I have great pleasure in presenting ITC's Sustainability Report 2014.

With this edition, it is the 11th consecutive year of publishing an independently verified Sustainability Report. It is a matter of even greater satisfaction that this Report will be one of the first in India to be prepared in accordance with the new G4 guidelines of the Global Reporting Initiative (GRI), ahead of the transition deadline of 2015. The last ten years of conforming to the GRI guidelines at the highest levels of reporting has provided valuable insights in the pursuit of our journey to be an exemplar in sustainability practices.

I am also happy to once again reaffirm ITC's support to the principles of the United Nations Global Compact. It is indeed gratifying that the Company's social interventions are contributing meaningfully to the UN Millennium Development Goals.

ITC's sustainability journey has been challenging yet rewarding. Today it is indeed a matter of pride that the Company has been able to generate sustainable livelihood opportunities for around 6 million people. Relentless efforts to create benchmarks in environmental excellence have led the Company to achieve the unique global distinction of being Carbon Positive for 9 successive years, Water Positive for 12 consecutive years and Solid Waste Recycling Positive for the last 7 years.

These milestones reflect the tireless efforts in realising ITC's abiding Vision to put societal value creation at the heart of its business strategy. It is a reaffirmation of our belief that businesses must make sustainable and inclusive growth a cornerstone of its strategic framework. This conviction is premised on some stark realities confronting the world today. Tremendous advancements in science and technology as well as a growing consumer market have created unbounded business opportunities. However, it is an unassailable fact that the limits to future growth will emerge predominantly from the largely unaddressed societal challenges of widespread poverty and environmental degradation.

This realisation has inspired our Vision and commitment to sub-serve larger national priorities. A Vision that has also spurred innovation to build societal value by harnessing the transformational capacity, creativity and vitality of the organisation. It is ITC's resolve to shape a new dimension of corporate social action by simultaneously generating sustainable livelihoods and natural capital even as it pursues enduring wealth creation for its shareholders. This triple bottom line approach is at the foundation of the theme of this Report – "For All Our Tomorrows."

Global And National Challenges

This chosen path to contribute to a more secure future assumes larger significance in our current context. The global economy is struggling to raise itself from the morass it had sunk into in the aftermath of the financial crisis. Simultaneously, social challenges are assuming scales seldom witnessed before. Amongst the issues that are vying for urgent attention are the potentially catastrophic combination of growing unemployment, widening social inequities and the threat of climate change. The World Bank's World Development Report estimates that 620 million youth, a majority of them women, are neither working nor looking for work. A new term, NEET – Not in Education, Employment or Training – has tragically become a part of the contemporary lexicon. This mass of disillusioned youth facing an uncertain and hopeless future is a potential ground for social unrest and turmoil.

The dimensions of these challenges in India are even more daunting. Our pride in becoming the world's third largest economy in terms of Purchasing Power Parity (PPP) is over-shadowed by our distressingly low rank in the Human Development Index (HDI) at 134 among 187 countries. The demographic advantage of being one of the world's youngest countries can turn to become our largest concern, if gainful employment cannot be ensured to the 12 million that join the workforce every year. Therefore economic growth will have no meaning unless it creates sustainable livelihood opportunities in a country where an estimated 600 million live in multi-dimensional poverty.

Extreme weather swings triggered by climate change, devastating loss of biodiversity and life-giving ecological systems make the future more vulnerable especially for those mired in chronic poverty. The latest report by the Intergovernmental Panel on Climate Change (IPCC) has warned of an increased risk to security of food and drinking water due to the impact of global warming, drought, floods and erratic rainfall. India, Bangladesh and China, home to a large section of the world's population are said to be particularly at a higher risk. Therefore, growth strategies that nations and corporations employ must embrace a distinct effort to preserve and replenish precious environmental resources.

The enormity of these societal challenges cannot be mitigated by a solution set that just bolts on some sustainability components to an old economic model that has failed to deliver growth with equity. It is time that we engender a paradigm shift to redefine value by aligning all economic activity to a super-ordinate goal of creating larger societal value; strategies that go far beyond material wealth creation alone to also enrich environmental and social capital.

ITC's Sustainability Approach And Action

It is my firm belief that Businesses possess unique strengths to make a much larger contribution to society. If the creative and innovative capacities that businesses employ to create world-class products and brands are leveraged to deliver social initiatives that serve a larger national objective, it can have a transformative impact on society. Moreover, the physical presence in communities around their business operations gives them a much larger opportunity to directly engage in synergistic activities that can create livelihoods and add to preservation of natural capital. More than financial resources, private enterprises also possess the more crucial managerial capability to ensure efficient delivery of social projects.

ITC's abiding Vision to create larger societal value for the nation and its stakeholders has powered a multi-pronged strategy to address the larger challenges of widespread social inequities and environmental degradation. The key priorities of this strategic objective is to leverage its enterprise strengths to contribute to the creation of large scale sustainable livelihoods and environmental resources. Towards this, ITC has crafted unique and innovative interventions within the ambit of its operations as well as in partnership with stakeholder communities to deliver superior triple bottom line performance.

Nearly 700 million people living in rural India have a direct and symbiotic dependence on climate sensitive sectors (agriculture, forest, fisheries) and natural resources (water, bio-diversity, mangroves, coastal zones, grasslands) for their subsistence and livelihoods. Limited options of alternative off-farm employment combined with endemic poverty continue to imperil the livelihood security of millions of small and marginal farmers, mainly in the rain-fed agricultural regions.

Recognising the complexity and scale of these issues, ITC's Integrated Rural Development Programme has been crafted to empower farmers and raise rural incomes, while at the same time enabling a comprehensive development of the rural ecosystem. The celebrated ITC e-Choupal is a case in point. Farmers are provided with critical information and relevant knowledge on farm productivity, prices and markets through the ITC e-Choupal. Customised extension services directly contribute to enhancing farm yields. This platform also enables access to cost-effective quality inputs for better productivity besides expanding the reach to markets. To offset agri-income volatility as well as build capacities for investment, avenues for supplementary non-farm incomes have been created through the Choupal Livestock Development and the Choupal Women Empowerment programmes. The Choupal Watershed Development as well as Social & Farm Forestry Programmes augment natural resources to enable higher productivity, create a green cover and restore soil health. It is indeed heartening that the effectiveness of these programmes has also led to partnerships with several State Governments and the National Bank for Agriculture and Rural Development (NABARD) on such watershed development projects.

The innovative models designed to deliver these projects have enabled us to achieve significant scales of operation. The ITC e-Choupal has benefitted around 4 million farmers. The Social & Farm Forestry programme has greened over 1,60,000 hectares, generating over 70 million person days of employment. The Watershed development programme has enabled soil and moisture conservation of over 1,48,000 hectares benefiting over 1,27,000 households. The Women's Empowerment Programme has created sustainable livelihood opportunities for nearly 40,000 women, either through micro-enterprises, or assistance with loans to pursue income generating activities. The Livestock Development programme has provided animal husbandry services to over 10,00,000 animals, increasing milk yields substantially.

It is well known that one of the causes for social inequity is the inequity of opportunity, especially due to lack of proper education and training. To address this challenge, ITC has implemented focussed programmes on Primary Education, Skill Development and Vocational Training. The objective is to increase enrolments, minimise drop-outs, provide infrastructural support to Government schools as well as to expand vocational livelihood opportunities. Over 3,30,000 rural children have been benefitted, helping them to build a better future.

We believe that it is vital to significantly enhance the talent pool of youth from disadvantaged communities by equipping them with the necessary skills or qualifications and make them more employable in the formal sectors of the economy. The affirmative action initiatives of the Company have had a direct and tangible impact on the lives of nearly 84,000 beneficiaries belonging to disadvantaged sections of society, spread over 13 states of the country.

In addition to the large scale social interventions outlined above, ITC's sustainability objectives also encompass initiatives within the ambit of ITC's manufacturing and service operations. ITC continuously strives to improve processes and systems at all its Units to minimise its environmental impact as far as possible, create a work environment that is safe, healthy, productive and fair for its employees and proactively engage with its suppliers and partners to maximise value for all stakeholders. The Company's Units continue to achieve substantial improvements in the consumption of energy and water as well as in effluent management. Specific details are provided in other sections of the Report. Management systems and standards in ITC conform to relevant national and international standards and are integrated into its development programmes as applicable to its individual businesses. As part of its strategy for climate change mitigation and adaptation, ITC has also invested significantly in renewable energy generation. Today, 38 % of its energy consumption is from renewable sources, with a target to reach 50 % over the next 5 years.

ITC has also been a frontrunner in the establishment of green buildings in India. It is a matter of justifiable pride that all the premium luxury ITC Hotels are LEED® Platinum certified. The ITC Green Centre has been re-certified as the highest rated green building in the world. The latest addition to our hotel group – the ITC Grand Chola - a 600-key super-premium luxury hotel complex in Chennai, is the world's largest LEED® Platinum certified green hotel. This property has also secured a 5 Star GRIHA rating, the highest national rating for green buildings in India. The recently commissioned commercial building ITC Green Centre at Manesar has also received the LEED® Platinum certification. In addition it has been awarded the BEE 5 Star rating by the Bureau of Energy Efficiency, Government of India. The green building movement continues to gain momentum in ITC with several of its factories now being LEED® certified.

Based on ITC's stakeholder engagements during the year, the Sustainability and CSR Policies were revisited to enable prioritised consideration of the economic, environmental and social impacts that are important to the organisation as well as its stakeholders. These Board-approved policies form the bedrock of the Company's approach and strategies in this context.

An acknowledged leader in sustainability practices, the Company has partnered with the Confederation of Indian Industry (CII) in setting up a Centre of Excellence for Sustainable Development. This Centre is engaged in a wide spectrum of value-added and targeted initiatives that create awareness, provide thought leadership, build capacity amongst Indian enterprises and reward exemplary performances in the area of sustainability.

Being Future-Ready

Despite the tremendous strides made in ITC's sustainability journey, the road ahead is not without its challenges. We compete in a market where many have not adopted a broader canvas of contributing to larger societal goals, but are largely focussed in the narrow pursuit of financial competitiveness alone. Therefore, for companies like ITC that synergise superior financial performance together with the creation of large-scale ecological and social capital, it is a continuing challenge to mobilise a much higher level of resources and organisational creativity to ensure meaningful triple bottom line contribution. Unfortunately markets, as they are structured today, reward only financial performance and do not prize companies that create larger societal value. However, a paradigm change can take place if strong market drivers emerge to support corporates that innovate to deliver larger sustainable and inclusive value. This important change will take place when consumers, investors, and civil society make an enlightened choice in favour of products and services of responsible companies, thereby making societal value creation an important part of a company's value proposition. Preferential government policy and incentives in favour of such companies will lend even further support to companies that sub-serve larger national priorities.

ITC's commitment to creating enduring value is manifest in its Vision, Values and Vitality that have created a future-ready organisation with a growing contribution to creating large-scale societal value. This vision is inspired by the Company's credo of "Let's Put India First" as well as its values of Trusteeship, Transparency, Empowerment, Accountability and Ethical Corporate Citizenship, which are the cornerstones of ITC's Corporate Governance philosophy.

We recognise that the Company's capacity to create societal value will crucially depend on the continued robust growth of our businesses. ITC's aspiration to be a strong engine of growth for the Indian economy is manifest in its strategy to create multiple drivers of growth that will make a substantial and ever growing contribution to its stakeholders and the nation. By investing in the creation of world-class brands, supported by extensive R&D shaped at the ITC Life Sciences and Technology Centre and by leveraging all its enterprise strengths, the Company will continue to offer competitive and superior value propositions to its customers. ITC's world-class Indian brands will ensure that larger value is created, captured and retained in the country for national development and growth.

This Sustainability Report with its theme "For All Our Tomorrows" is once again a re-dedication of our pledge to create enduring value for our stakeholders. I hope our sincere efforts to shape a sustainable future will continue to foster a promising tomorrow for the generations to come.

Y C Deveshwar
Chairman, ITC Limited
May, 2014