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About a decade ago, ITC almost closed down its paperboard division after running into a big hurdle that prevented it from scaling up. The problem was with the raw material, wood, which accounts for almost 45% of the paper's cost. Laws prevented corporates such as ITC from buying plantations, and, of course, there was the issue about cutting trees.

Cut to the present. The paper division is very much around and worth well over Rs 2,800 crore today. What's more, ITC does not anticipate any scaling-up problems in the foreseeable future.

Ten years ago, the predominantly tobacco group's agri business was also floundering. What has happened in the decade that followed is, coincidentally, proving to be the backbone of its climate-change strategy. What ITC did was shift from what is recognised these days as shareholder focus to stakeholder focus, according to Nazeeb Arif, V-P, Corporate Communications, ITC.

The wood problem was solved when ITC spent money and time developing saplings (125 varieties) that grow fast, and in wasteland. It then partnered with tribals owning private lease lands to grow the trees. Until then, the latter hadn't grown anything on those lands. Today, it is an income generator for them. Moreover, says Arif, the tribals can sell the wood to anyone and are not bound to sell it just to ITC. Plus, of course, there is the benefit of the green cover; about 100,000 hectares-10 times the size of Paris, says Arif, for effect-has been greened in this manner. And for every tree that is felled, "there are 8-10 standing trees," he asserts.

About 3,000 hectares of the afforestation project is registered under the United Nations Framework Convention on Climate Change, which means it will be eligible for carbon credits. Pradeep Dhobale, Chief Executive of the group's paperboard and speciality paper division, estimates that each farmer can earn up to Rs 7,500 per hectare as proceeds just from the credits. Going forward, the whole afforestation programme is potentially eligible for credits, he says.

But it's easier said than done. "The process of establishing that no forest existed in the plantation area as on December 1989 (a prerequisite) is very complex." ITC wants its future plantations in prequalified areas to make things easier.

It's largely due to this huge carbon sink (as trees absorb carbon dioxide) that ITC calls itself a carbon-positive group today. "We sequester (capture and store) twice the amount of the total emission from our plants and freight together," says Arif. "For us, climate change is part of a business model. Not just an emission issue." This model will stand the group in good stead even if some countries ban pulp production due to environmental concerns.

The company also prides itself on an environmentally friendly paper-making process. By not using chlorine in the bleaching process, it lowers water pollution. ITC says companies such as Nokia opt solely for ITC's paper because of the positive environmental play. But a Nokia here or another company there don't make for premium pricing of environmentally friendly paper. Demand needs to pick up for that to happen. And when that will happen is a million-dollar question.

As with paperboards, ITC is making sure sustainability-related risks, and therefore, climate change-related risks, are well addressed in its other businesses too. That's what led it to register eight clean development mechanism (CDM) projects. Or, make sure its upcoming Chennai hotel is entirely fed by wind energy. In fact, a whopping 30% of its energy needs come from renewable energy, a figure that will go up to 50% in the next two years.

Walk into the lobby of Bangalore's Royal Gardenia, a unit of ITC Hotels, and you would know how the nitty-gritties are being worked out. A vertical garden on the walls and a pool-sized water fountain greet you. You sense that something's missing. And then, it strikes you that the lobby doesn't have air-conditioning. It has been built to make maximum use of Bangalore's cool weather. The design takes advantage of the natural wind flow and allows natural light aplenty to flood in. ITC spent Rs 1 crore on the Royal Gardenia's lobby. Not much when you consider that the cost of air-conditioning alone would come to about Rs 25 lakh a year.

On to water now. As a matter of policy, ITC Hotels does not use virgin water at any of its construction sites. In fact, the division, as a whole, is water positive. "For every cup of water we consume, we produce three cups," says Niranjan Khatri, General Manager, WelcomEnviron Initiatives, ITC-Welcomgroup.

The Royal Gardenia, for instance, recycles grey water (from showers and wash basins) and uses them in gardens and decorative water bodies. Black water (recycled from water closets, kitchens and the laundry) is used in the cooling systems and AC towers. S Arunaachalam, the hotel's Chief Engineer, says it has more recycled water than it can use. The hotel plans to give the excess to other buildings in the vicinity. It is currently laying pipes to transfer surplus re-cycled water to the neighbouring Bangalore Club.

Water use is reduced even in things like thawing of chicken in the kitchen, through the use of coolers. In New Delhi, ITC Maurya uses a consolidated solar concave mirror to generate steam for the kitchen and laundry. The group is currently mapping the carbon footprint of every ITC hotel. Several hotel buildings are also going through the process of getting LEED (Leadership in Energy and Environmental Design) certification, a US standard for green buildings.

ITC is also assessing the physical risk of climate change, as it does with other natural disasters. It has a lot of installations in coastal areas, such as the green-leaf processing plant in Chirala, Andhra Pradesh, says Sanjib K Bezbaroa, Head, Corporate EHS (Environment, Health & Safety). "So we have carried out a risk-assessment exercise. We have quantified the kind of possible wind speeds, risk of inundation and drainage-related issues." Consequently, ITC has drawn up mechanisms to protect people and property in high-risk areas.

Again, as with paperboards, it's a question of when the consumer will reward the hotel division with premium pricing, if at all. "Would consumers prefer a green hotel? There's no investment timeline," says Arif. "Unless there's a push from the consumer, it's difficult for companies to invest in the long run." Right now, he adds, from a market point of view, shareholders don't treat companies differently. So, a lot of them get away. "We have done this because of the sustainability philosophy."

From a perceptional view point, the sustainability plank fits perfectly for ITC at a time when it's trying to move away from being a tobacco company to a consumer company. ITC wants to make sure this philosophy continues. Its business initiatives are based on plans that are triple bottom line-apart from economic value, they have to also evaluate the social and environmental impact of a project. "Sustainability and low carbon will be determinants of competitiveness in years to come. We believe that," says Arif. He draws hope from recent developments in a totally unrelated industry: "There's an energy-efficient AC market now, not imaginable five years back. So things can fall into place."

Ashish Sethia, Head of Research (India), Bloomberg New Energy Finance, says that it's not only about higher margins. "It's about getting more market share at the same price, that too in the face of increased competition." When it clicks, premium pricing might first work for more premium products, he adds. Like, for instance, luxury hotels. Having done the sustainability repositioning, it now awaits the rewards.