aspect is guided by its Policy on 'Product Responsibility'.

The IT services industry is at a historic inflection point - with traditional IT services and products model getting disrupted. Innovative technologies, new buyers of technology and newer ways of deploying them are beginning to have an impact on the way the industry operates. This disruption has unearthed massive growth opportunities and created a level playing field for nimble technology innovators.

In this context, ITC Infotech has embarked on a transformational journey to become a Specialized, Global scale, Full service provider, led by Business and Technology consulting, and creating enduring value for its stakeholders through excellence across:

As part of the transformation efforts, ITC Infotech, during the year, has aligned the organization to identified Go-to-market (GTM) industry verticals and Lines of Business (LoB) that can be offered to these target verticals. During the year, Testing as a Service (TaaS) and Supply Chain Management (SCM) were seeded as new LoBs. In addition, the company has also instituted an “Innoruption” lab to focus on R&D and innovation in areas like Digital Supply Chain, Mobility, Internet of Things (IoT), Cognitive Automation and to build an ecosystem of startups.

The company's strategy is beginning to deliver results. During the year, the company saw good traction for its ADM, Infrastructure, Customer experience and Product engineering services and solutions. Strong wins were seen in the digital space among existing clients and new clients.

During the year, ITC Infotech won the “2015 European Outsourcing Awards” in the category: “Value creation in Outsourcing” for its engagement with a leading UK based health retailer. The company was also featured as a “Major Contender” in the Everest Group IT Outsourcing in Banking - Service Provider Landscape with PEAK Matrix™ Assessment 2015 and continued to be featured in the Leader's Category for the 2016 Global Outsourcing 100 by the International Association of Outsourcing Professionals. The company's MD and CEO, Ms. Sushma Rajagopalan was elected as the Chairperson of the IT Services Council of NASSCOM.

In 2015, the company launched 'iTech', an annual technology conference platform to foster innovation. As part of the iTech 2015, ITC Infotech organised a two-day IoT hackathon at its campus in Bengaluru. The event saw over 850 registrations, out of which 30 teams were shortlisted to participate. ITC Infotech will increasingly engage with technology innovators by providing mentorship, partnerships, solution development support, market access and joint go-to-market.

ITC Infotech remains committed to creating a truly diverse workforce, and has adopted a 'source locally, deploy globally' strategy. One such initiative is ITC Infotech's Graduate Program in South Africa, which is designed to enable the company offer “Impact sourcing”– a service delivery model that employs high potential but previously disadvantaged individuals.

A unique programme has been initiated to enable employees to be effective Brand Ambassadors for the company. This program is designed to empower InfoTitans with knowledge about the company, it's growth strategy and it's differentiators, so as to create a shared strategic vision. With most elements of the company's strategy already beginning to show green shoots, ITC Infotech is poised to differentiate itself and see strong traction in a dynamic market that is undergoing rapid consolidation.

The CII-ITC Centre of Excellence for Sustainable Development, established by ITC in collaboration with the Confederation of Indian Industry (CII) in 2006, continues its endeavours to promote sustainable business practices among Indian enterprises. The centre is steered by its Advisory Council, headed by Mr Y C Deveshwar, Chairman, ITC Limited, and comprises members from industry, civil society and academia. The Council provides strategic direction to the organisation.

The Centre celebrated its tenth year with its annual Sustainability Summit in September 2015. Expertsand participants from across the country deliberatedon a wide range of sustainability topics at the two-day summit. The year also marked a decade of the CII-ITC Sustainability Awards, instituted to reward and recognise outstanding contributions made by corporates in the field of sustainability. Over the past 10 years, the Awards have set benchmarks of excellence in sustainable business in India. Mr Suresh Prabhu, Union Minister for Railways, gave away the CII-ITC Sustainability Awards to 26 winners across various categories in 2015.

On the International Day for Biological Diversity on May 22, the India Business & Biodiversity Initiative (IBBI), launched by the Centre in 2014, released the publication, 'Bridging Business and Biodiversity:Innovative Approaches'. The publication, released in association with the Union Ministry of Environment, Forest and Climate Change (MoEFCC), highlights the concept of natural capital and its relation to biodiversity and ecosystem services.

During the year, the Centre also launched the Annual CSR Tracker, based on an analysis of CSR disclosures of companies. The tracker analysed 1,181 BSE-listed companies with respect to the amount of funds spent, CSR activities, geographical areas targeted and committees & policies instituted. The centre also launched the Siemens Integrity Initiative (SII), a project aimed at creating awareness on responsible business practices.

The Centre continued to work with the MoEFCC on various legislations and policies concerning business and environment. It provided inputs for the draft “Guidelines on private sector participation for afforestation on degraded forests land”, “Use of Multi-layered packaging under Draft Plastic Waste Management Rules 2015”, and the draft Environment Laws Amendment Bill 2015.

The Centre participated in the 21st session of the Conference of Parties (CoP) to the United Nations Framework Convention on Climate Change held in Paris in the winter of 2015. The climate negotiations was of great significance since a legally binding agreement, which will become operational in 2020, was to be finalised at the event. As India prepared for COP21, the Centre engaged with the MOEFCC on drafting India's Intended National Determined Contributions (INDC). It mobilised inputs from key industry segments, ensuring that industry was fully aligned with the Government on the implementation of the INDCs.

The ITC Sangeet Research Academy (ITC SRA), which was established in 1977, continues to be a true embodiment of ITC's sustained commitment to a priceless national heritage. The Company's pledge towards ensuring enduring excellence in Classical Music education has helped ITC SRA adhere to the age-old 'Guru-Shishya Parampara'. The Academy has eminent musicians imparting quality Hindustani classical music to its scholars. Its list of Gurus includes living legends like Padma Vibhushan Vidushi Girija Devi, Padma Bhushan Buddhadev Dasgupta, Padma Shri Ulhas Kashalkar and Padma Shri Ajoy Chakrabarty. The focus of the Academy is on nurturing exceptionally gifted students, carefully hand-picked across India, who receive full scholarships to reside and pursue music education in the Academy's campus. This has provided opportunities to young talent to train under the tutelage of the country's most distinguished stalwarts and has helped create the next generation of musical masters.