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Waste to wealth: ITC's success story
Surajeet Das Gupta in New Delhi
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February 11, 2006

Anyone who has stayed at the swanky, 16-acre spread of the ITC Sonar Bangla in Kolkata will tell you that the energy requirements of the luxury hotel must be staggeringly high.

Even so, when it opened on introductory tariffs and low occupancies, only to be served up a whopping electricity bill of Rs 7 crore (Rs 70 million) in the first year, the management knew it would have to look for alternative solutions.

Immediately, consultants were hired on the simple mandate: reduce energy consumption. But that would have meant changing and revamping ducting and fittings while guests were staying at the hotel.

Instead, the pumps were retrofitted; the electric heaters were replaced by solar heaters; power-guzzling boilers were removed and condensed steam used to generate hot water; and variable frequency valves were used in the fans (needed for the air-conditioning), so that speeds could be adjusted, thereby eliminating energy wastage.

The result has been amazing. The company's electricity bill has dropped by 20 per cent (while occupancies have gone up by three-fourths). But it's not the reduction of the electricity bill alone that has put the smile back on the face of the management team. By reducing its energy consumption, the hotel has also brought down its carbon dioxide emission levels.

Is that a big deal? Apparently, yes. And that's because you can trade carbon emission reduction certificates in the marketplace just as you sell shares. Which is why ITC is now in the process of getting certification for a reduction of 3,000 tonnes of carbon dioxide emission - certificates it will use for carbon trading.

And if that sounds like so much futuristic gobbledygook, explains Subhash Rustagi, executive vice-president, corporate EHS: "Under the Kyoto protocol, corporates and countries that have not met their emission targets can take credit for our  carbon emission reduction by buying these certificates at a price." It's a win-win situation: other corporates, even the countries, are not penalised for their failure (though they have to pay to buy the certificates), and ITC ends up making money that, says Rustagi, "we can reinvest in our environnment programmes".

At a going rate of Euro 14 (Rs 740) for each certificate of one tonne of carbon dioxide reduction, the hotel could earn Euro 40,000 (Rs 21 lakh) a year from just this one hotel. ITC expects that in the next two years, it should be able to certify about 1 million tonnes of carbon for trading. At prevailing trading rates, that would fetch it Rs 70 crore (Rs 700 million) - substantial enough, especially when ploughed back as further investment into its environment schemes.

It might not sound glamorous enough to make headlines, nor might it set the stock markets on fire just yet, but ITC (tobacco, hotels, paper, food) has charted out a quiet but ambitious move to become the only corporation on earth to achieve triple green rating - it is already water positive, and is now moving to become both carbon positive and have zero solid waste.

And the deadline to achieve this is 2007. The investment in green is inexorably linked with the lives of ITC's consumers - typically, all of us who are confronted with high pollutants, water shortages, and dirty rivers overflowing with factory waste.

For decades, this has been our story. Now, with corporations making a conscious effort to become green, it's interesting to study how that paradigm can be useful for the bottomline, can reinforce the brand, and also ensure the sustainability of raw material.

Says Y C Deveshwar, chairman of ITC Ltd [Get Quote], "As a company that continuously strives to be 'Citizen First', this commitment finds expression in the company's sustainable development philosophy, which recognises the need to not only preserve but also enrich precious environmental resources, while providing a safe and healthy workplace for its employees.''

All this costs money, and ITC is pouring in substantial investment to go green, though it won't give out a consolidated figure of the spend. Nor is it quantifying those returns on its environmental investments yet. Last year, the company forked out Rs 56 crore on community development schemes, a large chunk of which went into green projects.

The company is estimated to have spent around Rs 15 crore (rs 150 million) to create or restore water reservoirs across the country. Effluent treatment plants to reuse factory waste water in the paperboard and pulp units cost Rs 10 crore (Rs 100 million); and ITC's crack team estimates that every Rs 1 crore (Rs 10 million) investment on energy conservation can be recovered in a three to five year period. But if its carbon trading succeeds, this period could be far less.

Recognition for its efforts are reflected in a report by the Centre for Science and Environment, which does a green rating for the paper and pulp industry. From a ranking of number eight just five years ago, it moved up to and continues to occupy the number one position since 2004.

So what has ITC done to achieve these laurels? Take solid waste, for instance. Company executives churn out some impressive numbers: the group generated over 28 lakh tonnes of solid waste last year - but were able to recycle 81 per cent of that waste. By March this year, it will hit 95 per cent and, of course, by 2007 it will be a zero solid waste company.

A zero solid waste company? Executives have been burning midnight oil to come up with innovative solutions. In hotels, for instance, the challenge lies in food disposal from the kitchen. And how does one deal with all the old linen and towels that pile up in the store?

The findings are innovative - tying up with piggeries to utilise any food that is fit for animal consumption, and converting the rest into compost to be used as manure. The linen and towels are given away to orphanges. Leftover ghee and oil in the kitchens is transported to a soap factory to be used as raw material.

The challenges were the biggest for ITC's Bhadrachalam paperboard plant, which generates the maximum solid waste. The fly ash generated from the boilers in the mill is used to make bricks - ITC has already set up three brick making plants within 100 km of the plant. And to demonstrate that the fly ash bricks are as durable as their more conventional counterparts, they have been used by the company to build its own staff colony.

That, explains Rustagi, is the key challenge - to get people to use waste as raw material rather than dumping it in water or in the ground. So the lime generated as waste in the paper plant is sold to cement units, and any waste paper is converted into pulp, for reuse.

But going carbon positive is a much more complicated task. ITC is adopting a two-pronged strategy of simultaneously conserving energy and opting for massive afforestration to achieve it.

The roll-out seems impressive: Rustagi says that it has already undertaken plantations in 29,000 hectares of land, and hopes to hit 43,000 hectares by the end of March, which should ensure its carbon positive status. (The more ambitious plan, of course, is to cover 1 lakh hectares of land under afforestation, most of it near its paperboard plant in Andhra Pradesh.)

Behind these numbers is a massive human programme in which ITC has roped in over 30,000 farmers, offering them an alternative livelihood. The company offers saplings at  Rs 6-8 each to plant on their land. And it supports the farmers by offering advice on how to grow the trees, how much fertiliser they should put in, and when to reap to get the best returns. More importantly, it guarantees that it will buy back the wood after four years at the prevailing market price.

Currently, a farmer with a hectare of tree plantation could earn  Rs 43,000 annually from selling the wood. It is also encouraging farmers to undertake intercropping. Or, simply put, to grow other crops side by side with the trees. So, for instance, some have grown chillies. The company, again, guarantees that it will buy the crop.

But company executives are grappling with some serious challenges. For one, many of the farmers have short-term cash needs (for example, a marriage in the family) and sell their trees to contractors even before they have grown to optimum size. ITC is looking at either roping in banks or going ahead on its own to provide loans to such farmers to tide over such problems.

And two, despite the support they give the farmers, they are under no contractual obligation to sell the wood to the company. Laments Rustagi: "We don't have any contract with the farmers, so while we do a lot of the work, other contractors and other competing paper mills come in and buy their wood by paying a few rupees more and take advantage of our efforts."

Even so, the afforestation programme makes sound business sense. It ensures ITC a regular supply of quality wood, the key raw material for making paper - at least 80 per cent of the wood from the trees planted by these farmers is bought by the company.

And company executives say that with 50,000 hectares under plantation, it is more than enough to meet most of the needs of the paperboard plant. ITC might even be willing to pay a higher price to farmers who are near the paper mill since it saves them expensive transportation costs.

Impressive as all this sounds, there are still cynics who question ITC's green credentials, essentially on three counts. First, they question the company's claim that its paper mill has reached global levels of energy efficiency.

Says Chandra Bhushan, associate director, industry and environment, Centre for Science and Environment (CSE), "The energy consumption of global paper companies of a similar kind per tonne of paper is virtually half of that in ITC." But he concedes that its consumption "is much lower than the average Indian paper mill (by around 25 per cent)".

ITC, in its defence, points out that benchmarking numbers is based on PriceWaterhouse Cooper's international benchmarking, and that Indian paper units should not be compared with international plants because of technological differences.    

Second, decry cynics, is ITC's claim of becoming water efficient. CSE contends that the per tonne usage of water in the paper plant is at least 30-40 per cent higher than the global average, though it is also true that it is much lower than most other competing paper mills in India.

Third (and the most serious attack) is on its claim of becoming carbon positive. CSE says that ITC has overstated the credit on the carbon it claims to have reduced through the afforestation programe on account of the wrong methodology.

As the trees are cut in four-five year cycles, the carbon retained is again sent into the atmosphere either by burning of the wood or through paper waste.

Says CSE boss Sunita Narain: "We appreciate that ITC has a vision on environment and could be a role model for other companies, but there is no reason for them to misrepresent facts to show that they are carbon positive, or that they have attained global standards in energy consumption."

ITC insists it has followed international guidelines, and taken a year to year calculation while crediting carbon, and admits there are other ways to do it too. But then, rather than carry out its afforestation programme, ITC could have imported its pulp. If anything, the criticism has sharpened its need to stay water positive.

In all its hotels, high-tech water treatment plants (that cost Rs 40 lakh each) ensure that the water used in the rooms, the kitchen and by the laundry department is recycled back for use in the hotel gardens, in the cooling towers for the A-Cs, and even for flushing toilets.

In what is virtually uncharted territory in India, even the muted criticism sounds loud. While there may be a point in what the critics say (though in the whole, they're agreed that ITC's on to a good thing), a company that's going out on all limbs to ensure that it is giving back to the environment what it takes from it, can only be held up in extremely high esteem.

For some years now the message has been clear: investing to become green is not just good for society but, increasingly, a business imperative in a new world. ITC at least has put its words where its mouth is.

The global green index

Carbon positive? Zero solid waste? Water positive? If you're confused, here's our guide for dummies on what makes ITC such a winner:

Zero solid waste: A company that achieves this is either able to utilise its entire waste as raw material for some other industry, or recycle it for use again in the factory.

Water positive: This implies that an organisation generates more fresh water through various water harvesting methods than it consumes in its factories.

Carbon positive: Implies a company, through afforestation programmes and efficient use of energy, eliminates more carbon dioxide from the atmosphere than the sum of the carbon emitted by the company through areas like the generation of electricity, running AC plants and so on.

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