Executive Summary The dynamic global environment challenges companies to reassess balance between business and social priorities A sustainability strategy.

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Presentation transcript:

Sustainability Strategy 2020 The Tata Group’s Vision for a Sustainable Future

Executive Summary The dynamic global environment challenges companies to reassess balance between business and social priorities A sustainability strategy creates an opportunity to generate and capture economic value A strategic approach strengthens social impact and maximizes return on social investments through: Targeted interventions Innovation Thought leadership Public policy Effective implementation enables Tata to achieve its strategy, by making changes to: Structure Culture Measurement Communication The value generation potential is 2-3 % of net value Sustainability is an opportunity to generate and capture economic value by addressing stakeholders’ social and environmental needs and expectations The Tata Group is well positioned, but needs to be more strategic in its approach in order to capture the value generated A sustainability strategy focused on targeted interventions, innovation to address stakeholders needs, thought leadership, and shaping of public policy, will enable The Tata Group to maximize the return of its social investments To implement this strategy, The Tata Group needs to introduce changes in structure, culture, measurement, and communications This approach carries potential for value generation of 2-3% of the net value of the group, an attractive opportunity The ultimate impact of this strategy is that it will enable The Tata Group to continue being a visionary conglomerate, leading the economic and social transformation of the markets it operates in the long term 2

Targeted Interventions A concerted sustainability strategy gives Tata a competitive advantage by generating social impact FOCUS Targeted Interventions Innovation Public Policy Thought Leadership Create an opportunity for shared value Leverage unique capabilities Enable a measurable ROI Yield magnified returns with small investments Create opportunities in uncontested markets Reinforce Tata culture Increase social impact and return Influence the debate and minimize tensions Improve ability to conduct business ` Set the standard and raise the bar Compel followers Reinforce brand with strengthened reputation 3

An effective implementation is necessary to achieve sustainability goals Coordination and integration Engrain sustainability mindset in the organization Appoint a Chief Sustainability Officer Form a permanent Sustainability Task Force Cultivate stakeholder relationships Exploit common initiatives Empower and align employees to new vision Incentivize and reward sustainability efforts Foster long-term talent recruitment and development Structure Culture Improve social impact measurement Publicize Tata’s sustainability leadership Measurement Communication Quantify social impact and translated to financial value creation Understand financial and non-financial costs of initiatives Prioritize and align strategies Create brand equity and goodwill Motivate employees and community Enhance investor relationships Communicate quantifiable impact 4

Tata can implement its sustainability plan to achieve its 10-year vision Create Sustainability Task Force 1 Define & Convey Strategic Sustainability Vision 2 Set strategic priorities 3 Define metrics for evaluating impact 4 Identify partners to create greatest impact 5 Adjust investments based on impact 6 Demonstrate financial and social impact 7 Month 1 Month 2 Month 3 Month 4-6 Month 7 Quarterly Annually Appoint sustainability leader who sits on corporate executive board, establish sustainability task force Define annual social, economic & environmental initiatives in each region; Consider opportunities for shaping political agenda Develop relationships with relevant NGOs, industry associations, businesses, and lobbyists Announce quick wins that align with new strategy Strategy group becomes responsible for innovation Distribute report annually to shareholders and employees, beginning in Year Five Demonstrates global commitment to sustainability Reinforces message that sustainability is key component of the business Able to assess strategic investments with greatest impact on ongoing basis Instills standardized measurement and reporting to define social impact Allows group to make strategic investments regionally Builds relationships in the community while delivering impact Signals value to shareholders and stockholders Devise ways to measure and quantify impact and to translate this impact into financial return Reinforce linkage between sustainability initiatives, employee value and innovation 5

Identify Sustainability Determine Relevance for Tata The valuation framework incorporates analytical tools to surmount the traditional challenges faced in valuing sustainability Valuation Challenges How does sustainability translate into value for a company? To what extent do these value generating opportunities apply? What should be a reasonable impact target for Tata Group? Phase 1: Identify Sustainability Impact Levers Phase 2: Determine Relevance for Tata Phase 3: Quantify and Validate Impact Estimation Valuation Framework 1 Stakeholder Mapping Business Model Relevance Grid 4 “Sanity Check” 7 3 Theoretical Potential Impact 6 Impact Potential for Tata Group 8 Impact Estimation Elements of Value 2 Geography Focus 5 6

The Theoretical Potential Impact Matrix summarizes how sustainability initiatives affect stakeholders and move the levers of a company’s value Theoretical Potential Impact Matrix High impact Low impact Value Lever Customers / Community Employees Value Chain Regulators / Watchdogs Investors and Risk Assessors Future Generations Brand (growth) Better understanding of customer needs Ambassadors for growth – motivation for innovation Communication on market opportunities Access to markets Socially conscious capital Expanding customer base in the future Margins Higher willingness to pay Reduced absenteeism and turnover Reduced conflict, ease of negotiations Reduced compliance costs Lower reporting costs Lower cost of acquisition Cost of Debt Lower volatility of revenues because of brand loyalty Better use of cash flows Cash flow optimization in the value chain Lower threat of expropriation Reduced volatility of cash flows Stability of growth in the long term Cost of Equity Lower impact of market swings = lower beta Reduced risks of employee conflict Faster reaction to market swings –beta swings Reduction of country risk and favorable regulation Tension because of perception of sub-optimal investing Reduced risk of environmental crisis Program Cost Constant and costly engagement Highest priority engagement Marginal increased engagement High level interaction Reporting interaction High cost, low level of market feedback Source: Team Analysis 7

The consolidated estimated impact for the Tata Group is $3.6 Billion Impact Per Value Lever1 Net Impact on Tata Group Value1 US$ Millions US$ Billions Note (1): Based on detailed value estimation for 4 largest companies and extrapolation for other 92 companies based on revenues Source: Tata Case; Tata Group Companies Reports, Team Analysis 8

Sustainability is a key component to Tata’s success “A visionary company doesn't simply balance between idealism and profitability: it seeks to be highly idealistic and highly profitable.” -Jim Collins, Built to Last: Successful Habits of Visionary Companies 9

APPENDIX 10

The Integrated Sustainability Plan & Implementation is a detailed approach to value creation and capture Measurement: Standardize reporting framework to measure impact of ROI Harness stakeholder insights to identify opportunities Adjust and refine initiatives Structure: Be sustainability leader Create sustainability taskforce to foster integrated approach towards sustainability initiatives Exploit common initiatives between company holdings Culture: Engrain mindset of sustainability in leadership Incentivize leaders & employees Attract top talent with core values Recruit & train future leadership class Communication: Disseminate brand Address stockholders – ROI& EVA Promote stakeholder dialogue to get feedback on current initiatives Context: Post financial crisis environment Increasing social & environmental awareness Growing Consumer base in emerging economies Public demands corporate responsibility Vision: To be recognized as the undeniable global leader in corporate sustainability by reinforcing core business operations while creating and capturing value for its shareholders Corporate Strategy: Conglomerate strategy Market leader & expand into global markets Acquisitions in key sectors Strong social impact Companies represent the Tata brand Sustainability Strategy Goals: Address stakeholder demands in each market Generate new demand in uncontested market space Translate stakeholder value into shareholder value Collaborate with & leverage company innovations Invest in human capital for long term change Advocate core values in global business practice Expand philanthropic efforts in markets where impact is greatest Strategic Focus: Revolutionize industry by raising corporate citizenship standards Prioritize key social & economic investments to augment innovation Foster innovation in business Shape public policy 11

FOCUS: Tata must target interventions to maximize social impact and capture maximum value Community Schools Technology College Social Value Created Economic Value Captured Social Value Created Economic Value Captured Creates an opportunity for shared value; strengthens Tata’s competitiveness while adding social value Impact can be isolated and measured Value is difficult to capture- High social impact, but does not directly increase Tata’s competitiveness Impact is difficult to measure and translate into financial returns 12

Tata Must Innovate to find opportunities for maximum impact Minimum Contribution to Tata’s Net Income Maximum Social Impact Social Value Created Economic Value Captured Impact Measurement Publicity Value of Swach 1,620,000 search results Assume access to the Swach can save lives at rate of 1% 16,360 lives saved Assume access to the Swach can reduce absenteeism at rate of 1% 4,430,000 school days saved Assume access to the Swach can reduce estimated economic losses due to health spending, loss of productivity and labor diversions costs by 1% $ 284,000,000 saved 13

Phase 3: The impact per company is derived by conservatively affecting the value levers to the extent that a sustainability strategy is relevant Example: Tata Consulting Estimated Impact Lever Impact Range (Change from original value) Current Value (Estimated using Tata Financials) New Value Impact on Valuation % Increase in Valuation Brand (short and long term growth rates) +1%-1.5% 36.5% years 1-5 3.0% years 6 + 37.0% years 1-5 629 MM 1.8% Margins (Cash flow generation) +0%-0.5% 1,065 MM 1,087 MM 154 MM 0.4% Cost of Debt -0%-0.5% 4.7% 0 MM 0.0% Cost of Equity +0.5%-0% 13.0% -0 MM -0.2% Program Cost (Capex + Opex) +30%-50% 11 MM 15 MM -36 MM -0.1% Source: Tata Case; Tata Group Companies Reports, Team Analysis 14

Phase 2: Tata Group’s ability to capture the potential for value generation depends on industry & geography focus for each company Potential for Value Generation per Company - Tata Group’s Largest Market Cap. Companies - Higher Potential + Breadth of Relevant Stakeholder Groups - - + Geographic Expansion Source: Tata Group Companies Annual Reports; Team Analysis

Vi = Σ Ct (1+gs) / (1+ki)t + Cx(1+gl)/((k-gl)(1+ki)(t+1)) Elements of Value n Vc= Σ Vi i = 1 x Vi = Σ Ct (1+gs) / (1+ki)t + Cx(1+gl)/((k-gl)(1+ki)(t+1)) t = 1 Short Term Component Long Term Component Where: Vc = Value of the conglomerate Vi = Value of one of the organization t = Period x = End year of short term period affected by short term growth rate Ct = Operating after tax cash flow of the company in year t Cx = Operating after tax cash flow of the company in year x gs = Short term growth rate of the cash flows gl = Long term growth rate of the cash flows ki = Cost of capital for organization i 16

Tata Group’s ability to capture the potential for value generation depends on industry & geography focus for each company Business Model Relevance Grid Geography Focus Company Customers / Community Employees Value Chain Regulators / Watchdogs Investors and Risk Assessors Future Generations Tata Consulting ✓ x Tata Steel Tata Motor Tata Power Local Revenue International Revenue Untapped Value 8% 92% High 17% 83% 45% 55% Medium 90% 10% Low 17